UK: ‘Naming and shaming’ threat for wealthy tax avoiders

Wealthy investors in multiple tax avoidance schemes are being leaned on to settle what the tax authority sees as due, or risk reputational damage, reports the Financial Times.

Although the government has yet to legislate for powers to “name and shame” tax avoiders, HM Revenue & Customs has warned a group it identified as “serial avoiders” they risk being publicly outed if they do not exit their arrangements and pay outstanding tax debts.

In a letter issued last month and seen by the Financial Times, the Revenue encouraged recipients “who persistently use tax avoidance arrangements” to settle their ongoing disputes “in order to put the past behind them and protect their reputation”.

“It’s essentially an intervention letter,” said Richard Morley, a partner at accountants BDO. “The message is: ‘you have been identified, consider settling up’.”

The Revenue’s correspondence chimes with government efforts to widen the scope of penalties for tax avoidance and encourage compliance.

Announcing the Summer Budget, which proposed new counter-avoidance measures including publishing the names of “serial” avoiders, chancellor George Osborne said: “These people should have nowhere to hide.”

“The tax is important, but if there is a threat of publicity, wealthy clients are going to take it more seriously,” said Mr Morley.

Tina Riches, national tax partner at Smith & Williamson, said the importance placed on reputational risk is illustrated by the shift in attitudes towards tax planning over the past decade, as tax avoidance has risen up the political agenda.

“Most wouldn’t now dream of getting into anything that the public might see — or the press might label — as egregious tax avoidance,” said Ms Riches.

Having listed their investments it sees as avoidance vehicles, HMRC asks recipients of its letter if they “are comfortable with the fact that if the arrangements are litigated, [they] may become publicly known from the tribunal proceedings as a persistent user of avoidance schemes.”

The majority of offending schemes, mostly entered into a decade or so ago, await tax tribunal hearings. However, the Revenue has the power to issue so-called “follower notices” to participants in arrangements it deems similar enough to those it has successfully defeated.

The letter, signed by the head of HMRC’s high net worth unit, Yvonne O’Hara, encourages taxpayers targeted by the clampdown to engage with the tax authority and “bring certainty to [their] tax affairs.”

The high net worth unit, which handles the tax affairs of individuals with net worth of £20m or more, has generated more than £1bn from improving compliance since it was set up in 2009.

Michael Avient, personal tax partner at UHY Hacker Young, said the letter could be interpreted as a calculated measure to raise tax revenue. “It can be sent out to a very small number of people and generate a relatively large amount of money, with very little effort.”

Paul Noble, a tax director at law firm Pinsent Masons, said the letter should not be seen as offering a deal for taxpayers. “This is not about compromise; any settlement will be on the Revenue’s terms.”

The authority’s Litigation and Settlement Strategy (LSS), introduced in 2007, has restricted the ability of officials to resolve disputes with taxpayers by negotiating deals. Where HMRC is confident a tribunal would rule in their favour, the LSS binds them to litigate unless the taxpayer settles the full tax due, including interest and any penalties.

The LSS does, however, allow the Revenue to offer limited discounts — generally up to 10 per cent — for early settlement, said Ms Riches. “The actual incentive to pay up is not huge, apart from offering peace of mind.”

The government’s proposals for “tougher” measures against serial avoiders have been criticised by the likes of the Association of Accounting Technicians, which warned that “naming and shaming” tax avoiders is different from naming tax evaders — as the Revenue already does — as they have not broken any law.

The Law Society, the professional body for solicitors, has said it strongly disagrees with government proposals to restrict access to tax reliefs for those deemed serial avoiders, whose definition it also questioned.

In its response to an HMRC consultation earlier this year, the Law Society wrote: “it would be quite hard to set out the characteristics which distinguish a ‘serial offender’ . . . from someone who, well advised, had nevertheless entered into mitigation arrangements which were unsuccessful.”