HMRC Is Shite

HMRC Is Shite
Dedicated to the taxpayers of Britain, and the employees of Her Majesty's Revenue and Customs (HMRC), who have to endure the monumental shambles that is HMRC.

Wednesday, 20 June 2012

Gauke Gets Trapped On K2 (The Savage Mountain)

I see that our old chum Treasury Minister David Gauke has vented his spleen on the Jimmy Carr K2 tax avoidance issue.

His comments come after The Times sent an undercover reporter to a tax seminar, which outlined a scheme known as K2. The Times says comedian Jimmy Carr is one of those who uses the scheme, although his lawyers stress he has done nothing wrong.

Avoidance and, for the moment, the K2 scheme is perfectly legal.

However, that did not stop Gauke from commenting (based on what he read in the media, rather on what he actually has discussed with HMRC or other tax/legal experts) saying that he would describe the K2 scheme as fitting into the chancellor's description of "morally repugnant".

He is quoted by the BBC:
"Where there are arrangements that are artificial, that are contrived, that are not undertaken for any genuine commercial reason, but are purely designed to reduce tax liability, then that is something that we want to address.

Graham Aaronson has rightly highlighted his proposals for a general anti-abuse rule, which we are taking forward and, actually, the government is doing an awful lot in this area.

If you look at international comparisons actually HMRC performs pretty well in terms of yield and the size of the tax gap, but there's more to do.

My understanding is that HMRC were already investigating this particular scheme and, although I don't want to be drawn too much into the specifics, a lot of what has been said about how this scheme operates is the sort of thing that actually doesn't work any more.

Very often you get these promoters who will be, of course, selling their product... it doesn't always work quite as effectively as they like to make out to their potential clients. So I know HMRC are on the case on this particular matter."
I would remind Gauke, and his fellow cabinet ministers, of what I wrote in April, on another site, about the dangers of politicians digging themselves into holes wrt tax avoidance:
"David Cameron dug himself into another hole today, by discussing his dislike of "aggressive tax avoidance" (which of course is perfectly legal).

Tax Journal
reports that John Humphys noted on this morning’s Today programme that the Chancellor said in the Budget that he regarded tax evasion and ‘aggressive tax avoidance’ as ‘morally repugnant’.

He was trying to clarify, he said, what the government meant by ‘aggressive tax avoidance’ and offered Cameron a case study:

 "A very successful businessman (you’ll know who I’m talking about) creates a structure that transfers most of the ownership of [his] company to his wife through offshore companies based in the Channel Islands. She lives in Monaco, he takes a huge dividend – it’s paid to her, it’s estimated that this reduces his tax bill by hundreds of millions of pounds.’

Humphrys asked: ‘Is that “aggressive tax avoidance” and therefore morally repugnant?’

Cameron declined several times to answer the question, saying he was not going to discuss an individual’s tax affairs. Humphrys said Cameron knew that the individual was Sir Philip Green, whom Cameron recruited to advise the government.

Cameron said he did not know Green’s tax affairs and offered his own definition.

‘There are things that people do that reduce their tax liability, for instance they put money into a pension scheme.’

‘Rather than Monaco,’ Humphrys said.

‘Absolutely,’ Cameron said. ‘I think putting money into a pension scheme is a sensible thing to encourage people to do and that doesn’t count as aggressive tax avoidance … I’m very clear about the difference between putting money into pension schemes or Enterprise Investment Schemes to help start-up businesses, and there is that form of tax avoidance where people are almost specifically setting up a company in order to avoid tax rather than actually wanting to invest in start-ups and the rest of it.’

The government had taken a lot of steps to try to reduce ‘this sort of activity’, Cameron added. ‘For instance we have put £900m extra into HMRC to enable them to go after aggressive tax avoidance.’

Aggressive tax avoidance was wrong, he said. ‘It’s right that the government is going after this activity. Everyone should pay their taxes properly.’

Generally speaking, he told Humphrys, it was ‘sensible’ for a Prime Minister not to have dealings with people engaged in aggressive tax avoidance."
So there you have it folks, "aggressive tax avoidance" is whatever the government chooses to define as "aggressive tax avoidance"; the fact that it is perfectly legal seems to escape them.

Georgie Porgie and Cameron need to be reminded of the wise words of Lord Templeman in 1992:
"There is no morality in a tax and no illegality or immorality in a tax avoidance scheme.""
I leave the final word to Christie Malry who tweeted:
"If tax was voluntary and paid by the consumer, none of you would opt to pay it. So, seriously, shut the hell up about tax avoidance."
Avoidance is a perfectly normal human thing to try to do, the politicians are not in a position to lecture the rest of us on "morality".

Tax does have to be taxing.

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  1. personally anyone who signed up for this and thought the scheme wasnt dodgy must be stupid. a free beneficial loan, if thats the case there must be thousands of folk around the country asking why they have been paying benefits in kind for years.

  2. The worlds most unfunny comedian.

    At least let us hope that this gets him off the telly.

  3. If Carr is being paid minimum wage, that takes him over £8,500 p.a. and he will have to pay tax on the value of the interest-free loan. More to the point, I can't see this scheme working as it is clearly an artificial arrangement with the sole purpose of avoiding tax. HMRC would be entitled to ask a court to apply the "Ramsay Principle" which allows the authority to "look through" a series of transactions to derive their ultimate purpose. In W. T. Ramsay Ltd. v. Inland Revenue Commissioners, Wilberforce LJ stated that a scheme will not work if "it is candidly, if inevitably, admitted that the whole and only purpose of each scheme was the avoidance of tax". Having said this, it will take years to litigate this or similar schemes.

  4. of course it works. Its set up as a trust and it is quite legal. A loan is provided in perpertuity and bobs your uncle. These schemes have been around for many years. If I was wealthy, I would do the same.

  5. I agree with Ken that it's best too steer clear of moralizing about tax planning. Not only does it leave politicians open to easy accusations of hypocrisy, but it plays right into the hands of those who argue that the government shouldn't take steps to limit the scope for and impact of schemes intended to legally produce a tax result not intended by Parliament.

    Contrary to those apologists' claims, however, it is unacceptable for a government to not take such steps. It's even more morally questionable when, at the same time as not cracking down, they claim that they actually are.

    Like a government that introduces an utterly toothless GAAR, for example...

    Stew G

  6. I think what most people are forgetting is that the Film Financing schemes were HMRC approved! Yes they were designed to promote investment into the UK film and arts industry and the exemptions provided were taken advantage of, however they were not illegal by any means. HRMC have already reviewed and signed off on many of these, I should know I am in the offshore industry involved. The proper organisation of ones tax affairs is perfectly appropriate, viz:-

    1. 1929 case of Ayrshire Pullman Motor Services: “no man in this country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or to his property as to enable the Inland Revenue to put the largest possible shovel into his stores. The Inland Revenue is not slow-and quite rightly-to take every advantage which is open to it under the taxing statutes for the purpose of depleting the taxpayer's pocket. And the taxpayer is, in like manner, entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue”.

    Someone mentioned Ramsey principle here although the later D'Arcy case should be remembered (this was the Gilt scheme). The court held in favour of Mrs. D'Arcy stating: “this is in my view one of those cases, which will inevitably occur from time to time in a tax system as complicated as ours, where a well-advised taxpayer has been able to take advantage of an unintended gap left by the interaction between two sets of different statutory provisions”.

    Of course, our rights to 'order our affairs' is eroding day by day and the anti-avoidance measures and GAAR put an end to many of the new unapproved schemes however these old schemes are going to work their way through the system to completion.

  7. absolutely nothing wrong in 'tax avoidance' many of us used the process of 'marriage' to avoid tax!!!

  8. If K2 is "morally repugnent"....?

  9. if it is morally repugnant then legislate against it, until then, it is legal and MPs and anyone else should shut up.

    Especially Jimmy Carr, for Om's sake don't apologise when you have done nothing wrong!! What a twat.

  10. taxed for this taxed for that tax tax and more tax jimmy how do you set it up

  11. I have been part of a similar if not exact scheme in the past. Its not dodgy, it follows the letter of the law.
    Similar, less robust schemes as mine have been taken to court by HMRC and been thrown out as the scheme was operating legally. HMRC had been advised that pursuing these cases was pointless as they are legal. HMRC try continually to scare people from these schemes as this is the last resort tactic they have left.