As the beginning of the new tax year approached, HMRC was busy. To maximise recoveries to help to pay the national debt, its use of winding-up petitions has been increasing each quarter, resulting in a steady rise in the number of compulsory liquidations of companies. Many tax claims (called Regulation 80 determinations) were also issued before their potential expiry at the end of the tax year. And, to fulfil its announced intention to conclude as many tax avoidance matters relating to loan charges as possible before the end of March 2023, many more taxpayers who HMRC considers to be subject to the loan charge received decisions on what they owe.
We are seeing the results of all this activity: enquiries from liquidators, administrators, company directors and contractors are increasing. The range of expertise in our niche tax litigation team, our insolvency and corporate litigation lawyers and our specialist professional negligence solicitors allows us to offer a full range of solutions in the face of all HMRC tax demands and challenges.
What options does HMRC have to challenge tax avoidance?
Over the last few years the Government has introduced several new laws to assist HMRC in pursuing tax demands from a range of tax avoidance schemes that were widely promoted and used, particularly as alternatives to receiving remuneration.
- The loan charge was introduced by the Finance Act 2017 and applied to all loans received via a disguised remuneration scheme (DRS) since 9 December 2010 (and earlier in certain circumstances). It allows HMRC to enforce the obligation to pay tax against sums loaned (which, as a loan, would otherwise not be liable for tax).
- The Finance Act 2020 empowered HMRC to make directors personally liable for the tax debts of a company in liquidation.
- Since 2016 rules relating to the disclosure of tax avoidance schemes (DOTAS) have broadened, and the Finance Act 2021 allowed HMRC to demand information from promoters about their schemes.
- HMRC has been making use of the powers granted under Finance Act 2022 to publish information about tax avoidance schemes and their promoters.
What tax avoidance schemes are currently affected by HMRC?
HMRC regularly spotlights specific tax avoidance schemes and publishes detailed information about the promotors and how the schemes work. Many of these use employee benefit trusts (EBT) or umbrella companies to give loans to directors or employees in a variety of ways. We have assisted those affected by such schemes that were promoted by Clavis Solutions, OneE, Root2, Qubic, AML and others.
Root2 promoted the Alchemy scheme which involved receiving earns via spread betting. Gold Bullion schemes, introduced to company directors through Qubic Tax Advisors or Asset Hound Limited, purportedly paid employees in gold or some other asset that was subsequently encashed into an EBT structure. Clavis Solutions Limited promoted the use of a special purpose trust (SPT) tax avoidance scheme, which was partly implemented by a Jersey fiduciary company, Herald Trust Company Limited.
Other schemes currently being targeted by HMRC include:
- Disguised remuneration schemes involving annuities, particularly where users provide their services to end clients through Canopaye Limited
- Arrangements where part of a contract’s value is received through an option grant agreement promoted or supplied by Industria, Pure Invoicing Limited, PeakPAYE Limited, or Saxonside
- Equity participation schemes promoted or supplied by Purple Pay Limited
- Employment contracts that use Saxonside share growth agreement or that involve advance drawdowns from T2 Outsourcing
- Venturis planning, where steps were taken by participants in an effort to avoid the implications of the loan charge prior to 5 April 2019.
What are the consequences of being involved in a tax avoidance scheme?
Although some of these schemes are no longer available/ offered, the consequences of having entered them remain. Any company or individual who is or was involved in one of these schemes may still be investigated by HMRC, who may then choose to take various courses of action. For example, employers may receive a Regulation 80 determination, and individuals may be given a partial closure notice (PCN) or closure notice by HMRC setting out the amounts of tax that HMRC believes must be paid.
Who is responsible for paying HMRC?
The issue of greatest concern for those receiving these charges and demands is who should pay the sums due to HMRC, if at all? In most cases, the company is the taxpayer and therefore, the company is liable for all taxes due on an employee’s earnings. HMRC may force a company into compulsory liquidation if it cannot pay these amounts. Alternatively, HMRC can transfer liability for PAYE (and in some instances for NIC) to a beneficiary of a disguised remuneration scheme – often the directors of the company.
Company liquidators or administrators may also claim that a director breached his / her fiduciary duties to the company by allowing the company to participate in a disguised remuneration scheme and look to pursue the director for the tax charges on that basis. This may mean that directors of liquidated companies are subject to claims by both HMRC and the company liquidator. Both liquidators and directors from whom HMRC has demanded tax payments may in turn make a claim for professional negligence from the advisor who recommended the tax avoidance scheme to the employer or employee.
As we have expertise in all aspects of tax disputes, insolvency and corporate disputes and professional negligence, we are able to provide legal advice and support for all possible legal claims and actions arising from tax avoidance schemes.
How can working with a lawyer help with HMRC fees and navigating tax avoidance schemes?
We can help you in a number of different ways:
If you are a liquidator or administrator
- Settling claims with HMRC.
- Settling with HMRC after a Regulation 80 determination.
- Instituting action against former directors to recover tax/ NIC demanded by HMRC.
- Bringing a professional negligence claim against advisors of the company who introduced the scheme to them.
If you are director of a company
- Liaising with HMRC following requests for information.
- Advising on the status of tax planning schemes and options available to you.
- Settling with HMRC following legitimate demands or seeking time to pay.
- Bringing a professional negligence claim against advisors who introduced the scheme to you.
If you are a contractor or employee
- Settling alleged loan charge obligations.
Contact Us
If you need expert legal advice on any of these matters arising out of HMRC tax avoidance claims, please contact us here.
