Beyond the Loan Charge: Will the most recent proposals finally shut down disguised remuneration schemes?

24th April 2023 by Dr Pete Sproat

In 2016 Chancellor George Osborne declared the introduction of the loan charge would “shut down disguised remuneration schemes”.
Yet HMRC estimates 31,000 people used such schemes in 2020-21, resulting in a loss of £400m in tax.
The authorities have attempted to address the demand and supply of such schemes, using mainly administrative and civil penalties.
While tens of thousands face the loan charge, few enablers have faced hurtful sanctions.
Fewer than six financial penalties for enabling defeated tax avoidance schemes have been issued since 2017.
Fewer than five investigations into disguised remuneration tax avoidance schemes resulted in a criminal charge since 2017.
Recent proposals are unlikely to shut down the disguised remuneration schemes anytime soon.

In the recent Spring Budget the government proposed to consult on a new criminal offence for those who fail to comply with a legal notice from HMRC to stop promoting a tax avoidance scheme¹. This is welcome news, for the latest official estimates suggest that in 2020-2021, approximately 31,000 people were still using such schemes, and the UK lost £400m in tax as a result². A staggering 99% of the tax avoidance market³ involves disguised remuneration (DR) – contrived arrangements that use schemes which use loans, annuities, shares or other valuables to make allegedly non-taxable payments in lieu of wages. Hospital workers constitute the largest group who are involved in such schemes today⁴. Many do not know they are participants in such schemes – at least until later when HMRC demand the tax owed. Others are unaware of HMRC’s view these schemes do not work⁵.

However, in terms of penalties it has been the users, not those promoters and enablers of unsuccessful schemes, who have been the most heavily penalised, most notably in the form of the Loan Charge imposed upon 50,000-100,000 people⁶. Introduced in the Finance Act 2017, the controversial policy places an income tax charge on the value of outstanding ‘loans’ on 5th April 2019 held by people who used disguised remuneration schemes. As originally drafted, the charge applies to any ‘loan’ entered into since 1999. In the 2016 Spring Budget speech, then Chancellor of the Exchequer George Osborne declared the introduction of the loan charge would: “Shut down disguised remuneration schemes”⁷. It is clear that his prediction has yet to come true.

Action taken

Over the past two decades, the authorities have correctly attempted to address both sides of the tax avoidance problem. In terms of demand, legislative changes have required the earlier payment of tax in dispute, as well as the loan charge. HMRC has been gathering lots of information about the tax avoidance market and this has enabled it to try to nudge and prompt the public into compliance, using emails, blogs, webpages, dedicated agent services and a helpline⁸.

The collection of information has also facilitated HMRC’s attempts to deal with suppliers of schemes operating outside of the spirit of the laws on tax. Thus, tax advisers have been required to disclose details of their avoidance schemes promptly under the Disclosure of Tax Avoidance Schemes (DOTAS) regime since 2004. However, while this enabled HMRC to identify many potential problems more quickly, within a decade the government felt the need to introduce the Promoters of Tax Avoidance Schemes (POTAS). It empowered HMRC to impose conditions on the behaviour of: “a small number of promoters who operate in a culture of non-disclosure, non-co-operation and secrecy”⁹. It also enabled the issuing of notices to promoters to stop them from selling schemes that had been defeated.¹⁰ Since then, HMRC has been authorised to impose financial penalties upon any enablers involved in the managing, marketing, designing or financing of defeated, abusive tax arrangements that were entered into on or after 16 November 2017.

HMRC has introduced, or supported, new codes of behaviour including its own Standard for Agents (2016), and the tax and accountancy professions’ Professional Conduct in Relation to Taxation (2013), and it reports tax advisors to their professional bodies. In addition, it can suspend tax agents’ access to its systems, or refuse to deal with any who seriously abuse the tax system¹¹. HMRC frequently litigates civil action in tax tribunals, and occasionally it takes action against tax evaders and the promoters of tax avoidance schemes in criminal courts.

As a result of these changes and legal decisions, the nature and focus of disguised remuneration schemes have changed over the last decade or so. A HMRC policy paper states: “their creation and promotion have moved to the more disreputable and shadier end of the market”¹². These days, marketed avoidance schemes almost always involve employer businesses and “umbrella” companies engaging larger numbers of contractors or agency workers, operating arrangements which falsely claim to reduce Pay As You Earn and National Insurance Contributions. Umbrella companies can provide a legitimate business structure and services for contractors, but in some instances, they facilitate avoidance schemes.

Currently, HMRC estimate there are around 70 to 80 non-compliant umbrella companies in operation¹³. This is no improvement on its suggestion there were 60 to 80 of these operating¹⁴ in 2019-20. Similarly, each of its recent reports on the marketing of disguised remuneration schemes note about 20 to 30 promoter organisations: “are behind most of the tax avoidance schemes that are marketed to the UK public”¹⁵. The fact that as many new promoters and companies have entered the market in recent years as have left, suggests HMRC’s actions have failed to shut down disguised remuneration schemes. One result is the authorities have proposed or introduced, even more changes in the last few years.

Will the latest approaches defeat disguised remuneration schemes?

Recent ideas to reduce demand include; publishing a guide to help contractors engaged through umbrella companies, greater cooperation between HMRC and the Advertising Standards Authority (ASA), and listing promoters and enablers of tax avoidance schemes in the hope recipients of their advice will leave these schemes.

However, it is difficult to suggest these will have more than a marginal impact on the demand side. It is incredibly optimistic to expect most contractors to read official guides, or the newly employed to walk away if they find out they are paid in an unusual manner¹⁶.Similarly, even if the enablers are ‘named and shamed’ contemporaneously – presently it can take years to be listed, and names are removed from the list after 12 months – it is unrealistic to assume tens, if not hundreds of thousands of temporary workers will conduct regular checks on those who pay them A slight decrease in the number of deceptive adverts may mean some people do not fall for the schemes. The ‘naming and shaming’ list may also have a marginal impact on the supply side, in that some potential enablers may not risk the listing of reputation, or may fear being reported to their professional body as a result.

Interestingly, it was a listing on 18th August 2022 that triggered TaxWatch’s examination of Gateway Outsource Solutions and its complaint to the ICAEW about its director Paul George Ruocco¹⁷. However, while better contact with professional bodies may deter a few potential suppliers, these days promoters are almost never members of the professional bodies – as HMRC itself noted¹⁸. This then takes us on to consider other recent approaches to address the supply side.

To address the problems arising from the non-cooperation, delaying tactics by those promoting tax avoidance schemes and their dissipation of assets in order to avoid fines, the DOTAS and POTAS regime has been toughened to allow HMRC to obtain information from promoters earlier than in the past. The Finance Act 2022 authorised HMRC to apply for freezing orders when it has a good arguable case there may be a dissipation of assets to prevent the imposition of a tax penalty. It also enabled the organisation to petition a court to wind-up companies operating against the public interest. This can include persistent non-compliance with anti-avoidance rules, or a repeated failure to respond to HMRC’s requests for information¹⁹.

To address the problem of ‘phoenixism’ – the re-birth of a company by people involved in one that has been dissolved in order to avoid tax obligations – the government amended legislation to allow POTAS obligations to be transferred to other scheme-promoting entities controlled by the same individuals. To facilitate this, HMRC proposes better cooperation with the Insolvency Service. It has also suggested giving relevant cases to the Financial Conduct Authority. Finally in this regard, the government introduced legislation which allows HMRC to impose a new penalty on UK-based entities that assist the activities of offshore promoters. In general, these people are more difficult to deal with because of the complex nature of schemes and the UK’s reliance on the authorities elsewhere. The value of the new penalty on the UK promoter can be as high as the total fees earned by all those involved in the development and sale of that tax avoidance scheme – potentially including fees paid directly to the offshore promoter, and any other entities or persons who formed part of the ‘promotion structure’ for the scheme.²⁰

These moves are a step in the right direction, in particular the stiff financial penalties facing UK-based entities in league with overseas promoters contained in the Finance Act 2022. However, to produce a sudden step-change HMRC needs to implement all of these approaches – especially the tougher ones – at speed and at scale. Unfortunately, this seems unlikely.

For example, HMRC has had the ability to charge an enablers penalty since 2017. However, it requires the scheme use to be defeated and an opinion from the General Anti Abuse Rule (GAAR) panel. The first opinion of the panel in respect of an enablers’ penalty was published in October 2022. In addition, while it has been possible to obtain freezing orders and winding-up orders for almost a year, not one of either²¹ had been obtained by the time we spoke to HMRC in March 2023. This suggests each process either takes a long time or HMRC did not have targets in mind when the legislation was introduced.

The speed at which various sanctions and financial penalties can be imposed by HMRC is unlikely to increase anytime soon. This is because the number of cases outstanding at the First-tier Tax Chamber has increased by 52% to 45,000 in the last year – primarily, as a result of it receiving a high number of cases and the time it takes to decide each²².

The scale of implementation is important for if enablers are to be deterred, they need to believe there is a good chance they will face a strong sanction. This seems unlikely, given HMRC has not implemented the tougher sanctions at scale in the recent past.

It did make 75 professional interest disclosures for any breach of its Standards for Agents to professional bodies²³ between 2018-19 and 2021-22, but this is will have little impact given most promoters are not members. HMRC has ‘named and shamed’ 27 promoters of tax avoidance schemes²⁴ as of 23rd March 2023. While we will not find out the impact of this until next year, it is unlikely to put a stop to the problem of mass-marketed avoidance schemes given HMRC’s belief new companies continue to join this illicit market as others leave.

As for the use of sanctions that have a greater chance of deterring, HMRC has issued fewer than six financial penalties for enablers of defeated tax avoidance schemes²⁵ since 2017. Similarly, it opened only 15 criminal investigations in relation to arrangements that it categorised as disguised remuneration tax avoidance schemes between 1st April 2017 to 8th March 2023. Of these, fewer than five progressed to a charging decision or resulted in a criminal conviction²⁶. Surely, this is a major reason the number of promoters has remained the same in recent years?

As for the ideas in the recent budget, the idea of expediting the disqualification of directors of companies involved in promoting tax avoidance is unlikely to be a game-changer for disqualified directors can simply find others to front their companies. The proposal to prosecute those who refuse to stop promoting schemes is more promising – especially if it contains strong sanctions including imprisonment. However, even if it is proposed the new law will cover schemes in operation now, it is unlikely to be applied at the appropriate scale anytime soon. The consultative and legislative processes take a while, and not everything gets through it – as advocates of compulsory professional indemnity insurance for tax advisers will remember. Similarly, the proposal could be shelved afterwards – as happened recently to the plan to create a single enforcement body to monitor the treatment of employees by umbrella companies and others.

Unless HMRC decides to change its criminal investigation efforts from focusing on “very serious evasion and organised crime”²⁷, the number of enablers prosecuted is unlikely to change dramatically. In sum, he main reasons the number of promoters is not declining is because enforcement action takes too long, many of the actions are weak and stronger sanctions are rarely applied. What needs to happen is for HMRC to use its wide-ranging set of powers – including criminal investigations – at speed and at scale. Perhaps then the government will be able to do what George Osborne’s loan charge failed to do, shut down disguised remuneration schemes. Hundreds of millions of pounds a year in lost tax revenue are at stake.

This story was featured in The Times

1 Spring Budget 2023, HM Government, 15 March 2023, https://www.gov.uk/government/publications/spring-budget-2023/spring-budget-2023-html

2 Use of marketed tax avoidance schemes in the UK (2020 to 2021), HMRC, updated 30 November 2022, https://www.gov.uk/government/publications/use-of-marketed-tax-avoidance-schemes-in-the-uk/use-of-marketed-tax-avoidance-schemes-in-the-uk-2020-to-2021

3 Use of marketed tax avoidance schemes in the UK (2020 to 2021), HMRC, updated 30 November 2022, https://www.gov.uk/government/publications/use-of-marketed-tax-avoidance-schemes-in-the-uk/use-of-marketed-tax-avoidance-schemes-in-the-uk-2020-to-2021

4 Use of marketed tax avoidance schemes in the UK (2020 to 2021), HMRC, updated 30 November 2022, https://www.gov.uk/government/publications/use-of-marketed-tax-avoidance-schemes-in-the-uk/use-of-marketed-tax-avoidance-schemes-in-the-uk-2020-to-2021

5 Tax avoidance loan schemes and the loan charge, HMRC, updated 9 February 2022, https://www.gov.uk/government/publications/loan-schemes-and-the-loan-charge-an-overview/tax-avoidance-loan-schemes-and-the-loan-charge . For a more detailed discussion of the law with regards to tax avoidance see TaxWatch’s briefing: Is Tax Avoidance Legal? Available from: http://13.40.187.124/is_tax_avoidance_legal/

6 Ray McCann, President of the Chartered Institute of Taxation in answer to Q.105. Oral Evidence: The conduct of tax enquiries and resolution of tax disputes, House of Common Treasury Sub-committee, HC 733, 10 December 2021, https://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/treasury-subcommittee/the-conduct-of-tax-enquiries-and-resolution-of-tax-disputes/oral/93722.html

7 Budget 2016: George Osborne’s speech, Gov.uk, 16 March 2016, https://www.gov.uk/government/speeches/budget-2016-george-osbornes-speech

8 Managing tax compliance following the pandemic: HM Revenue & Customs. SESSION 2022-23. National Audit Office. 16 December 2022. HC 957. https://www.nao.org.uk/wp-content/uploads/2022/12/managing-tax-compliance-following-the-pandemic-report.pdf

9 HMRC Investigations Handbook 2016/17 (Bloomsbury, 2017), M. McLaughlin, (ed). p147

10 New powers for HMRC: fair and proportionate? House Of Lords, Economic Affairs Committee, 19 December 2020, p11.

11 Raising standards in the tax advice market, HMRC, 10 March 2022, https://www.gov.uk/government/publications/raising-standards-in-the-tax-advice-market-hmrcs-review-of-powers-to-uphold-its-standard-for-agents

12 The Rt Hon Jesse Norman MP, the then Financial Secretary to the Treasury in: Tackling promoters of mass-marketed tax avoidance schemes, HMRC, updated 23 March 2020, https://www.gov.uk/government/publications/tackling-promoters-of-mass-marketed-tax-avoidance-schemes

13 Use of marketed tax avoidance schemes in the UK (2020 to 2021), HMRC, updated 30 November 2022, https://www.gov.uk/government/publications/use-of-marketed-tax-avoidance-schemes-in-the-uk/use-of-marketed-tax-avoidance-schemes-in-the-uk-2020-to-2021

14 Use of marketed tax avoidance schemes in the UK (2020 to 2021), HMRC, updated 30 November 2022, https://www.gov.uk/government/publications/use-of-marketed-tax-avoidance-schemes-in-the-uk/use-of-marketed-tax-avoidance-schemes-in-the-uk-2020-to-2021

15 Use of marketed tax avoidance schemes in the UK (2020 to 2021), HMRC, updated 30 November 2022, https://www.gov.uk/government/publications/use-of-marketed-tax-avoidance-schemes-in-the-uk/use-of-marketed-tax-avoidance-schemes-in-the-uk-2020-to-2021

16 In addition, Meredith McCammond of the Low Incomes Tax Reform Group suggested: “The list will also do nothing for those who may have little choice to be paid by a non-compliant umbrella company if they want the work.” ‘HMRC adds three AML schemes to its tax avoidance blacklist’, Contractor, Simon Moore, 31st January, 2023, https://www.contractoruk.com/news/0015769hmrc_adds_three_aml_schemes_its_tax_avoidance_blacklist.html

17 Director of suspected HMRC tax avoidance scheme continues to be member of professional body, TaxWatch, 02 Februart 2023, http://13.40.187.124/hmrc_name_shame_complaint/

18 Use of marketed tax avoidance schemes in the |UK (2018 to 19), HMRC, updated 30 November 2022, https://www.gov.uk/government/publications/use-of-marketed-tax-avoidance-schemes-in-the-uk/use-of-marketed-tax-avoidance-schemes-in-the-uk

19 Clamping down on promoters of tax avoidance: summary of responses, HMRC, updated July 2021, https://www.gov.uk/government/consultations/clamping-down-on-promoters-of-tax-avoidance/outcome/clamping-down-on-promoters-of-tax-avoidance-summary-of-responses

20 Clamping down on promoters of tax avoidance: summary of responses, HMRC, updated July 2021, https://www.gov.uk/government/consultations/clamping-down-on-promoters-of-tax-avoidance/outcome/clamping-down-on-promoters-of-tax-avoidance-summary-of-responses

21 According to a spokesperson from HMRC, 13 March 2023.

22 Tribunal Statistics Quarterly: July to September 2022, Ministry of Justice. 8 December 2022, Section 8. www.gov.uk/government/statistics/tribunal-statistics-quarterly-july-to-september-2022/

23 During the period 2018-19 to 2021-22. HMRC FOI2022/72035, 05 December 2022.

24 According to a spokesperson from HMRC, 14 March 2023.

25 FOI2023/12152, HMRC, 23 March 2023. HMRC used a legal exemption in the Freedom of Information legislation to avoid providing a more precise answer.

26 FOI2023/08373, HMRC. 08 March 2023. HMRC used a legal exemption in the Freedom of Information legislation to avoid providing a more precise answer.

27 Jim Harra, Chief Executive and First Permanent Secretary, HMRC, in answer to Q 176. The Work of HMRC, Oral Evidence. House of Commons Treasury, 30 November 2022, https://committees.parliament.uk/oralevidence/11972/html/

Differing approaches to combating marketed tax avoidance schemes

7th June 2022 by George Turner

Taxation magazine recently carried an article from our Executive Director looking at HMRC’s record on tackling marketed tax avoidance schemes over the last 10 years. The article looks at the differing results HMRC has achieved going after two different types of tax avoidance scheme and what lessons can be drawn. The text of the article can be found below. A pdf is available here: A_tale_of_two_avoidance_schemes_-_Taxation,_

In 2013, there were in effect two marketed tax schemes – sideways loss relief and disguised remuneration.
Several court decisions ruled that sideways loss relief schemes were ineffective from a tax law perspective.
There have been criminal prosecutions of people who operated these schemes.
HMRC has won two cases – Rangers and Aberdeen Asset Management – on disguised remuneration and that was on the PAYE argument.
The loan charge has helped promoters with the argument that nothing was wrong until HMRC changed the law retrospectively

The tax avoidance industry has been through a remarkable transformation over the past decade. Ten years ago, there were only two tax avoidance schemes that were sold to individuals in any volume: sideways loss relief schemes and disguised remuneration schemes. According to HMRC figures, in the 2013-2014 tax year 35% of all users of tax avoidance schemes – 8,500 people – were members of sideways loss relief schemes. Today that figure is zero. Over the same period, disguised remuneration has flourished. There were 13,200 people involved in disguised remuneration in 2013-14, but this has risen to 28,000 in 2019-20, the latest year when figures are available. Why is it that HMRC has been so comprehensively successful at combating one form of tax avoidance, while demonstrably failing to deal with another?

Respectable end of the avoidance market

In an appearance before the House of Commons Public Accounts Committee last year, Jim Harra, HMRC chief executive, offered one explanation: ‘The situation with the promotion of tax avoidance is over recent years, we feel we’ve been very successful at driving the respectable end of the tax profession out of offering tax avoidance.’ Clearly, we have come a long way since David Hartnett described sideways loss relief schemes as ‘schemes for scumbags’.

In 2013, there were in effect two marketed tax schemes – sideways loss relief and disguised remuneration. Several court decisions ruled that sideways loss relief schemes were ineffective from a tax law perspective. There have been criminal prosecutions of people who operated these schemes. HMRC has won two cases – has won two cases Asset Management – on disguised remuneration and on disguised remuneration and that was on the PAYE argument.was on the PAYE argument. The loan charge has helped promoters with the argument that nothing was wrong until HMRC changed the law retrospectively.

In particular, HMRC points to the code of practice on taxation for banks (large banks were frequently involved in providing the finance for sideways loss relief schemes), and the tightening of professional conduct rules for accountants and tax advisers in 2017, which in effect made it a disciplinary offence to sell a mass-marketed tax avoidance scheme. The implication is that more senior professionals subject to professional regulation were successfully persuaded to get out of selling the schemes to their clients. Although it is the case that sideways loss relief schemes were mainly targeted at high net worth individuals – the kind of people that employ professional accountants and lawyers and are clients of private banks – sideways loss relief schemes are not a form of tax avoidance defined by the involvement of professional advisers. It is well known that many senior lawyers signed off on disguised remuneration schemes, senior accountants operated and sold the schemes, and former HMRC inspectors regularly pop up as being involved with disguised remuneration. In fact, it was recently confirmed that an accountant that acts for the royal family is one of the more significant players in the field of disguised remuneration. If it really is the case that improvements in professional standards have driven out the respectable end of the avoidance market, why have allegedly respectable people continued to market disguised remuneration schemes? The simple answer is that codes of practice and professional ethics will only ever take us so far. That is not to say that improving professional standards is unimportant. It is, but sadly there will always be morally vacuous people in every profession who will seek to make a profit from taking advantage of others. In the end, the most effective way of stopping any form of tax avoidance is to establish that a scheme is unlawful with regard to tax law. As Lord Templeman put it many years ago: ‘Every tax avoidance scheme involves a trick and a pretence. It is the task of the Revenue to unravel the trick and the duty of the court to ignore the pretence.’ It is also important to ensure that dishonest behaviour is challenged, if necessary by way of the criminal prosecution of those that seek to promote dishonest tax avoidance schemes. As it was recently put by Lady Justice Simler and Mrs Justice Whipple in Ashbolt and Arundell v HMRC and Leeds Crown Court [2020] STC 1813 ‘tax avoidance moves from lawful conduct to criminal conduct when it involves the deliberate and dishonest submission of false documents to HMRC with the intent of gain by the taxpayer in question and loss to the public revenue’. When we analyse the performance of HMRC in both the civil and criminal courts, it is here where we see a real difference in performance with regard to different forms of tax avoidance.

Sideways illusion

Sideways loss relief schemes worked in the following way. Investors, who were always high earners with large income tax liabilities, entered into a partnership that was formed on the pretence of carrying out some form of trade. To encourage potential clients into the arrangements, often, scheme designers based them around well-known tax reliefs, marketing the scheme as a government-supported initiative. Film schemes such as Eclipse and Ingenious are perhaps the most well-known examples, but there were also schemes that invested in vaccine research or reforestation and green energy. However, almost any investment could be used to claim sideways loss relief, such as the well-known Working Wheels scheme based on the used car industry, and some lesser-known schemes investing in computer software. The expenditure incurred in the trade would result in losses which were used to reduce the income tax liabilities of the partners under the sideways loss relief rules. The trick was that these losses were inflated by circular financing arrangements which meant that the tax write-off ended up being multiples higher than the amounts of real cash put in by clients of the scheme. The effect of this inflation also meant that the majority of capital raised by the partnerships would never actually be spent on the trade itself. For example, in Vaccine Research Limited Partnership Scheme v CRC [2015] STC 179, the partnership claimed to have spent £114m on developing various vaccines, when in fact only £14m had been spent on research and development with the balance being paid in fees to the scheme operators and the banks that had funded the contributions of partners in the first place. HMRC disallowed the claims for tax relief for partners of sideways loss relief schemes, arguing that to qualify, expenditures had to be incurred for the purposes of a trade, and the partnerships needed to operate on a commercial basis.

Even though the schemes contained some commercial element which meant that it was theoretically possible for them to earn a profit, the inflation of losses made the prospect of any profit actually being made in the long term wholly unrealistic, undermining any idea that the partnerships were a commercial enterprise. As Judge Colin Bishop put it in his First-tier Tribunal decision in the Icebreaker case Acornwood and others (TC3545): ‘A 14-handicap golfer may set out on the first tee with the aim and hope of going round the course in par; but he could have no reasonable expectation of doing so.’ The courts were generally supportive of HMRC’s arguments, and there followed a long line of cases where various sideways loss relief schemes were defeated. This includes TowerM Cashback, Working Wheels, Eclipse, Ingenious and Vaccine Research. In some cases, HMRC started criminal proceedings. According to HMRC, since April 2016, 22 people have been convicted of ‘offences relating to arrangements that have been promoted and marketed as tax avoidance’. A review of HMRC press releases reveals that at least 20 of these individuals were involved in sideways loss relief schemes.

In these cases there was usually some aggravating factor which attracted the attention of HMRC’s criminal investigators. For example, in the case of R v Michael Richards and others, it was found that a sizeable chunk of the money that was supposed to have been invested in reforestation projects was being siphoned off into secret Swiss bank accounts for the personal benefit of the scheme operators. However, it is also remarkable that in at least some cases, the core elements of the offences prosecuted by the crown were the very basis on which sideways loss relief schemes operated. In his sentencing remarks following the conviction of four individuals behind the Little Wing film scheme Judge Drew described the ‘cheat’ as: ‘Submitting tax returns which contained false statements about the LLP’s allowable losses. They were false because the jury found as a fact either that the expenditure was not wholly and exclusively for the purposes of the LLP’s trade, or the trade was not carried out on a commercial basis.’ He may not have been aware of it at the time, but Judge Drew, in summarising the guilty act of a serious criminal offence, was in effect describing how all sideways loss relief tax avoidance operated. Something which must have at least given some promoters pause for thought.

Legal confusion

HMRC has not had the same success when it comes to disguised remuneration schemes. Many of these arrangements involve the creation of an offshore employee benefits trust. A company employing an employee or contractor would place funds into the trust, which would then be loaned to the employee. The trust might also provide some other benefit, such as a gift of shares in a company controlling a bank account full of cash. The scheme promoters argued that because the trust was independent of the company and that the loan was in theory repayable, then it should not be counted as income for tax purposes. The reality however, was that the trust always paid the loan and never asked for the money back. Both employers and employees regarded the money as income for the employee to keep.

Early attempts by HMRC to deny the benefit of schemes to taxpayers were met with opposition from the judiciary. In two cases that went before the Special Commissioners in 2000s, Dextra Accessories (SpC 331) and Sempra Metals (SpC 698), the judges found that loans granted by the employee benefit trust were not taxable income. In both cases the government decided not to appeal the point on income tax. In 2013 the Court of Session accepted HMRC’s argument that Aberdeen Asset Management v CRC [2014] STC 438 should have withheld income tax under PAYE for payments made to employees made through an employee benefit trust. HMRC won on the same argument again at the Court of Session in Murray Group Holdings v CRC [2016] STC 468, defeating the Rangers employee benefits trust scheme. In that case the judges was scathing of the rulings of the tax tribunals, which until then had found in favour of Rangers, saying:

‘The fundamental principle that emerges from these cases appears to us to be clear: if income is derived from an employee’s services qua employee, it is an emolument or earnings, and is thus assessable to income tax, even if the employee requests or agrees that it be redirected to a third party. That accords with common sense… This principle is ultimately simple and straightforward – indeed, so straightforward that in cases where elaborate trust or analogous relationships are set up it can easily be overlooked. That, it seems to us, is what happened before the First-tier and Upper Tribunals in this case.’

The Court of Session decision was later confirmed by the Supreme Court (RFC 2012 plc (formerly known Rangers Football Club plc) v Advocate General for Scotland [2017] STC 1556). Both the Court of Session and the Supreme Court found that Sempra and Dextra had been wrongly decided. However, although the Rangers case established beyond any doubt that the payments made to an offshore trust in relation to employment should be considered earnings and taxed as such, campaigners rightly point out that the case does not establish that employees in disguised remuneration schemes should be liable to pay the tax themselves. This was recognised by Jim Harra himself, in an email unearthed through a freedom of information request where he expresses frustration that he has been unable to obtain a legal analysis to back HMRC’s position that individuals are taxable on earnings received via a disguised remuneration scheme. One key difference between the findings of the civil courts in cases involving sideways loss relief and disguised remuneration, is that by removing the benefit of tax relief from the partners, the courts have taken away all the incentive for investors to participate in these schemes. With disguised remuneration, without a judgment that establishes that scheme users are liable for any tax bill, the incentive for an employee to take part in the scheme remains. Employees will care little if a scheme means that they reduce their tax bills, whilst their employer runs the risk of being hit with a tax bill in the future. This is in fact how some disguised remuneration schemes have played out, with organisations like the BBC agreeing to pay off the tax liabilities of freelancers engaged through tax avoidance schemes.

Limitations of legislative fixes

The most significant intervention the government has made against disguised remuneration has been the loan charge, a piece of legislation that attempts to ensure that people historically involved in disguised remuneration schemes are subject to taxation without the need to raise an enquiry into the scheme or a taxpayer’s returns.

However, in the absence of any decision of a court establishing that the users of loan based remuneration schemes had any tax liability at all, the use of legislation to enforce HMRC’s view of the existence of that liability has proved highly problematic. Inevitably, it has been interpreted by many people as demonstrating that disguised remuneration was at the time a lawful means of reducing a tax on the part of an individual taxpayer, which a defeated HMRC has been forced to attack with retrospective legislation, something which goes against every principle of justice in this country. The perception that the loan charge is an unjust act of a vengeful administration has pushed scheme users into the arms of promoters of loan charge avoidance schemes. As a policy designed to draw a line under disguised remuneration the loan charge has been a complete failure. Participation in disguised remuneration schemes increased substantially between the announcement of the loan charge in 2016, and its implementation in 2019.

Learning lessons

By looking at the history of litigation in both the civil and criminal courts, the answer to the question, why has HMRC been much better at tackling sideways loss relief schemes than disguised remuneration, is obvious. Through careful, painstaking litigation HMRC have managed to establish the principle that sideways loss relief schemes are not only ineffective in tax law, rendering the whole enterprise pointless for scheme users, but that the promotion and operation of these schemes could be regarded a cheat on the revenue, ending with a period of incarceration at her Majesty’s pleasure. It is little wonder that the use and promotion of these schemes has stopped entirely. Until now at least, HMRC have not been able to establish the same with regards to disguised remuneration. As recently confirmed by the financial secretary to the Treasury, the number of people that have been the subject of a successful criminal prosecution is precisely zero. Despite a barrage of legislative remedies, the practice continues to operate. This may soon be about to change. HMRC recently disclosed for the first time that it currently has 17 people under active criminal investigation for ‘offences relating to arrangements promoted as disguised remuneration tax avoidance schemes’. The only investigation where details have emerged publicly, Operation Skeet, is connected with alleged attempts by Paul Baxendale Walker’s firm (or its successor) to rebrand loans so that they fell outside the scope of income tax and the loan charge. In judicial review proceedings the Court of Appeal upheld search and seizure warrants issued against two individual users of these schemes whom it suspected of offences of fraud by false representation and cheating the public revenue (see Ashbolt and Arundell v HMRC and Leeds Crown Court [2020] STC 1813). On the civil litigation side, HMRC points out that it still has thousands of open enquiries into users of disguised remuneration schemes, some of which may still come before the tribunal.

One case currently before the Court of Appeal, Hoey v CRC, deals directly with the issue of whether HMRC has the right to tax an employee, and not the employer, in a disguised remuneration scheme, one of the biggest legal issues yet to be resolved. If HMRC is successful in bringing a series of civil and criminal cases against disguised remuneration schemes, we could see the practice go the same way as sideways loss relief. But do not expect that to happen anytime soon. HMRC first opened its enquiry into the tax returns of Rangers Football Club in 2004, yet it was not until 2017 that the Supreme Court finally resolved the case in favour of HMRC. In 2005 HMRC opened an enquiry into Carbon Trading Positive Ltd, which finally ended in the conviction of Michael Richards and his co-conspirators in 2017. In that case it took seven years to bring the case to trial after the defendants had been charged. There were long-running disputes over disclosure and, at one point, a High Court judge stayed the proceedings as an abuse of process, only for them to be re-instated at the Court of Appeal. The trial itself took 11 months. One of the jurors managed to conceive and give birth to a child during the course of it.

Justice delayed is justice denied

The old saying of justice delayed is justice denied was never more true than with disguised remuneration. The decisions of the tribunals in Dextra, Sempra and Rangers meant that for the best part of ten years, the tax tribunals supported an interpretation of the law that was later found by the superior courts to be wrong. In the interim, thousands of people were brought into disguised remuneration schemes having been reassured by senior lawyers and accountants that the structures they were entering into were perfectly legal. Had the tribunal’s interpretation of the law been corrected more quickly, many thousands of people may have been spared the stress and anxiety arising from their involvement in a tax avoidance scheme. What the story of disguised remuneration demonstrates beyond any doubt is that the pitifully slow progress of tax disputes is a source of real injustice and an issue that needs to be addressed.

This article was originally featured in Taxation Magazine

Monitoring the bailout

16th June 2020 by Alex Dunnagan

Monitoring the bailout

16 June 2020 – Alex Dunnagan

In response to the Coronavirus crisis, the government has made a huge and unprecedented intervention into the economy, providing vast amounts of assistance to the business sector. The comprehensive nature of the support has meant that some awards have attracted controversy, and this has prompted calls for the government to make support conditional on past or future behaviour. There is also no doubt that the large scale of the intervention will lead to a long lasting impact on the shape of the economy.

In order to better understand this impact, our recent report, “Paying in Equally”, suggested that the government make all data available to the public on which companies are accessing support schemes and on what terms. This would allow the public to better understand how the government is spending taxpayer money, and the issues raised by how these schemes are administered. It would also allow for the easier detection of fraud.

The Treasury has recently published the companies that have received the Bank of England’s Coronavirus Corporate Financing Fund (CCFF), which it intends to update on a weekly basis. Publishing this data is a good start, however, this fund represents a small part of the overall funding package. There are currently no plans to publish data on which companies have been receiving cash to furlough their staff or aid from any other government schemes.

Over the last few months we have been tracking where taxpayer money has gone, and recording which companies have been receiving government assistance. In the absence of any public data, we have been reliant on either press statements, stories in the media, or help from members of the public who have used our bailout tracker. With almost half of UK businesses accessing government support, we do not pretend that our list is in any way comprehensive. ¹

Listed below is a selection of ten industries that have either received or are lobbying for government financial assistance throughout this pandemic, and some of the issues that have been raised by the Covid-19 bailouts. This provides a narrative of government support during the pandemic and covers all aspects of the bailout, the good and the bad.

In addition to this, there have been incidences where support from the government for specific companies has proved controversial because of the tax practices of the owners of the company or the owners themselves. These controversies have led to calls for the government to restrict support to companies with good tax conduct. In many countries, companies have been refused money if are incorporated in tax havens.

The tax controversies surrounding the Covid-19 bailout fall into three broad categories.

There are companies which are incorporated in the UK, but which are substantially owned by tax exiles or tax haven companies.
There are companies which have a known history of tax avoidance themselves.
There are some cases, such as supermarkets, where there has been no poor tax conduct by the companies or owners themselves, but questions have been raised as to whether tax breaks given to the sector have been overly generous.

Below we present a table of companies which raise some of these issues, along with a link to the evidence of the company receiving subsidy. This is a live table and is updated as and when we pick up on issues, and when we are alerted to them by members of the public.

All of the businesses included in the table are legally entitled to claim the Government support, and TaxWatch is not accusing any of the aforementioned businesses of failing to pay UK taxes. Should a spokesperson for any of the businesses or individuals mentioned wish to contact us, please email info@taxwatchuk.org

The story of Covid-19 bailouts in the UK by industry sector

Transport

With the message from the government to stay at home, and countries around the world closing their borders, transport was always going to be one of the industries most severely impacted by Covid-19.

Given this, there were eyebrows raised when at the beginning of the epidemic in Europe, EasyJet pressed ahead with a £174m dividend. Of this payment, £60m went to the founder, Sir Stelios Haji-Ioannou. The airline has made shareholder payouts of more than £1.8bn since 2012.²

The low cost airline went onto secure a £600m loan from the Covid Corporate Financing Facility, the terms of which remain confidential. EasyGroup, based in the UK, owns a 33 per cent share in easyJet.³ EasyGroup is owned by EasyGroup Holdings based in the Cayman Islands, which is ultimately owned by the Sir Stelios Trust, also based in the Cayman Islands. Sir Stelios is resident in Monaco.

Sir Stelios is not the only Billionaire tax exile based airline owner to have hit the headlines. Sir Richard Branson has lobbied the UK Government to bailout Virgin Atlantic to the tune of half a billion pounds. Public outrage has focused on the fact that while Virgin Atlantic is headquartered in the UK, Branson has paid no personal income tax since moving to the British Virgin Islands in 2006.

After having been denied a request for a loan, Sir Richard has since announced that he is to sell $500m in Virgin Galactic shares to prop up the rest of the group.⁴ The shares account for just over a fifth of his stake in Virgin Galactic.

At the beginning of the crisis there was some optimism that after a short lockdown to crush the disease, we would be able to return to near normal conditions. Now airlines are realising that they are in for a long haul.

British Airways, which has furloughed more than 30,000 staff at 80 per cent of pay, at first said that it would not be requesting any government loans as it had enough cash to weather the crisis. It has now changed its position, seeking £900m from the Spanish Government and £300m from the UK. The airline has also announced it is to make 12,000 workers – one quarter of its workforce – redundant, anticipating a long term drop in demand resulting from the crisis. Engine maker Rolls Royce has taken a similar view, announcing plans to cut 9,000 jobs globally.⁵

With most planes grounded, airport revenue has taken a hit. Heathrow attracted controversy after it was accused of using the furlough scheme as a threat to discipline employees who did not want to accept a pay-cut. The airport told staff that they would be furloughed if they did not accept the cut to pay, and would then be made redundant when the scheme came to an end. Local councils in Manchester, which are the majority owners of Manchester Airports Group, have come to the rescue of the company which owns Manchester, Stansted and East Midlands airports, handing over additional funding of £260m.⁶

Back at sea level, ferry companies have also been accused of giving payouts to shareholders whilst taking government cash.

P&O Ferries is cutting a quarter of its workforce while using the Job Retention Scheme to furlough 1,400 workers. The ferry company also unsuccessfully applied to the UK Government for £150m in state aid. At the same time the owner of P&O, DP Worldwide, has paid out a £270m dividend to its shareholders.⁷ A DP World spokesman said the dividend is part of the delisting process, and the company is legally obligated to pay it. DP World is based in a free zone in Dubai where companies are exempt from tax.

After £35m was given to passenger ferry operators, CldN – one of the biggest freight operators in Europe – sent legal letters to the Department for Transport claiming the cash aid was illegal under European law.⁸ The Telegraph reported that the subsidy was unnecessary and instead provided the passenger ferry operators with a financial competitive advantage over their freight rivals.

Supermarkets

Supermarkets are playing a key role throughout this crisis, and we should be thankful for those working in the industry. However, there can be no doubt that for supermarkets, the crisis is good for business. Sales are through the roof. British grocery sales rose by 14.3% during the 12 weeks to 17 May, the fastest rate since records began in 1994.⁹

Supermarkets haven’t required access to the furlough scheme. While they haven’t lobbied the government for any relief, supermarkets have been awarded a business rates holiday worth £3bn.¹⁰ Shortly after this announcement, Tesco paid its shareholders a £635m dividend, leading some to question whether the business rates holiday was really necessary ¹¹

Manufacturing / Heavy Industry

Building a digger is not work that can be done from home. As a result, many factories have had to close and are seeking government support. However, there has been some concern that this has resulted in billionaire industrialists receiving state handouts without the need to dip into their own substantial wealth.

Construction manufacturer JCB has furloughed the vast majority of its 6,500 staff. It is owned by Lord Bamford, 74, whose family wealth sits at £4.7 billion. JCB was previously controlled by a couple of Bermuda trusts, a structure which held up Lord Bamford’s peerage. The structure has now been brought onshore.

Another billionaire industrialist with a more ambiguous relationship with offshore is Sir Jim Ratcliffe, owner of Ineos, who has a personal fortune of £12.15bn. In 2019 The Guardian reported that Sir Jim had planned to move his residency to tax-haven Monaco to save on income tax, although he has denied that he went through with the plan.¹² Ineos has moved to Switzerland to avoid UK corporation tax in the past but moved back when tax rules were changed. One part of the Ineos group, Petroineos, a joint venture with PetroChina, has been in talks with the Scottish and UK governments seeking as much as £500m in bailout cash.

The immediate parent company of Petroineos is Petroineos Trading Limited, a company incorporated in Jersey.

Hospitality

The hospitality sector has effectively ground to a halt, with hotels and restaurants closed across the country. Many businesses in this sector have been claiming for furlough, with others seeking government loans. Hospitality is also able to benefit from the same business rates holiday that supermarkets do.

In addition to being a plastics magnate, Sir Jim Ratcliffe also co-owns the hotel chain Pig Hotels. The CEO of Pig Hotels has written to the Prime Minister requesting further support from the government.¹³ The hotel chain had already furloughed 782 staff and received £4m from the Coronavirus Business Interruption Loan Scheme. Pig Hotels is still planning to expand, intending to open a luxury country retreat complete with a vineyard in Sussex next year.¹⁴

Another luxury resort seeking government aid is the Carnegie Club at Skibo Castle in Scotland, where Madonna and Guy Ritchie married in 2000. The resort has furloughed its staff, and is not topping up their salaries past the 80 per cent, the Daily Record reports.¹⁵ The club, which costs £30,000 to join, was bought in 2003 by Irish-American private equity businessman Ellis Short who is worth £1.36bn. The parent company of Skibo Castle is Bermuda registered Scytherbolle Limited.

Other offshore billionaires in the hospitality sector are the Reuben brothers, worth £16bn according to this year’s Rich List. It’s reported that they have furloughed around 750 staff at their racecourses and pubs.¹⁶ The younger brother, Simon, has lived in Monaco for almost 20 years, while the elder brother David is said to split his time between Monaco and Florida.¹⁷

David Reuben isn’t the only billionaire with UK hospitality interests that spends a considerable amount of time in Florida. It was reported in April that The Trump Organization, of President Trump fame, was seeking bailout money in both the United Kingdom and Ireland to furlough employees, keeping the loss making golf resorts afloat.¹⁸ The UK furlough scheme pays 80 per cent of a workers salary, while in Ireland it is 70 per cent (both are capped at an upper limit). It is not clear if the business was intending to top the salaries up.

Since becoming president, Trump has retained his financial stake in the business, with his sons assuming executive control. The Trump Organization has been specifically excluded from receiving support in the US, and has made roughly 2,000 employees redundant.¹⁹

Retail

British retailers have access to a bailout package of reliefs, grants, and loans, though the British Retail Consortium has warned that this is not enough.²⁰ With the lockdown closing all but non-essential retailers, retail understandably needs financial assistance. However, many large chains owned by high net worth individuals have seen tens of millions – and in some cases billions – taken offshore.

Sir Phillip Green has furloughed 14,500 of the 16,000 staff who work for Arcadia Group, which includes Topshop, Topman, Burton, Miss Selfridge and Dorothy Perkins. Arcadia is owned by Green’s wife, Tina, whose residency in Monaco means that she is not required to pay UK tax on dividends. The Green family took a £1.2bn dividend from the company in 2005.²¹

It was reported in March that Arcadia Group was planning to defer the deficit recovery contributions agreed with the Pensions Regulator in 2019.²² The company is due to pay £25m annually to its pension scheme, but those contributions are said to have been postponed to conserve cash during the pandemic.²³ Phillip Green’s net worth is estimated at £930m according to this years Sunday Times Rich List.

In a move similar to Sir Phillip, Chris Dawson, the founder of The Range discount stores, transferred his shares to his wife Sarah after she moved to Jersey in 2016. As a result, she did not have to pay any UK tax when receiving a £39.5m dividend in 2018.²⁴ The Range has remained open throughout the pandemic and in doing so has been criticised for putting the health of employees at risk. The chain specialises in home, leisure and garden items, and some limited food items appeared in stores shortly before the order to close non-essential retail. The chain will benefit from the business rates holiday.

Discount chain B&M, owned by billionaire brothers Simon and Bobby Arora, temporarily furloughed some of its staff, briefly closing 49 of its 660 stores.²⁵ The Daily Mail revealed that the company paid £152.6m in dividends between 2014 and 2017 to a holding company in Luxembourg, despite having no shops in the country or employing any workers there.²⁶

Fashion and homeware retailer Matalan, owned by John Hargreaves, has furloughed over 11,000 of its staff, while deferring tax and national insurance payments, and accessing business rates exemption worth over £40m.²⁷ ²⁸ ²⁹

During an £84m tax dispute, Hargeaves told HMRC he had moved to Monaco and was no longer a tax resident in the UK.³⁰ Hargreaves won this case against HMRC, with a judge ruling the case was too old for HMRC to make a claim. The Guardian reported that Hargreaves is suing his accountants for allegedly giving him ineffective tax avoidance advice regarding his move to Monaco in 2000. Hargreaves and his family have amassed a £550m million fortune, according to The Sunday Times rich list.

Football Clubs

There have been varying different responses from football clubs, with a number of clubs changing their decisions on whether or not to seek government support after news they would provoke angry reactions from the fans.

At the heart of the issue is the inequality in pay at football clubs. The furlough scheme allows companies to pay 80% of wages, up to a cap of £2,500. Companies can, of course, top-up wages to 100% if they wished. Some clubs originally sought to put their lowest paid staff on furlough, with the cut in wages, whilst continuing to pay stars in some cases hundreds of thousands of pounds a week.

Liverpool FC originally said they were intending on furloughing staff, before quickly performing a U-turn and apologising following a public backlash. Chief executive Peter Moore said: “We believe we came to the wrong conclusion last week and are truly sorry for that.”³¹ Tottenham, the eighth richest club in the world, owned by a multi-billionaire tax exile, was also criticised for placing staff on furlough. The club quickly reversed their decision, stating that they would not use the Coronavirus Job Retention Scheme, and have gone as far as to use their stadium as a Covid-19 testing facility.³²Tottenham has however borrowed £175m from the Treasury’s Covid Corporate Financing Facility.

Despite some clubs changing their decisions on furlough, Newcastle United and Norwich City are two clubs that pressed ahead with accessing government support, promoting calls for clubs using the scheme to be banned from buying players until the money is paid back.³³

North of the border, Scottish Premiership side Celtic FC has confirmed that they will place their non-playing staff on furlough.³⁴ The Paradise Papers revealed that Irish billionaire Dermot Desmond, owner of Celtic FC, used an offshore tax haven structure involving an Isle of Man company to avoid Swiss tax on his private jet company Execujet.³⁵

Non-football playing staff as rival side Glasgow Rangers FC have also been furloughed.³⁶ The club was involved in a huge tax avoidance scheme that ran players’ wages through a series of offshore trusts to avoid income tax. The resulting tax dispute with HMRC ended up bankrupting up the club.³⁷

Care Homes

Care homes are on the front line of the Covid-19 crisis with tens of thousands of care home residents dying from the disease. This tragedy has led to grim financial consequences for care home operators, who are paid based on occupancy.

This has led to calls from the sector to guarantee payments to homes based on minimum occupancy levels of 90%.

Before the outbreak of the virus, there had been a long running debate about the funding of the sector. One issue that had been a point of controversy is the fact that many homes are owned by Private Equity companies that had structured their business to strip out cash whilst minimising tax payments.

A 2019 Daily Mirror investigation found that over 1,000 UK care homes are owned by or run via offshore companies, with many of the largest operators making little to no profit, while paying large sums to related companies offshore.³⁸

As we move past the immediate crisis, and into the inevitable inquiry into the disaster in the care sector, this issue is unlikely to go away.

Recently, Private Eye questioned whether the support being requested by the sector was even necessary, given the large amount of profits being booked offshore. It detailed how HC-One, the UK’s largest care home group, posted an operating profit of £57m last year, this was after making lease payments to an offshore related property company. The vast majority of the operating profit then disappeared in the form of £50m in interest costs.³⁹ This interest of up to 18 per cent derives from loans from related Cayman Islands companies.

The group have paid out significant dividends in recent years, with £6m paid out in both 2018 and 2019 via a Cayman Islands holding company. Private Eye states that HC-One wouldn’t need financial assistance “had it not funnelled well over £50m into the Cayman Islands in three years (while paying minimal tax here, just £1m last year)”.

Second Homes

Some owners of second homes have managed to qualify for coronavirus support in what can only be described as a clear abuse of the spirit of coronavirus support.

In England, many second home owners have put the ownership of their second home into a company. If the property has been made available for rent (N.B. it doesn’t actually have to have been rented out), the company can then claim to be a business and avoid paying council tax, which has been increasing on owners of second homes. This tax dodge turned out to be even more lucrative when the government introduced grants for small business in response to Covid-19, which many second homes qualified for.⁴⁰

This is despite the fact that many genuine bed and breakfasts did not qualify for the grants, because they do not pay business rates.⁴¹ The government responded to this by setting up a discretionary fund to assist businesses such as bed and breakfasts that fell outside the scope of previous schemes.

In Wales, the legislation is tougher for tax avoiders, as they actually have to rent out their second homes to qualify.

Professional Services

Professional services, accountants, lawyers and consultants being primarily office based, can make the transition to home working better than others. Although some will be seeing business in some areas slow down, other areas, such as insolvency practitioners and company administrators will be sadly seeing an increase in trade.

However, many professional services have been accessing government support schemes, opening up the sector to accusations that it has been taking advantage of government generosity.

Accountants have been particularly sensitive to the reputational risks of accepting government cash, given the way in which the industry has spent several years mired in controversy. A string of high profile corporate failures have pointed to widespread problems in the audit industry, and accountancy firms have been accused of industrial scale tax avoidance in devising and promoting tax avoidance schemes.

The six largest accounting firms held a virtual meeting in April to discuss the potential damage to their reputation should they accept government funding. During the call at least two of the Big Four accountancy firms announced that they had applied for a Covid loan from the Treasury, it was reported in the Financial Times.⁴² Partners at the Big Four firms earned an average of £720,000 last year. BDO, the fifth-largest accounting firm by revenues, announced it has furloughed around 700 employees. The firm’s partners earned an average of £602,000 last year.⁴³

Law firms have been less bashful, with 90% of firms surveyed saying that they were furloughing staff. This was despite the fact that the majority of firms expect to remain profitable this year, and only see a dip in profits of less than 25%.⁴⁴

To add to our bailout tracker, please click here.

1BCC Coronavirus Business Impact Tracker: First results show heavy toll on UK business communities as majority of firms face cash flow crisis, British Chambers of Commerce, 02 April 2020, https://www.britishchambers.org.uk/news/2020/04/bcc-coronavirus-business-impact-tracker

2Easyjet seeks state loans — but pays Stelios £60m, The Times, 20 March 2020, https://www.thetimes.co.uk/article/easyjet-seeks-state-loans-but-pays-stelios-60m-d26jghjtx

3EasyGroup About Us, Accessed 09 June 2020, https://easy.com/about-us/

4Virgin Group may sell up to 25 million of its Virgin Galactic shares to bolster travel business hit by COVID-19, Market Watch, 11 May 2020, https://www.marketwatch.com/story/virgin-group-may-sell-up-to-25-million-of-its-virgin-galactic-shares-to-bolster-travel-business-hit-by-covid-19-2020-05-11?mod=mw_quote_news

5Rolls Over, Rolls-Royce to cut at least 9,000 jobs, The Sun, 20 May 2020, https://www.thesun.co.uk/money/11663750/rolls-royce-cut-jobs-coronavirus-pandemic/

6Coronavirus: Manchester Airports Group to receive £260m, Transport Xtra, 12 May 2020, https://www.transportxtra.com/publications/local-transport-today/news/65425/manchester-councils-bail-out-mag-airports/

7U.K. Ferry Operator Cuts 25% of Staff as Demand Drops After Coronavirus Lockdowns ,Wall Street Journal, 12 May 2020, https://www.wsj.com/articles/u-k-ferry-operator-cuts-25-of-staff-as-demand-drops-after-coronavirus-lockdowns-11589297682

8‘Illegal’ £35m state aid for ferries faces legal challenge, The Telegraph, 27 May 2020, https://www.telegraph.co.uk/business/2020/05/27/illegal-35m-state-aid-ferries-faces-legal-challenge/

9UK grocery sales rise at fastest rate since 1994 on lockdown boost, Reuters, 27 May 2020, https://www.reuters.com/article/health-coronavirus-britain-supermarkets/uk-grocery-sales-rise-at-fastest-rate-since-1994-on-lockdown-boost-idUSL9N285047

10Supermarkets to benefit from £3bn bailout on business rates, The Grocer, 18 March 2020, https://www.thegrocer.co.uk/supermarkets/supermarkets-to-benefit-from-3bn-bailout-on-business-rates/603011.article

11Business is booming for supermarkets – they don’t need government handouts, The Guardian, 08 April 2020, https://www.theguardian.com/commentisfree/2020/apr/08/business-supermarkets-government-rishi-sunak-coronavirus

12UK’s richest man moves to Monaco to ‘save £4bn in tax’, The Guardian, 17 February 2019, https://www.theguardian.com/business/2019/feb/17/brexiter-jim-ratcliffe-uk-richest-man-plans-save-4bn-pounds-tax-monaco-move

13Rural Hospitality Letter, The Pig Hotel, 01 May 2020, https://www.thepighotel.com/rural-hospitality-letter/

14Luxury hotel chain The Pig opening country retreat in Sussex, The Argus, 17 May 2020, https://www.theargus.co.uk/news/18450603.hotelier-reveals-new-vineyard-bolster-sussexs-wine-scene/

15Posh health club with huge profits cashes in on coronavirus furlough scheme, Daily Record, 05 May 2020, https://www.dailyrecord.co.uk/news/scottish-news/wealthy-health-club-furloughs-nearly-21973962

16That’s rich! YOU are paying wages of furloughed staff employed by wealthy tycoons including Sir Philip Green and Matalan boss as they live lives of luxury in gilded tax-haven of Monaco, The Daily Mail, 25 April 2020, https://www.dailymail.co.uk/news/article-8257197/Britains-tycoons-living-lives-luxury-Monaco-youre-paying-furloughed-staffs-wages.html

17India-born Reuben brothers in UK’s new Tax Haven Elite list, Economic Times / India Times, 07 March 2019, https://economictimes.indiatimes.com/nri/nris-in-news/india-born-reuben-brothers-in-uks-new-tax-haven-elite-list/articleshow/68304464.cms

18Trump’s Scottish golf resort loses money for seventh year in a row, Independent, 05 October 2019, https://www.independent.co.uk/news/business/news/trump-golf-club-accounts-losses-menie-estate-aberdeenshire-scotland-a9144386.html

19Trump Organization, Written Out of U.S. Bailout, Taps Europe Aid, Bloomberg, 22 April 2020, https://www.bloomberg.com/news/articles/2020-04-22/trump-organization-written-out-of-u-s-bailout-taps-europe-aid

20UK retailers say bailout funds not sufficient to stop ‘imminent collapse’, Reuters, 10 May 2020, https://www.reuters.com/article/us-healthcare-coronavirus-britain-retail/uk-retailers-say-bailout-funds-not-sufficient-to-stop-imminent-collapse-idUSKBN22M0NR

21Sir Philip Green: Taxing issues for the rag trade king, Independent, 21 August 2010, https://www.independent.co.uk/news/people/profiles/sir-philip-green-taxing-issues-for-the-rag-trade-king-2058086.html

22Arcadia to halt pension deficit payments, FT Adviser, 30 March 2020, https://www.ftadviser.com/pensions/2020/03/30/arcadia-to-halt-pension-deficit-payments/

23Coronavirus: Green’s TopShop empire to halt pension payments, Sky News, 28 March 2020, https://news.sky.com/story/coronavirus-greens-topshop-empire-to-halt-pension-payments-11965013

24The Range boss Chris Dawson hands business to his wife saving millions in tax, The Times, 13 April 2019, https://www.thetimes.co.uk/article/del-boy-tycoon-hands-ownership-of-business-to-wife-saving-millions-in-tax-rd0jrf92j

25Wealthy Tory donors using furlough scheme to cover staff wages during crisis, The Mirror, 02 May 2020, https://www.mirror.co.uk/news/politics/wealthy-tory-donors-using-furlough-21964976

26B&M budget store bosses pay themselves MILLIONS through tax havens, Daily Mail investigation reveals, The Daily Mail, 27 February 2017, https://www.thisismoney.co.uk/money/news/article-4265602/Budget-store-bosses-pay-tax-havens.html

27Matalan Covid-19 Business Update, Matalan, 11 April 2020, https://production-matalanlive-assets.s3-eu-west-1.amazonaws.com/uploads/asset_file/asset_file/274127/1586609888.9444337-Matalan_Covid-19_Update.pdf

28Matalan Covid-19 Investor Update, Matalan, 27 April 2020, https://production-matalanlive-assets.s3-eu-west-1.amazonaws.com/uploads/asset_file/asset_file/275442/1587992521.3290188-Matalan_Covid-19_Investor_Update_27-04-20.pdf

29Matalan founder suing PwC for ‘ineffective tax avoidance advice, The Guardian, 20 May 2020, https://www.theguardian.com/uk-news/2020/may/20/matalan-founder-suing-pwc-for-allegedly-giving-ineffective-tax-avoidance-advice-john-hargreaves

30Billionaire Matalan founder wins £84m tax appeal after HMRC runs out of time, The Telegraph, 18 April 2019, https://www.telegraph.co.uk/news/2019/04/18/billionaire-matalan-founder-wins-84m-tax-appeal-hmrc-runs-time/

31A letter from Peter Moore to Liverpool supporters, Liverpool FC, 06 April 2020, https://www.liverpoolfc.com/news/announcements/392368-a-letter-from-peter-moore-to-liverpool-supporters

32Club update – COVID-19, Tottenham Hotspur, 13 April 2020, https://www.tottenhamhotspur.com/news/2020/april/club-update-covid-19/

33Newcastle United ‘owe an explanation’ on furlough, but as lockdown bites others may follow suit, Chronicle Live, 12 April 2020, https://www.chroniclelive.co.uk/sport/football/newcastle-united-owe-explanation-furlough-18082133

34Why Celtic scored a PR own goal by placing non-playing staff on furlough, The Herald, 02 April 2020, https://www.heraldscotland.com/sport/18352439.celtic-scored-pr-goal-placing-non-playing-staff-furlough/

35Paradise Papers: Celtic shareholder Dermot Desmond’s private jet firm used tax haven, BBC News, 06 November 2017, https://www.bbc.co.uk/news/uk-scotland-41857222

36Steven Gerrard and Rangers players take wage deferrals as staff are furloughed, The Scotsman, 06 April 2020, https://www.scotsman.com/sport/football/rangers/steven-gerrard-and-rangers-players-take-wage-deferrals-staff-are-furloughed-2531251

37HMRC drops further £5m from Rangers tax claim, BBC News, 10 December 2019, https://www.bbc.co.uk/news/uk-scotland-50727197

38Care home operators ‘beg for taxpayer cash despite being run by offshore firms’, Daily Mirror, 08 July 2019, https://www.mirror.co.uk/news/uk-news/care-home-operators-beg-taxpayer-17553469

39Care-less, Private Eye, 22 May – 04 June

40Second home ‘loophole’ fears as Yorkshire holiday lets get £30m in virus grants, The Scarborough News, 04 May 2020, https://www.thescarboroughnews.co.uk/business/second-home-loophole-fears-yorkshire-holiday-lets-get-ps30m-virus-grants-2841487

41Thousands of small B&Bs need your help, B & B Association, https://myemail.constantcontact.com/Thousands-of-small-B-Bs-are-being-denied-access-to-Covid-19-Grants-and-need-URGENT-help.html?soid=1101682021428&aid=OLm6mQYkeTQ

42Accountancy firms weigh up reputational risk of furloughing staff, Financial Times, 07 April 2020,

43UK accounting industry cuts partner pay and furloughs staff, Irish Times, 16 April 2020, https://www.ft.com/content/65d8e851-5e33-4a2d-a814-a4c27f949dd3 https://www.irishtimes.com/business/financial-services/uk-accounting-industry-cuts-partner-pay-and-furloughs-staff-1.4230354

44Most law firms furloughing staff despite staying profitable, The Telegraph, May 26^th 2020 – https://www.telegraph.co.uk/business/2020/05/26/law-firms-rush-furlough-staff-despite-expecting-stay-profit/

Tax avoidance, bailouts and bribery – The UK government’s Corona Corporate Finance Facility

6th June 2020 by George Turner

On 04 June the Bank of England published the names of 53 companies that had outstanding loans under the UK government’s Covid Corporate Financing Facility.

The list contains a number of companies that have had links to tax havens, or have seen controversy regarding their financial affairs.

The publication of the list follows growing calls for the government to place more conditions on companies receiving state support, and the Scottish and Welsh Governments have legislated to prevent companies incorporated in tax havens from accessing funds.

We covered the issue of bailout conditionality in our recent report, Paying in Equally?, in which we suggested that conditions could be based on future tax behaviour. Others have made similar suggestions, including Glyn Fullelove, President of the Chartered Institute of Taxation, who has suggested that support to companies could be predicated on businesses committing to lower their risk rating with HMRC.

HMRC already reviews the “tax risk” of large businesses and includes use of tax avoidance schemes in that assessment. Eligibility for help could be linked to not being judged “high risk” due to such behaviour. 2/11

— Glyn Fullelove (@glyn12gh) May 11, 2020

Dame Margaret Hodge MP, chair of the All Party Group on Responsible Taxation, has taken up this idea and written to the Chancellor suggesting that the government implement it.

Following the publication of the list of companies receiving support under the Covid Corporate Finance Facility, we went through the list to identify companies with links to tax havens, or that have seen other allegations poor financial conduct.

Companies with links to tax havens or tax avoidance

Overall we found 13 companies with links to tax havens, which made up 29% of the loans given.

Company	Value of CCFF (£m)	Domicile	Parent / Owner jurisdiction	Notes
ABB Finance B.V.	£400	Netherlands	Switzerland	Companies house not up to date
Baker Hughes UK Funding Company PLC	£600	UK	Bermuda	Ultimate holding company GE, currently in litigation with HMRC over alleged tax fraud. Immediate parent in Bermuda
Carnival plc	£25	UK	UK	Ships registered in Panama. Carnival is two companies, one British, one Panamian.
Chanel Limited	£600	UK	Cayman Islands	Ultimate parent company is Litor Limited, based in the Cayman Islands
CNH Industrial N.V.	£600	Netherlands		US/Italian corporation, incorporated in Netherlands but resident in the UK for tax purposes
Easyjet PLC	£600	UK	Cayman Islands	Easygroup who are owned by a Cayman Islands based trust, have a 34% stake.
J.C.B. Service	£600	UK	Netherlands	JCB parent company located in the Netherlands.
Johnson Controls International plc	£370	Ireland	Ireland	American multinational domiciled in Ireland. Was subject of second largest corporate inversion in history
PACCAR Financial PLC	£170	UK	Netherlands,USA	Immediate parent is in the Netherlands, and ultimate parent is in the USA
Schlumberger Plc	£150	UK	Netherlands	Parent incorporated in Curacao
Telefónica Europe B.V.	£200	Netherlands	Netherlands	Spanish telephone network company, registered in the Netherlands
Tottenham Hotspur Stadium Limited	£175	UK	Bahamas	Owned by billionaire tax exile
Wizz Air	£300	Hungary	Jersey	Hungarian airline with a holding company in Jersey
Total	£4,790
All 53 companies receiving CCFF	£16,250
Per cent of money going to tax-haven linked companies	29.48%

We have defined companies as having links to tax havens if they are owned by a tax haven company or a tax exile, or are incorporated themselves in a tax haven.
One of the more interesting companies on this list this is Baker Hughes, which is a subsidiary of General Electric (via a Bermuda holding company). GE is embroiled in a £1bn tax dispute with HMRC over unpaid taxes going back to 2004. The case is currently being litigated, and it was recently revealed that HMRC had changed their case to allege fraud on the part of GE. The company denies the allegation.

A number of companies are owned by parent companies in the Netherlands, or are incorporated in the Netherlands themselves. The Netherlands is both a well-known tax haven, and a major economy in itself. We counted the company if the Netherlands was being used as a conduit, with substantial operations or the headquarters of the company elsewhere.

So, for example, ABB Finance, a Dutch subsidiary of a Swiss multi-national and Telefonica, a Spanish company applying for UK government funding via subsidiary in the Netherlands, make the list, whilst AkzoNobel, which is headquartered in the Netherlands, does not.

A number of companies used tax havens as vehicles for personal holdings, or are owned by tax exiles.
For example, Chanel Limited, is owned by Litor Limited, a company based in the Cayman Islands. The Cayman Islands is also used for the vehicle to hold Sir Stelios Haji-Ioannou’s Easygroup, which in turn owns a substantial shareholding in EasyJet.

Tax haven UK costs the taxpayer

The list demonstrates that companies can qualify for UK government support, even though they have relatively little activity in the UK.

In recent years the UK has increasingly sought to set itself up as a tax haven for multinational companies. The primary attraction for companies becoming tax resident in the UK is that our controlled foreign company rules mean that UK tax resident corporations are not usually liable for UK corporation taxes on profits made outside of the UK.

This can be a particular advantage if the multinational can put profits into more traditional tax havens which don’t charge any corporation tax. Profits end up being taxed nowhere. This is not the case in other countries (such as Italy) where companies can be liable for taxes on their global profits.

CNH Industrial Limited, a US-Italian company formed as a merger between Fiat Industrial, and Case New Holland, appears to be a company that has taken advantage of the UK’s business friendly tax regime. The company is incorporated in the Netherlands but tax resident in the UK, because its Dutch parent locates its office in London.

CNH International BV does own a manufacturing plant in Essex, but it is a relatively small operation in comparison to its global footprint. In total, CNH International BV employs just over 1,000 people in the UK, out of a total of 64,000 worldwide.

According to the annual accounts of CNH International BV, and a number of subsidiary companies it has in the UK, its UK operations are loss making. As a result the company faces no tax liability in the UK on any income from either the UK or abroad.

However, its presence in the UK allows the company to access support from the UK taxpayer, and CNH International BV has borrowed £600m from the UK government, which is more than 50% of the company’s £1.1bn turnover at its Basildon plant.

Financial impropriety

Two companies stuck out as having had serious non-tax related financial issues.

ABB

ABB, a Swiss multi-national, received a £400m loan via a Dutch holding company – ABB Finance B.V.. In the UK, ABB has a company, ABB Holdings, which as of 04 July is 9 months late with filing its latest annual accounts.
ABB Holdings in turn owns ABB Limited in the UK, which reports that it had a turnover of £700m in 2018, the latest accounts that are available. This means that the UK government facility accounts for 57% of the turnover of ABB Limited. Another ABB company in the UK, ABB combined Heat and Power, is in voluntary liquidation.

Chemring Group

Chemring is a UK company operating in the defense sector. According to a press release on its website https://www.chemring.co.uk/media/press-releases/2018/18-01-2018a Chemring referred itself to the Serious Fraud Office in 2018, triggering a criminal investigation into bribery, corruption and money laundering. As confirmed by the SFO website, this is still a live investigation.

This research has been featured in the Financial Times, Daily Mail, Vice, The Telegraph, and The Times among others.

Correction – 06 June 2020

An earlier version of this article included British Airways in table of companies above. British Airways (BA) Limited is owned by a Jersey holding company – British Airways Number Two Limited, which is why we included the company on the list.

However, the entity receiving the government loan was British Airways PLC and not British Airways (BA) Limited. British Airways PLC is directly owned by IAG in Spain.

The proportion of loans going to tax haven linked companies was also updated to reflect this change.

Tax havens, tax avoidance, and government support for businesses during the coronavirus pandemic

9th May 2020 by Alex Dunnagan

Following controversy over the prospect of taxpayer funds being made available to support companies with a history of tax avoidance, there have been calls in the UK and around the world to exclude companies based in tax havens from accessing government support.

Whilst such eye-catching policies are popular, they are likely to be ineffective, according to TaxWatch’s latest report Paying in Equally?

Instead, our report suggests a package of reforms aimed at meeting the government’s goal of ensuring that all who benefit from state support pay in on an equal basis. This includes:

Making tax exiles liable for dividend income tax on profits derived from UK based companies.
Making government support for business repayable if a company is found to be engaging in tax avoidance.
Creating a list of companies ineligible for state support due to involvement in tax avoidance (regardless of whether that avoidance uses a listed tax haven).
Invest resources into tax enforcement to ensure better compliance with anti-tax avoidance legislation.
Mandate the publication of tax data by large, multinational companies.
Making data available to the public on which companies are accessing support schemes and on what terms.

To read the briefing in full, please click here. A PDF version is also available here.

This report has been covered in The Times, Law360, and Tax Notes International among others. Our Director has published an op-ed on the issue in the New Statesmen, and has been interviewed on talkRADIO.¹

Photo by Edwin Hooper on Unsplash

1The interview on the Alexis Conran shows is at 1145hrs on Sunday 10 May 2020.

Budget 2020 – Tax avoidance and evasion issues to look out for

10th March 2020 by George Turner

The new chancellor, Rishi Sunak, has had a busy month. Thrust into the hot seat as the government prepared to present its first budget since October 2018, one of the first items to hit his desk, a global pandemic.

Although the world’s attention is rightly focused on the Coronavirus, tackling tax avoidance remains a hugely important priority for the public. For a number of years polling has consistently shown that tax avoidance is viewed as morally wrong and the public have demanded that the government do more to tackle the problem.

At TaxWatch we believe that tax avoidance is a complex issue that takes many forms. It is not something which can be solved with one simple policy or tax change. If that was the case the issue would have been dealt with many years ago!

In this article, we set out two issues facing the Chancellor on tax avoidance and tax fraud as he puts the final touches on his first budget.

The Digital Services Tax

Over the last ten years, the most high profile tax avoidance story has been the behaviour of the new digital giants, and the corporate structures they employ to shift billions of dollars of profits to tax havens every year.

Financial journalists have been publishing stories about Google’s extraordinarily low corporate tax rate since at least 2010. In that time digital companies have managed to get out of paying tens of billions of dollars in tax payments to governments around the world. In doing so, they have faced growing anger from both the public and regulatory authorities.

In 2013 the G8 mandated the OECD to come up with proposals to deal with the issue. However, when the Base Erosion and Profit Shifting plan was published in 2016, the digital economy was left on the too difficult shelf. Talks continue to this day, with the OECD aiming to agree on a plan to restructure the global tax system by the end of this year.

In the meantime, treasuries have continued to leak huge sums of money. Inaction at a multilateral level has led to unilateral action, with governments around the world seeking to introduce Digital Services Taxes.

The UK Digital Services Tax was always designed as a stop-gap measure to be put in place until an international agreement was reached on a new system of taxing digital companies. The introduction of it was delayed for two years in order to give the OECD process an opportunity to succeed. Now this time has expired, the tax is scheduled to apply from April. It is a blunt instrument, taxing the UK derived revenues of large social media platforms, search engines and online market places. It is a significant departure from the usual method of taxing companies, which focuses on profits and not turnover. As such it is controversial.

Some stopgap is clearly needed. Research by TaxWatch found that just five digital companies were avoiding almost £1bn in taxes a year in the UK. The Digital Services Tax, imperfect as it may be, ensures that at least some (and by no means all) of that money is recouped by the UK government.

A number of digital businesses will not be impacted, such as video streaming services and video games producers, despite these companies operating very similar tax avoidance strategies. In a recent adjournment debate, Dame Margaret Hodge MP called for the tax to be extended to such companies. We do not expect to see this happen in the budget, as the government response at the time was that to change the Digital Services Tax now would be too difficult.

Digital Services Taxes have become a major diplomatic issue, with huge pressure being put on countries to stop or delay their introduction by the United States Government, who have threatened trade sanctions for countries going ahead with the measure. Most companies impacted by digital services taxes are headquartered in the United States.

With the budget coming just weeks ahead of the UK tax coming into effect, any announcement on the Digital Services Tax, or even no announcement, will be highly significant.

Avoiding unintended consequences

Tax avoidance can be seen as an unintended consequence of government policy. By definition, tax avoidance is people using the tax system in a way that was never intended by the framers of tax policy.

A clear avoidance risk therefore emerges from the 1,190 tax reliefs and allowances which are part of the UK tax system. Tax reliefs reduce the amount of tax owed by a company or person based. In recent years, they have increasingly been used as a tool of economic policy, being granted to encourage a multitude of economic activities.

Tax reliefs have been introduced to encourage the production of films, video games, and spending on R&D to name a few. These schemes work by allowing companies to make additional deductions from their tax bills for spending money on the desired activities.

Although these types of tax reliefs are obviously popular with the people getting a benefit from them, they are also open to abuse. The history of tax reliefs shows that no sooner does the government come up with a scheme to promote one sector, a group of accountants and lawyers find inventive ways to claim it.

In recent years film tax relief has been the focus of a lot of media attention after a number of high profile celebrities were caught investing in a scheme which abused the film tax relief system.

A huge risk is posed by the research and development tax credit system, where there is very clear evidence of abuse. The government currently spends a little under £4.5bn on R&D tax credits, a figure which has quadrupled over the last decade.

These tax credits work by awarding companies credits based on the amount of money they spend on research and development activities. These credits can then be offset against their tax bills. If the company has no tax liability they can receive money back from the government.

In 2016-7, the last year where figures are complete, HMRC awarded credits to companies claiming that they spent a total of £32.3 billion in spending on R&D. However, the Office of National Statistics (ONS) recorded just £22.6bn of spending on UK R&D activities in 2017.¹

It is unheard of for any tax relief to get anywhere near 100% take up, never mind more than 100%! The ONS data and the HMRC data are different and not directly comparable. They cover slightly different time periods, with the ONS looking at a calendar year whilst HMRC looks at the financial year. The HMRC data also counts some non-UK spending, which can be claimed under the R&D tax credit scheme (for example if a company subcontracts some R&D work to a non-UK company). The ONS data looks at UK spend only. However, the difference is very large, with the ONS data suggesting that R&D expenditure for tax purposes is 143% of UK R&D spend. This can’t simply be explained by differences in methodology, even the inclusion of non-UK spending. In fact, HMRC has identified the practice of some companies opening up UK subsidiaries with the sole purpose of routing payments through the UK to collect tax credits as an abuse of the system. The data suggests a worrying level of abuse.

The government accepts there is a problem. The last budget brought measures to cap the amount small businesses could claim in cash under the R&D tax credit scheme based on their UK payroll. It did this after identifying “fraudulent attempts to claim the SME scheme payable tax credit… even though they had no R&D activity.”²

These measures are due to come into effect in April this year. However, as recently observed by the National Audit Office, even when the changes to R&D tax credits announced in the 2018 budget are made, companies will still have until 2022 to claim under the old rules. This means that tax will continue to be lost for years after serious fraud in the system was identified.

The cap on SME R&D relief only deals with part of the problem. A significant amount of tax loss occurs from what is charitably termed “poor quality” R&D tax relief claims. This is where companies and their agents make claims for expenditure which should not be allowed, and the claim is not picked up by HMRC compliance staff, leading to an incorrect payment being made. According to the NAO:

“Following the increased assessment of tax at risk in 2018, HMRC is also exploring opportunities to improve its systems and processes for risk-assessing claims and preventing incorrect payments, which is likely to require both legislative change and funding.”³

This highlights a serious problem with the tax relief system. Tax reliefs can be very difficult to change, even where there is clear evidence of fraud in the system. Given that it is likely that the Chancellor will seek to increase spending on R&D tax credits in line with the commitment made in the 2019 Conservative Party Manifesto, it is important that this comes alongside more resources dedicated to tackling the abuse of the system.

Photo by Steve Smith on Unsplash

1 Office for National Statistics, Research and Development Tax Credit Statistics, October 2019, see table on page 16 for comparison of HMRC data with ONS data. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/837282/Research_and_Development_Tax_Credits_Statistics_October_2019.pdf

2 HM Treasury, Preventing abuse of the R&D tax relied for SMEs: consultation, see paragraph 1.3 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/790243/preventing_abuse_of_the_R_D_tax_relief_for_SMEs_consultation_web.pdf

3 National Audit Office, The management of tax expenditures, p35, https://www.nao.org.uk/wp-content/uploads/2020/02/The-management-of-tax-expenditure.pdf

TaxWatch research features in UK Parliament debate on evasion and avoidance

2nd March 2020 by George Turner

On February 25th an opposition day motion gave MPs an opportunity to debate the issue of tax avoidance and evasion.

Our research into the work of digital tech companies featured prominently in the debate.

Opening the debate for the Opposition, Shadow Chancellor John McDonnell highlighted our report “Still Crazy after all these years” which estimated the top five tech companies alone had avoided £5 billion in UK tax over five years.

Our recent update to the report, which estimated that £1.3 billion had been avoided by the big five as recently as 2018, was cited by Dame Margaret Hodge MP. The MP for Barking also highlighted our recent investigation of Netflix’s profit shifting activity.

Dame Margaret said that whilst the government’s proposed digital services tax was “a tiny start” it would raise only around £400 million by 2023.

“It makes me so angry,” she said, “Because these companies are as dependent as anybody else on the services our tax provides. They need a well-educated workforce, which is provided from taxpayers’ money; they need a healthy workforce, which is provided from taxpayers’ money; and they need infrastructure—whether roads, the internet or whatever else—which is often also provided from taxpayers’ money.”

The fact that large multinational companies are not paying enough in corporation tax was a point of cross party agreement. Kevin Hollinrake, Conservative MP for Thirsk and Malton, agreed the UK was not getting its fair share of tax from the tech giants.

“We know that Google turns over about 10 billion quid in the UK, we know that its international profit margin is about 22% and that 19% corporation tax on that should be £418 million, and we know that it pays about £67 million,” he said.

Conservative MP for South Cambridgeshire, Anthony Browne, highlighted how large multinationals arrange their finances to avoid declaring profits in the UK.

He said: “What any fair-minded person objects to is aggressive tax avoidance which results in companies or people paying less tax than is clearly their fair share…. The biggest examples are multinational corporations, who frequently arrange their internal transfer pricing, often of intellectual property, to ensure that most of their profits are booked in low-tax regimes.”

He added it was “an offence against any sense of fairness, and certainly against the public purse, that incredibly profitable global companies, such as Amazon, Facebook and Google, pay minimal tax in the UK because of the way they arrange their internal finances.”

Rounding up for Labour, Anneliese Dodds MP, noted TaxWatch’s recent work on Netflix and last year’s report detailing how Rockstar Games manages to avoid substantial amounts of tax, whilst claiming cash subsidies from the government.

TaxWatch recently reported that Rockstar took 37% of all the available subsidy for UK video games production in 2018/19 despite having paid no corporation tax for four years and the fact that Grand Theft Auto V, which is produced by the company in Scotland, is being widely cited as being the most profitable entertainment product in history.

Responding to the debate on behalf of the government, Financial Secretary to the Treasury, Jesse Norman MP, defended the operation of creative sector tax reliefs and argued that larger companies in receipt of the reliefs are subject to an “exceptional level of scrutiny” but that they should pay the “taxes due under UK law.”

Mr Norman also appeared to confirm that the government is pushing for international agreement to publish country by country reporting.

He said: “Private country-by-country registration is of course in place. The problem lies in securing the international agreement required to roll out the public registration. It demands a measure of international agreement, and that is something that we continue to focus on.”

A full transcript of the debate is available to read here.

Global Video Games Giants: Playing the system or paying their fair share?

9th October 2019 by Alex Dunnagan

A report from The Guardian, Revealed: global video games giants avoiding millions in UK tax, has shown that four large companies have claimed close to half of all Video Games Tax Relief (VGTR) since the scheme’s inception. The cost of Video Games Tax Relief has spiralled to over £100m a year, and since 2014 has seen WarnerMedia claim £60m, Sony £30m, and Sega £20m.

We have dug further into the accounts, and seen that not only are multinational companies claiming millions in relief, many are also engaging in tax avoidance, specifically profit shifting. The two companies which we have studied demonstrate that the VGTR scheme is almost bound to ensure that the UK games industry will not pay corporation tax – regardless of how successful the industry becomes. These examples highlight both how generous the relief is and how it can be open to abuse by companies which engage in tax avoidance.

Video Games Tax Relief is a poorly executed scheme. The intent is to promote British culture, and to foster innovation amongst small independent games developers through subsidies. The reality is that this scheme is being used as state-aid, acting as corporate welfare for multi-national companies worth billions.

The full report can be found here.

This research was featured in The Guardian, Metro, and was covered extensively in video game industry publications.

Photo by Marcin Lukasik on Unsplash

What is Tax Avoidance?

2nd October 2019 by George Turner

2nd October 2019 – George Turner

For as long as taxes have existed, people have sought to avoid paying them. The term tax avoidance can be traced back to the early 1900s, and the issue has gripped the public, press and politicians ever since. Today, tax avoidance is considered to be one of the most important economic issues of our time.

However, although the term tax avoidance is familiar to most people, the precise definition of tax avoidance been a vexing issue. The term seeks to describe a number of different behaviours, and is often misused by people seeking to legitimise behaviour considered distasteful. This gives rise to the most common misconception, that all tax avoidance is legal. There is often a dissonance between how the public view tax avoidance and how people administering the tax system view it, leading to public anger about government inaction.

The difficulty in finding a definition which adequately describes tax avoidance has led some to compare it with hardcore pornography – the definition of which was once described by a US Supreme Court Justice as “you know it when you see it.”

To some extent, the idea that tax avoidance can be judged by common sense is not a bad one. So much of tax avoidance relies on the construction of complex structures which may seem logical in the minds of the tax lawyers who construct them, but when viewed from outside seem ridiculous.

A common sense approach could serve as a useful guide to members of the public approached to engage in tax avoidance schemes. Even HMRC encourage this approach, warning the public about schemes that are ‘too good to be true’ in their guide on how to identify a tax avoidance scheme.

However, when taking decisions, tax authorities, judges and policy makers can’t rely purely on common sense.

For our purposes we propose the following definition:

Tax avoidance is an abuse of the tax system, a deliberate attempt to get out of an obligation to pay tax by entering into a set of artificial financial arrangements which have little or no commercial purpose other than the reduction of a tax bill.

Tax avoidance is unethical in that it seeks to undermine tax law and public policy. It frequently is found to be unlawful.

An obligation

An important part of this definition is the idea of obligation. If the government intended for a transaction to be exempt from tax, then there is no obligation to pay tax on that transaction. It therefore follows that a person or company can not be engaging in tax avoidance by using a tax exemption in the normal way.

It is possible for people to abuse tax exemptions to produce an outcome which was never intended.

A good example of this are the film schemes which used by many celebrities. Film tax relief was originally intended to support film producers by providing tax relief on their production costs. However, tax advisors were able to abuse the relief by creating schemes which transferred the benefit to investors rather than producers.

People who defend tax avoidance often draw an equivalence between they types of artificial tax avoidance schemes designed by tax advisors and individuals using a government scheme which exempts a taxpayer from tax such as an Individual Savings Account (ISA). They are entirely different because there is no intention of any individual to get around government policy though the use of an ISA. People putting money into ISAs are doing precisely what the parliament intended to them to do.

People may view ISAs, which allow people to invest £20k a year in stocks and shares, and exempts the profits from those investments from tax forever, as an unreasonable tax break which disproportionately benefits those who are already wealthy, but that does not make it avoidance.

Tax avoidance and the law

A number of popular definitions of tax avoidance which make reference to the law. Tax avoidance is often defined in opposition to tax evasion, with tax evasion being illegal, and tax avoidance being legal.

The HMRC definition is similar in this regard, making reference to the spirit of the law:

“Tax avoidance involves bending the rules of the tax system to gain a tax advantage that Parliament never intended.

It often involves contrived, artificial transactions that serve little or no purpose other than to produce this advantage. It involves operating within the letter, but not the spirit, of the law.”

As we set out in our article on the legality of tax avoidance, defining tax avoidance in opposition to illegal tax evasion is highly problematic.

As we argue, although tax avoidance operates in the margins and gaps of the law, and as a result may not be explicitly prohibited by law, most tax avoidance is unlawful in the true meaning of the word. That is that the tax arrangements in question should be disregarded in the eyes of the law when calculating a tax liability.

Is Tax Avoidance Legal?

2nd October 2019 by George Turner

2nd October 2019 – George Turner

There is a pervasive understanding amongst the public, journalists and politicians that tax avoidance is all ‘perfectly legal’.

This idea is promoted by tax advisors who have a direct financial interest in convincing their clients that what they are doing will not get them into trouble.

It is propagated by the media, who, on the advice of media lawyers seeking to avoid being sued for libel, include the blanket statement that tax avoidance is ‘perfectly legal’ in almost every article exposing the practice.

The claim that tax avoidance is ‘legal’ is used as defence by companies who are accused of the practice, and the idea has been adopted by politicians who claim that businesses and individuals have a moral (not legal) obligation not to engage in tax avoidance.

Even HMRC’s own definition of tax avoidance makes reference to “bending the rules” (not breaking them), and stating that tax avoidance involves “operating within the letter, but not the spirit, of the law”.

This idea, that all tax avoidance is legal, is a myth. In most cases tax avoidance is not legal at all, and for several decades courts around the world have taken an increasingly aggressive stance towards tax avoidance schemes, striking them down and imposing penalties on those involved.

HMRC, the UK tax agency, claims to have won pretty much every time it has challenged a tax avoidance scheme in court in recent years.

Illegal or Unlawful?

When something is said to be illegal, many people think that this means the act in question can result in some sort of criminal penalty, such as a fine or a prison sentence.

Because tax avoidance is not a criminal offence, many commentators, even those harshly critical of the practice, have come to the view that this makes it legal.

As Brooke Harrington, an academic, wrote in an article about the Panama Papers,

“What Mossack Fonseca and its counterparts all over the world really provide is the expertise that allows their clients to stay just on the right side of the law—or far enough into the legal grey zones that the clients have a real chance to prevail if they end up in court. That’s why many of the people who have seemingly been exposed by this leak will likely never face charges of any kind. To the extent that Mossack Fonseca’s work facilitated crime, that was a bug rather than a feature….

Some of the activity uncovered in the Panama Papers will turn out to be illegal. But if past is prologue, then the majority of what we learn from the leak will merely be embarrassing for those exposed—showing them to be opportunistic and perhaps unethical, but not criminal. And that is why many of the people named in the documents are unlikely to see the inside of a courtroom concerning the services that Mossack Fonseca provided to them: not because they have the power now to quash prosecutions (with some notable exceptions!), but because some time ago they had the power to hire expert advisers who carefully designed their tax-avoidance (or law-avoidance) strategies.”

What these commentators miss is the distinction between acts which are unlawful and those which are illegal. Black’s legal dictionary describes the term unlawful in the following terms:

‘“Unlawful” and “illegal” are frequently used as synonymous terms, but, in the proper sense of the word, “unlawful,” as applied to promises, agreements, considerations, and the like, denotes that they are ineffectual in law because they involve acts which, although not illegal, i.e., positively forbidden, are disapproved of by the law, and are therefore not recognized as the ground of legal rights, either because they are immoral or because they are against public policy.”

This line of thinking counts as unlawful acts that have no legal effect. The recent Supreme Court judgment in the case of the R vs the Prime Minister is a case in point. In that case the Supreme Court determined that the Prime Minister’s advice to the Queen to shut down (or prorogue) Parliament was ‘unlawful’, which meant that the act of ‘prorogation’ had no effect. In the words of Lady Hale, the prorogation, a ceremony where Royal Commissioners enter the House of Lords with an order from the Queen to close Parliament “was as if the Commissioners had walked into Parliament with a blank piece of paper. It too was unlawful, null and of no effect.”

Tax avoidance, as viewed by the courts, frequently falls into this category. Tax avoidance takes advantage of the fact that the wording of the law may not be clear, or that a particular law conflicts with another, creating ambiguity around how the law should be applied. Because it seeks to exploit gaps and loopholes in the law, it is not positively prohibited, but public policy is very clearly opposed to tax avoidance. What this means in practice is that the courts can determine that a tax avoidance scheme has no effect, reversing the advantage that any taxpayer sought to gain, and imposing a civil penalty. For the tax avoider, the transactions entered into are as if they were blank sheets of paper.

The real world of financial transactions

Most taxes arise out of a financial transaction, money changing hands. For example, income tax is a tax on income, VAT is a tax on the purchase of goods or services for consumption, stamp duty is levied on sale of property.

A few taxes are driven by events, such as inheritance tax, but even here the transfer of assets on death can be a deemed disposal of assets. Corporation tax, as a tax on profits can be thought of as arising out of a series of transactions.

Within any tax jurisdiction, different types of transactions are taxed at different rates and subject to various allowances, with some transactions not being taxed at all. For example, in general if you receive cash as a loan, you are not taxed on the money you receive, because it is expected that you will have to pay the money back. If however you receive money as payment for work, it would be subject income tax and national insurance.

Tax avoidance schemes seek to exploit these differences by making sure that payments are made in a way which attract the minimum amount of tax possible.

The problem for tax avoiders is that financial transactions exist in the real world, and tax law is intended to reflect those real world transactions. As stated by Lord Carnwath LJ in the Barclays Mercantile case, tax statutes “draw their life-blood from real world transactions with real world economic effects”. When money changes hands it does so for a reason, and that reason is important when it comes to the application of the law.

Lawyers can not simply draw up a contract which claims that a payment between an employer and employee is not income when everyone involved was clear that in the real world this was really income. Such an arrangement would be viewed as a sham, and probably cheating the revenue, a criminal offence which can result in long prison terms.

Instead, tax avoiders try to put in place a series of legitimate transactions in order to move money from one place to the other whilst attracting little or no taxation. Each transaction may, when viewed in isolation, be a lawful payment which does not attract taxation, but the net effect will be to get the money from one party to another which has the same real world effect of another transaction which would normally be subject to tax.

When payments cross borders this process is much easier, and different countries have different rules regarding different types of income which multiplies the opportunities of tax avoidance. The mismatch between the laws of different countries allows tax advisors to construct more routes and pathways through the legal system that avoid tax.

When tax avoidance was legal – the Duke of Westminster’s case

Under a historic interpretation of tax law, these types of tax avoidance schemes really would have been considered to be perfectly legal. In 1936 the House of Lords considered a case involving the Duke of Westminster, who had set up a scheme to avoid paying tax on income he used to pay his servants.

Instead of paying his servants a weekly wage, lawyers acting for the Duke drew up a deed which stated that they were to receive an annuity paid in weekly installments. Payments of annuities were deductible from the Duke’s income for tax purposes, wages paid to his staff were not.

The annual payment was not deemed to be a sham because the payment was not dependent on the servants doing any work, and the contract even permitted them to seek work elsewhere and still receive the payments. The real legal effect of the transaction was considered to be closer to that of a pension than a wage. However, side letters between the Duke’s solicitors and the servants noted an understanding that they would continue to work for the Duke.

The Revenue argued that regardless of the legal form of the payments, the substance of the transactions was that of a wage, and should be taxed as such.

The House of Lords found in the Duke’s favour in a split decision. The precedent was set that when it came to tax, the courts should only apply a strict literal interpretation of the law. In the view of Lord Tomlin, to do otherwise would “involve substituting ‘the incertain and crooked cord of discretion’ for ‘the golden and streight metwand of the law’.”

As noted by Lord Steyn in Commissioners of Inland Revenue vs McGuckian, the Westminster Doctrine, combined with the approach of the courts to look at each stage of a series of transactions in isolation “allowed tax avoidance schemes to flourish to the detriment of the general body of taxpayers”. The result, Lord Steyn went onto say, “was that the court appeared to be relegated to the role of a spectator concentrating on the individual moves in a highly skilled game: the court was mesmerised by the moves in the game and paid no regard to the strategy of the participants or the end result. The courts became habituated to this narrow view of their role.”

In effect, the Westminster Doctrine made tax avoidance ‘perfectly legal’ and created an industry of tax advisors whose job it was to look for gaps and loopholes in the law. It also provoked the government into writing increasingly detailed legislation to account for every loophole it found.

The Ramsay Principle

The Duke of Westminster’s case, and in particular the often quoted phrase that “Every man is entitled if he can to order his affairs so that the tax under a tax statute is less than it would otherwise be”, lives on in the popular conception of tax avoidance, but the courts moved on from Westminster a long time ago.

In 1982 the Court of Appeal reconsidered the Westminster Doctrine in Ramsay vs Inland Revenue Commissioners. This case involved a tax avoidance scheme which took the avoider though a series of transactions which had no purpose other than to create an artificial loss which could be offset against a real capital gain which had been made on the sale of a property.

The loss existed on paper only, there was no real loss to the taxpayer, other than the fees he paid to the people who operated the scheme. In the words of the tax advisors who constructed the scheme quoted in the judgment – “the scheme is a pure tax avoidance scheme and has no commercial justification.”

Under the Westminster Doctrine the scheme would have been successful, because all of the transactions entered into were genuine transactions and executed in a series would produce the desired effect.

Despite this, in what Lord Steyn later described as an “intellectual breakthrough”, the court found that they should not be considered to create a loss for tax purposes because taken as a whole they created no real loss to the tax avoider. The paper loss should therefore be disregarded and the tax imposed on the gain.

In his judgement Lord Wilberforce stated that “The Capital Gains Tax was created to operate in the real world, not that of make-belief… it is a tax on gains… it is not a tax on arithmetical differences.”

The case had wide implications for tax law in the UK, establishing the Ramsay Doctrine, the precedent that transactions which may have been technically legal under a strict interpretation of the law, could in fact be disregarded by the revenue authority if they were designed with the sole purpose of avoiding taxation.

In coming to his judgment Lord Wilberforce cited the opinion of a US judge in a case involving income tax:

“The Income Tax Act imposes liabilities upon taxpayers based upon their financial transactions. … If, however, the taxpayer enters into a transaction that does not appreciably affect his beneficial interest except to reduce his tax. the law will disregard it.”

Lord Wilberforce stated that the opinion displayed “a process of thought which seem to me not inappropriate for the courts in this country to follow.”

How the courts have viewed tax avoidance after Ramsay

Following the decision in Ramsay, a clear line of authority has developed where the courts will determine a tax avoidance scheme to have no effect if they believe the scheme to be contrary to the purpose of tax law.

This line of authority has developed a process for dealing with tax avoidance. First, the courts have consider whether a scheme is constructed for the purpose of tax avoidance.

A much cited case in tax law is the case of Barclays Mercantile, where The House of Lords described tax avoidance in the following terms:

“structuring transactions in a form which will have the same or nearly the same economic effect as a taxable transaction but which it is hoped will fall outside the terms of the taxing statute. It is characteristic of these composite transactions that they will include elements which have been inserted without any business or commercial purpose but are intended to have the effect of removing the transaction from the scope of the charge.”

Once the attempt at tax avoidance has been identified, the court can then disregard the avoidance transactions and seek to apply tax law in the way in which it was intended to apply, i.e. in the absence of tax avoidance.

As set out by Lord Brightman in Furniss v Dawson:

“the inserted steps are to be disregarded for fiscal purposes. The court must then look at the end result. Precisely how the end result will be taxed will depend on the terms of the taxing statutes ought to be applied.”

This end result will be a matter of interpretation and in doing so judges have to look at the purpose and spirit of legislation. As set out in Inland Revenue Commissioners v McGuckian:

“in determining the natural meaning of particular expressions in their context, weight is given to the purpose and spirit of the legislation.”

Contrary to the view that the law allows wealthy individuals and corporations to employ sophisticated legal mechanisms to avoid the spirit of the law, these legal principals provide a great deal of protection for tax the tax system from abuse. They have been used by the courts to find against complex tax avoidance schemes where a great deal of effort has been expended in attempting to find a way past the law.

An important demonstration of the willingness to the judiciary to take on complex tax avoidance schemes was the judgement of the UK Supreme Court in UBS vs HMRC; DB vs HMRC.

This case involved a tax avoidance scheme on the payment of bankers bonuses by Deutsch Bank and UBS. Both banks had set up offshore companies to pay bonuses in shares rather than cash. The shares would be redeemable for cash, which mean that the end result would be that the bankers would access cash without the usual income and national insurance charges. The offshore companies were carefully constructed in order to take advantage of certain exemptions in the law around the payment of bonuses in shares.

Lawyers for the tax avoiders argued that the law being considered (the Income Tax (Earnings and Pensions) Act 2003), contained detailed anti-avoidance measures. The tax avoidance scheme had been careful not to fall foul of these anti-avoidance provisions. As a result, they argued, the courts should not infer any further anti-avoidance purpose to the legislation which was not already set out in statute.

The Supreme Court rejected this view. It found that there were a number of reasons why the government might want to exempt payment in restricted shares from tax, including the promotion of employee share ownership. Providing an avenue for bankers to receive their cash bonuses tax free was not one of those purposes. The court also took the view that the inclusion within the Act of anti-avoidance measures simply re-enforced the argument that the intention of lawmakers in enacting the legislation was not to facilitate tax avoidance.

All this is not to say that all forms of tax avoidance as it is broadly understood will be determined to be unlawful. There have been occasions when judges, in looking at the facts of a particular case, have found that although a taxpayer engaged in a tax avoidance scheme, their actions were not in fact contrary to the “purpose and spirit of legislation” they were using, and the tax avoidance was successful. However, given that the intent of the tax avoider is almost always to defeat the spirit of the law, then such cases will be rare.

As the Hong Kong Final Court of Appeal stated in The Collector of Stamp Revenue and Arrowtown Assets Limited:

“The ultimate question is whether the relevant statutory provisions, construed purposively, were intended to apply to the transaction, viewed realistically. Where schemes involve intermediate transactions having no commercial purpose inserted for the sole purpose of tax-avoidance, it is quite likely that a purposive interpretation will result in such steps being disregarded for fiscal purposes. But not always.”

There are also cases which never make it to court, where the status of the avoidance is ambiguous. For example, some of the avoidance schemes devised by banks, tax lawyers and accountants are so innovative and complex, it only becomes clear that they are unlawful when tested in court, but since the Revenue usually resolves cases without going to court, companies claim that their actions were not unlawful.

What is clear is that the blanket statement that tax avoidance is “perfectly legal”, is ridiculous.

Real world impacts

Once this is understood, there are far reaching consequences.

The Ramsay principal was established over 35 years ago. It began a clear line of legal authority on how the courts will consider the legality of tax avoidance schemes that remains in effect today and has been confirmed in a number of high profile cases since.

Yet tax advisors, lawyers and accountants have continued to construct and market tax avoidance schemes that are obviously unlawful, claiming that they are in fact “legal”.

Is it really possible that these advisors are unaware of the legal risks they are creating for their clients? Or is it the case that many tax advisors, including leading firms of accountants, are engaging in a giant mis-selling scam.

Afterall, when these schemes are challenged, it is the clients and not the advisors that are left with a large bill and a penalty to pay, the advisors keep their fees.

There will be little sympathy for large corporations left in this position, but for individuals who may have been tempted by the idea of a “legal” tax reduction, the impacts of a large unexpected tax bill can be devastating.

Economic transactions, including taxes, do have real world effects, and for that reason it is important that journalists, politicians, researchers and others with a voice do not spread the myth that tax avoidance is all perfectly legal.

Tax avoidance

Beyond the Loan Charge: Will the most recent proposals finally shut down disguised remuneration schemes?

In 2016 Chancellor George Osborne declared the introduction of the loan charge would “shut down disguised remuneration schemes”.

Yet HMRC estimates 31,000 people used such schemes in 2020-21, resulting in a loss of £400m in tax.

The authorities have attempted to address the demand and supply of such schemes, using mainly administrative and civil penalties.

While tens of thousands face the loan charge, few enablers have faced hurtful sanctions.

Fewer than six financial penalties for enabling defeated tax avoidance schemes have been issued since 2017.

Fewer than five investigations into disguised remuneration tax avoidance schemes resulted in a criminal charge since 2017.

Recent proposals are unlikely to shut down the disguised remuneration schemes anytime soon.

Action taken

Will the latest approaches defeat disguised remuneration schemes?

Differing approaches to combating marketed tax avoidance schemes

Respectable end of the avoidance market

Sideways illusion

Legal confusion

Limitations of legislative fixes

Learning lessons

Justice delayed is justice denied

Monitoring the bailout

Monitoring the bailout

The story of Covid-19 bailouts in the UK by industry sector

Transport

Supermarkets

Manufacturing / Heavy Industry

Hospitality

Retail

Football Clubs

Care Homes

Second Homes

Professional Services

Tax avoidance, bailouts and bribery – The UK government’s Corona Corporate Finance Facility

Companies with links to tax havens or tax avoidance

Tax haven UK costs the taxpayer

Financial impropriety

ABB

Chemring Group

Tax havens, tax avoidance, and government support for businesses during the coronavirus pandemic

Budget 2020 – Tax avoidance and evasion issues to look out for

The Digital Services Tax

Avoiding unintended consequences

TaxWatch research features in UK Parliament debate on evasion and avoidance

Global Video Games Giants: Playing the system or paying their fair share?

What is Tax Avoidance?

An obligation

Tax avoidance and the law

Is Tax Avoidance Legal?

Illegal or Unlawful?

The real world of financial transactions

When tax avoidance was legal – the Duke of Westminster’s case

The Ramsay Principle

How the courts have viewed tax avoidance after Ramsay

Real world impacts