Small Biz tax avoidance scheme gone bad

1d7nj8

in 2013 my accounts at the time advised me to enter into a DOTAS-registered tax avoidance scheme which cost me over £20k and reduced my corporation and income tax bills. at the time I was told "All of our investments along with our Tax schemes have undergone vigerous due diligence by our network tax experts, and only the best most robust structures are available to our clients"

The HMRC now deem this scheme "not to work" and I have received a APN for income tax and national insurance liability of £80k.... against which there is no formal appeal procedure, I cannot find this amount of money is 30 days and risk loosing everything I have worked so hard for since starting the company single handedly 12 years ago, I feel I was given bad advice by the accountants and that at I'm at least due the 20k fee back for signing up to the scheme in the first place.

Browntoa

Your only avenue is to sue the accountants as it was their advice and recommendation

They have indemnity insurance (or should have ) to cover these sort of things

antrobus

1d7nj8 wrote: »

.....The HMRC now deem this scheme "not to work" and I have received a APN for income tax and national insurance liability of £80k.... against which there is no formal appeal procedure,.....

Most tax avoidance schemes 'don't work'. I bet you wish you'd known that before you signed up.:)

1d7nj8 wrote: »

..... I cannot find this amount of money is 30 days and risk loosing everything I have worked so hard for since starting the company single handedly 12 years ago, ....

You can ask HMRC for time to pay.

If a person is unable to pay an amount of tax and contacts HMRC before the point a penalty for late payment becomes chargeable (the penalty date) asking for time to pay the charge, the late-payment penalty is not charged provided that HMRC agree to the time-to-pay request and the taxpayer keeps to the terms agreed.

http://forums.contractoruk.com/hmrc-scheme-enquiries/105889-paying-apn-instalments-penalties.html

1d7nj8 wrote: »

....I feel I was given bad advice by the accountants and that at I'm at least due the 20k fee back for signing up to the scheme in the first place.

You can try.

But I'm betting that the contract that you signed when you paid your £20k has all sort of get-out clauses in it.

paddyrg

See if HMRC will let you negotiate a payment plan. Ultimately they want what they're owed, not to actually kill your business, and may be open to talking. If it's a limited company, maybe you can lend it some private assets to pay off the debt. If it's personal, then maybe start selling some things pronto, remortgage/sell the house.

The accountants will be terrified just now if they tried to push several people into it. Get your claim against them in urgently so you're ahead of the queue. This might drive them bankrupt too, so see if you can get any cash from them before that happens. They should be insured for bad advice, but it won't be a speedy process, insurers aren't known for rushing to pay out.

Horrid situation. More than anything else right now, you need trustworthy professional advice - and in the face of the £80k you have to find, an extra few hundred quid will be well spent. I suggest people play things straight with HMRC, if they decide a tax scheme is with going after it'll come down to small actors trying to prove something against a massive, very specialist organisation. At the very least, save any money you already to save by not paying your vanilla taxes waiting for if and when HMRC come knocking.

This happens a lot with marginal clever schemes - Ingenuous (film finance tax entity) have been in deep conflict with HMRC over a scheme since 'Avatar', and are spending multiple millions fighting. Christopher Lunn and company advised more than 7000 smallish businesses with a tax streamlining scheme, he was sentenced to 5 years this week. Of course, all their clients then get thoroughly audited too. At the very least, keep the savings liquid just for that day HMRC come knocking - as it is you'll have had an unfair competitive advantage against your peers!

Pennywise

Not sure how a £20k investment can lead to a £80k tax bill. Usually these kind of schemes were pound for pound, i.e. if your tax bill was going to be £20k, you "invested" that same £20k into a scheme which somehow was inflated to a higher "loss" on which you got tax relief, which just happened to equate back down to the £20k tax bill. Clearly an artificially contrived scheme. Or do you mean the £20k was in fees for the advisers/operators of the scheme?

You "may" have a claim against whoever sold you the scheme and against the scheme operators, but both may take a lot of time and money to claim against. They may go bankrupt themselves, may not have insurance, and may have a concrete "get out clause" in their contract. In the meantime HMRC want their taxes within a reasonable timescale, so it's a matter of contacting them now to agree a payment plan, and alongside that, taking proper legal advice from specialists to start a claim against your advisers/scheme operators (who almost certainly will blame eachother, prolonging the process even more).

It's hard to see how the scheme could reduce both your corporation tax and personal taxes at the same time. Most schemes are one or the other. Where did the £80k tax go that you avoided paying? I don't suppose it was one of those foreign loan/trust schemes where the company paid a lump to a foreign firm, and claimed corporation tax relief by pretending it was a legitimate business cost, and then you personally got some kind of loan back "tax free" from that firm, so managing to virtually eliminate both corporation tax and personal tax on relatively high amounts of earnings? Did you not think it was too good to be true?

Either way, you may have to sell personal assets (cars, home, etc or whatever you used the £80k for that should have been paid in tax) or raise funds via loans or a mortgage, if you can't trade through it quickly enough to pay within the timescales HMRC require.

If the amount owed by the limited company is high enough to warrant it, you may have to consider the nuclear option of liquidating it, but you'd need a decent insolvency practitioner to explain your options. It is possible given the right circumstances to shut it down, let it's HMRC debts die with it, and for you to start again - phoenixism, but it's not for the amateur. You'd have to pre-agree with the liquidator to buy any assets you need for your new company start, i.e. equipment, goodwill, intangibles, etc - the amount depends on the business assets. If you don't do it properly and with the approval of the liquidator/receiver, you're at risk of action against you personally to recover monies owed.

Pennywise

There's an interesting, but very long thread, over on the UK Contractors website about the loan/EBT schemes being attacked by HMRC. It started back in 2011 when HMRC first started attacking the artificial tax avoidance schemes and was active through to early 2015. Well worth a read.

http://forums.contractoruk.com/accounting-legal/63073-loans-ebts-other-trusts.html

Also a whole board section on other kinds of tax enquiries and avoidance schemes.

http://forums.contractoruk.com/hmrc-scheme-enquiries/

May be something in there of help to the OP, even if it's just other people who've been using the same scheme/promotor, as some people seem to be taking about class actions against some of the operators.

antrobus

paddyrg wrote: »

....The accountants will be terrified just now if they tried to push several people into it. Get your claim against them in urgently so you're ahead of the queue. This might drive them bankrupt too, so see if you can get any cash from them before that happens. They should be insured for bad advice, but it won't be a speedy process, insurers aren't known for rushing to pay out......

Oh, I don't know of they'd be "terrified". It's not as if this is the first time that a tax avoidance scheme has failed.

paddyrg wrote: »

.... Christopher Lunn and company advised more than 7000 smallish businesses with a tax streamlining scheme, he was sentenced to 5 years this week.

Not really. The case of Christopher Lunn & Co did not involve any tax avoidance schemes as such. It was more the case that he was a very naughty boy, and got up to things like submitting false invoices for his professional fees charged to clients. Just plain old fraud.:)

http://www.accountingweb.co.uk/article/christopher-lunn-guilty-tax-fraud/569857

antrobus

Pennywise wrote: »

Not sure how a £20k investment can lead to a £80k tax bill. ....

I think the £20k is the fee that the OP paid his accountants.

paddyrg

antrobus wrote: »

Oh, I don't know of they'd be "terrified". It's not as if this is the first time that a tax avoidance scheme has failed.

Not really. The case of Christopher Lunn & Co did not involve any tax avoidance schemes as such. It was more the case that he was a very naughty boy, and got up to things like submitting false invoices for his professional fees charged to clients. Just plain old fraud.:)

They'd be pretty terrified of they'd sold such a scheme to a number of people I won't name! ;-)

Totally appreciate this isn't an analogue of Lunn, but to his clients it was presented as tax efficiency (one of my clients tried to introduce me to them as such), not balls out fraud, naturally ;-)

I do know some people who walk a very very fine line between efficient constructs and fraud, so make damn sure my name isn't on any of their paperwork! I'm sure there will come a time when it'll crash down, so despite offers of getting bigger rewards for closer involvement, I keep it all very very straight! That's just not me!

ChiefGrasscutter

I take it the OP feels that only little people pay taxes. Anyone else feel that the OP would in more "enlightened times" be simply stuck up against a wall and shot?

isplumm

ChiefGrasscutter wrote: »

I take it the OP feels that only little people pay taxes. Anyone else feel that the OP would in more "enlightened times" be simply stuck up against a wall and shot?

The OP paid tax - just not as much as HMRC thinks he should have paid - at the time these schemes seemed legit & the OP used "professional" advisors to make sure he was ok - now it turns out he was not!

Mark