In 2013 David Heaton, employment tax specialist, ex-chair of the ICAEW Tax Faculty, lecturer and a Baker Tilly partner was embarrassed into resigning from HMRC's General Anti Abuse Rule (GAAR) panel after being filmed lecturing on planning schemes.
Heaton was secretly filmed by Private Eye's Richard Brooks and BBC Panorama whilst promoting personal tax planning tips. One of those was recommending an arrangement involving statutory maternity pay (SMP) which allowed a bonus to attract an 8.4% rate of tax compared to the expected 41%. HMRC deemed the planning 'abusive' when they heard about it.
Disregarding the possibly limited benefits of a SMP scheme (owner managers' wife, or favoured employees of large bonus payers' organisations?), it was reported that the neither the chancellor George Osborne or Treasury minister David Gauke were impressed with Heaton's approach.
What planning is abusive?
Many firms might have realised that SMP has some potential tax advantages. Sometime this tax advantage occurs by chance, depending on actual timings of bonuses and pregnancy. Unless it was flagged up as abusive it might be quite difficult to tell whether HMRC thought it so, after all HMRC designs the rules. However, a scheme which is designed to milk the rules? Fair is fair, that is probably abusive, unless of course it is scheme approved by HMRC.
Various large bonus paying financial institutions received bad press when they delayed paying bonuses in order to take advantage of the fall in the top rate of tax from 50% to 45%, they did not think it abusive but many people did: the chancellor must have realised that people make their plans around tax rates. This is clearly why he has reduced the corporation tax main rate; he wants the big corporates to pay less to attract them to the UK.
On the personal tax level we note that even the chancellor admitted that the new Employee Shareholder share scheme would create tax avoidance however, just like CGT main residence election flipping this is deemed non-abusive for the purpose of the GAAR because it was devised by ministers and is without doubt used by ministers.
Also on the "approved list" is Arctic Systems tax planning (shifting income with spouses) this is deemed non abusive for the GAAR and the House of Lords found it was within the existing rules when they ruled for the taxpayer in appeal.
If you work in tax it is not difficult to work out that we seem to be getting mixed messages which is not idea for the public or for advisers. The trouble is now that we have the internet and so everyone knows more.
Now that the GAAR opinion panel has started ruling on tax planning schemes we will in time, learn what is acceptable and what is not. All of the schemes considered by the panel to date have been versions of disguised remuneration schemes and all seven have been found to be abusive. It seems that what is and is not abusive is going to vary depending on what ministers feel about encouraging certain tax reliefs at any one time. Heaton was in all probability showing off a bit for the purposes of the lecture, we have all seen it done as tax can be pretty dull after all. However in the current climate and given the Public Accounts Committee's past stance on accountants who advise HMRC, it is probably ill advised to lecture on tax avoidance schemes if you are a leading member of any professional body or you are also considering working with HMRC. The up-side to Heaton's experience is that he got a lot of publicity as a tax planner as a result of being on the Beeb. It is all "brand awareness" that counts in marketing and that can't be all bad and it certainly puts another angle on HMRC's plans of naming and shaming firms.
