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Has retrospective treatment of tax schemes gone too far?

HMRC has identified some 1,200 potential tax avoidance structures including hundreds of film investment schemes. Described as 'draconian' by some, has it gone too far? We ask three wealth managers.  

£7 billion crackdown

Last week HM Revenue & Customs revealed hundred film partnerships were among 1,200 potential tax avoidance structures it had identified.

This leaves those who invested in the schemes facing hefty retrospective tax bills as part of a £7 billion clampdown on these schemes.

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Investors in film schemes included David Beckham, who was among 1,300 investors in a vehicle run by Ingenious Media.

Earlier this month Ingenious issued a warning to clients, saying HMRC crackdown was likely to have an 'adverse' impact on them.

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This weekend's Sunday Times managed to get hold of letter Coutts sent to customers back in 2004 in which it described film schemes as the 'most effective in mitigating tax paid at 40%.

Coutts told the paper that the 'relevant risks were prominently highlighted and where appropriate it was made clear that there was a risk to a HMRC challenge'.

So has this retrospective treatment of tax schemes gone too far? We ask three wealth managers.

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Brian Murphy, financial planning manager at AXA Wealth, London

‘Retrospective changes to legislation or tax rules are always controversial and are certainly not helpful for those trying to plan their tax affairs.

‘However, HMRC would undoubtedly say that this is not a question of it applying retrospective action. It would say, in these cases, that the arrangements were entered into for no commercial purpose other than the avoidance of tax and it is therefore going to disallow the relief already given, albeit after some delay while it reviewed this and other similar schemes.

‘One of the problems HMRC has had historically with tax planning schemes is that there is a long delay between the action being taken and the case coming to court.

‘This means the taxpayer can hold onto the tax in question for longer and so the government suffers a cashflow disadvantage.

‘There are now proposals that, where a case is found in HMRC’s favour, all clients who have entered into similar arrangements should pay the tax up front rather than waiting for the outcome of their own individual cases.

‘Our message is always to try and keep tax planning simple and to stick to tried and tested methods. If something seems too good to be true, then generally it will be.’

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Charles Aram, CEO Henderson Rowe, London

‘No. Anybody who uses schemes to avoid tax is essentially cheating the rest of the taxpaying community and those devising such schemes and those participating should expect no mercy, in the same way someone who dives or feigns injury on a football pitch deserves to be penalised.

‘It is a privilege to pay tax, to support the community that supports our endeavours and I see no reason other than greed for a wealthy individual to try to avoid paying what the elected government deems fair.

‘However, I would seriously question how that tax revenue is spent, and I think the rate could be lower.’

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Tony Yarrow, director, Wise Investment, Chipping Norton

‘We avoid these kinds of complicated schemes so I’m speaking as a layman here, but from what I can see these structures must have been approved by HMRC at one point, so it seems rather like it is reneging on an original authorisation.

‘To use an analogy, it’s fine to change a road speed limit from 40mph to 30mph, but you can’t then give everyone who has been driving at 40mph up until that point speeding fines.

‘I’d also add that the punishment needs to fit the crime. If a scheme saved you £1 million in tax then that’s how much you should pay back to HMRC, plus a sensible fine. If excessive fines are added by way of making an example of the offenders, the whole thing becomes a witch hunt, and this kind of negative attitude towards the taxpayer becomes counterproductive.

‘The worry is that crackdowns like these eventually push more of the top bracket taxpayers offshore, when if anything we should be encouraging them to stay and contribute.’

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