Monday, March 30, 2009

I'll huff and I'll puff - empty threats from the taxman?

The press seem to be reporting ever more stories of how the taxman is going to crackdown, challenge or investigate this and that. The implication is that all who do such things are at risk of a heavy handed enquiry - and that what they are doing is wrong.

Here's an example from yesterday's Sunday Times:

HM Revenue & Customs (HMRC) is thought to have begun a fresh wave of investigations into so-called “image rights” payments by Premier League clubs to their playing staff.

Such arrangements, which are entirely legal and are commonplace, allow players to channel part of their pay into private companies set up for their benefit.

I've highlighted a key point. As in many such cases when you read carefully it becomes clear that the tax avoidance activity in question is 'entirely legal'. I drew an analogy between this approach to tax avoidance and the rule regarding MPs expenses on the blog last week (and indeed last year!)

It seems clear that the objective of these announced crackdowns can only be to catch out the amateurs - those who have copied the avoidance technique but without taking informed professional advice. As a result they have probably missed the subtle nuances that are required to achieve the desired tax outcome. And this means that the amateurs are at risk of getting 'caught' but that the experts continue to 'get away with it' - until the law is changed.

On the one hand this situation is great for tax advisers who are well placed to help 'amateurs' to secure the same tax benefits as the 'professionals'. On the other hand are the press reports simply scaremongering?

Recent and prospective cuts in staff numbers mean that HMRC do not have the resources to investigate many of the tax avoiders in question. And as long as the tax planning involved is legal the time and effort involved in such challenges could generate a better return if focused on chasing illegal evasion.

Would it not be a better use of time, effort and money if the law were changed to counter the tax avoidance in question? It may not be easy to achieve the desired outcome but it's not impossible either. Is it?

1 comment:

  1. Couldn't agree more. HMRC's tactic if they can't do anything about a legitmate means of mitigating taxation is to rely on their apparent authority in the layman's eyes and literally scare people into avoiding the use of these perfectly legitimate and quite legal asset and income restructuring exercises.
    We lose possible 50% of potential business ultimately as a result. No amount of evidence and even contact with reference accounts will convince people that in fact a lot of HMRC's effort is indeed nothing more than huff and puff.
    The perception is that regardless of proof of efficiacy and quoting statute that there is "something wrong" with the "scheme" or else everyone would be using it, or that it is "too good to be true" when in fact there is no difference in context as compared with standard accountants' practices using statutory reliefs to achieve less effective tax mitigation.
    The use of legitimate tax and wealth protection strategies has therefore become a "leap of faith" which is a shame.

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