Over the weekend, the BBC reported that HMRC is writing to certain individuals warning them that their participation in a scheme that HMRC does not like, means that their tax affairs are to be treated as “high risk”. Apparently, the letter advises these individuals that HMRC will be opening enquiries into their tax affairs. Furthermore, according to the BBC report, the letter also advises that people participating in the (unnamed) scheme could end up having to pay not just the outstanding tax but also interest and possibly penalties.
Now I don’t have any problem with that. There is (almost always) no guarantee that these marketed avoidance schemes work (despite “Counsel’s Opinion”) and if HMRC do challenge it, it could be years before a final decision is reached. I believe it is important that anyone participating in marketed avoidance schemes should be fully aware of the potential implications.
However, certain aspects of the letter (as reported by the BBC) do concern me.
The letter apparently provides the recipient an opportunity to ‘repent their sins’, exit the scheme and pay the “tax due”. Presumably with the promise that no penalties will be sought.
The problem is that tax is only “due” at this point because HMRC says it does not accept the promoters’ analysis of the scheme. According to the BBC report: “An HMRC spokesman admitted that these people were free to argue because no ruling had yet been made about the legality of this scheme.”
I hope this has been made clear in the letter, because otherwise it rather feels like people are being pressured into withdrawing from the scheme under threat of investigation and possibly penalties. It is absolutely right that HMRC should challenge these schemes if they do not believe they work, but they should challenge them in court and not simply bully people into backing down and paying up.