Following the Sunday Times’ declaration of the rebirth of tax avoidance schemes, we thought it worthwhile checking out precisely which schemes are now available and to whom.
The answer appears to be that there aren’t really many schemes available at all. And those that are on offer are only open to a very select few able to slip under the radar of HMRC.
“I was very surprised by the [Sunday Times] article,” confesses Ray McCann, a director in the banking and capital markets tax team at PricewaterhouseCoopers. “The scope for that kind of planning these days is pretty limited. It’s laughable to think that banks would be able to engage in wholesale tax avoidance.”
The death knell for the tax avoidance party was apparently the 2004 tax avoidance disclosure rules. The rules, which came into force in 2006, say that any exciting new ideas for avoiding income tax must be disclosed to HMRC within just five days of their presentation to clients.
They also give the government the power to recoup taxes reduced as a result of tax avoidance retrospectively. And there is no cut off date for recouping avoided tax. One current case involves an attempt to retrieve unpaid tax from 15 years ago.
“None of the schemes tried in the 1990s are viable now,” says John Whiting, a tax policy director at the Chartered Institute of Taxation. “However, the proposed increase in income tax to 50% has changed the risk/reward balance and may make some people willing to try new ones.”
According to the Times, two new structures are emerging as a result: paying people in growth securities taxed as capital gains, and paying people in CFD, also (we imagine) taxed as capital gains.
McCann and Whiting say neither appear foolproof, and both would be liable for income tax in most circumstances.
“A lot of recent tax planning has focused on restricted securities, where you receive a security whose value is initially restricted. Once the restrictions are lifted, the value increases enormously,” says McCann. “If you can argue that the increase results from ownership of the security, and not from being an employee, it may be liable for capital gains tax.”
Unfortunately, HMRC is already looking at this ruse (which sounds suspiciously similar to Credit Suisse’s toxic asset bonuses).
“You might be able to come up with something on bespoke basis for one or two individuals, but to come up with a widespread tax avoidance scheme in the current legislative environment would be very hard,” says McCann.