It emerged recently that the H M Revenue and Customs (HMRC) is sending letters directly to around 1,500 people who have signed up to a particular tax avoidance scheme.  Although the scheme has still to be legally challenged the HMRC is getting its retaliation in first and giving tax payers the opportunity to get out of the unnamed scheme before such a challenge.

As an accountant I have mixed feelings around tax avoidance schemes.  Whilst everyone should have the right to organise their affairs as they see fit the use of schemes is fraught with danger.  Anyone using a scheme needs to do so with their eyes wide open and understand that the HMRC will almost certainly look to challenge the scheme.

The role of the HMRC is to make sure that schemes do not stray from tax avoidance to tax evasion and I fully support their right to vigorously investigate any scheme.  Historically the HMRC have investigated schemes by contacting the promoters of the scheme rather than the individual investors to tell them they will be challenging the scheme.  I suspect that by contacting the investors directly the HMRC are hoping to scare or bully some investors into withdrawing from the scheme and I do have concerns over the use of such tactics.

Apparently one version of the letters says “You are in a small minority of people who have made the deliberate choice to avoid taxes.  We focus our resources on this small minority.  The choice you have made changes the way we view your tax affairs.”  Clearly the implication is that not only will the HMRC enquire into the investment in the scheme but that by remaining in the scheme you are almost guaranteed to be the subject of a detailed enquiry.  Another extract explains how the HMRC are happy to use the courts and to challenge tax avoidances and that if they do this, there will be years of uncertainty about your tax affairs.  Whilst this is undoubtedly true and users of these schemes need to be aware of this, I do not feel it is the role of HMRC to warn investors about this.

In order to justify using a tax avoidance scheme it is likely that the investors are reasonably financially sophisticated or will pay advisers to be sophisticated on their behalf so I would not expect these threats to be taken too seriously and would not expect significant numbers to withdraw from the scheme.  It does however beg the question where will this tactic stop.  If it is subsequently shown that some people were bullied by the HMRC into withdrawing from a perfectly legal scheme then clearly this would be an unacceptable abuse of power.  Additionally if this tactic is used more frequently in the future it will increase the chances of unnecessary stress being caused to innocent individuals.