Tax Avoidance Investigations

If HMRC suspects that there has been a “serious” loss of tax but they do not suspect that this arises as a result of tax fraud then they will open the tax investigation under Code of Practice 8 (COP8).  In most cases these enquiries will be into the tax affairs of taxpayers who have participated in a tax planning structure or tax avoidance scheme.  Cases under Code of Practice 8 are carried out by HMRC’s Fraud Investigation Service teams.

If a tax avoidance scheme has been marketed, for example by a tax adviser, there can be a large number of individuals who have used the same scheme.  In these circumstances, HMRC will often only carry out a detailed tax investigation into a sample of the taxpayers involved, but apply the results to all the taxpayers using the avoidance scheme.

Tax planning structures and tax avoidance schemes are used by taxpayer to minimise their tax exposure in a way which they consider to be perfectly legal, though it can rely on a particular interpretation of the relevant tax legislation.  These structures and schemes often use loopholes in the tax legislation or offshore structures.

HMRC approaches in Code of Practice 8 cases

HMRC open tax investigations into tax planning structures and tax avoidance schemes using two approaches.

One of these approaches is to disagree with the interpretation of the tax legislation that has been adopted and on which the success of the scheme depends.  A challenge of this type will involve a detailed technical argument on the correct interpretation of tax legislation.  If one of the parties involved cannot persuade the other that their own interpretation is correct then the case will be decided by the independent Tax Tribunal set up to arbitrate tax disputes.

Alternatively, HMRC can challenge the way that the tax planning has been implemented.  Many schemes involve several steps which have to be carried out in precisely the way planned in order for the tax planning to successfully avoid tax as intended.  HMRC will examine each of the steps in detail, checking that there is evidence of correct implementation before they will accept that the scheme has worked.  Any minor departure from the intended implementation procedure will be exploited with a view to defeating the planning.

In most cases under Code of Practice 8, HMRC will challenge the tax planning on both of the above grounds at the same time.

How can WLH Tax help

We often find that the adviser who has promoted the tax planning scheme or structure is not best placed to defend any subsequent investigation as they can lack objectivity when the planning they created has been challenged by HMRC.  This is why we believe it is important that an independent tax investigations specialist is consulted.  At WLH Tax we will review the planning put in place and provide you with our honest assessment on whether we believe the planning works.  If we believe the tax planning works, we will robustly defend the arrangement put in place.

We have successfully defended a number of clients who have been subjected to tax investigations into tax planning and tax avoidance schemes.  We are quickly able to understand the technical issues that are the key to the dispute and put forward robust technical arguments to defend our client’s position.

If you are subject to a tax investigation under Code of Practice 8, please contact us for a free, confidential and no obligation discussion. We are happy to have an initial free of charge meeting with prospective clients.

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