The UK’s Her Majesty’s Revenues & Customs (HMRC) has outlined a plan to target wealthy people who move their profits offshore with the assistance of trusts and offshore companies.
Earlier this week, HMRC released a consultation document that suggests this new plan would rake in close to £50 million per year from close to ten thousand individuals engaged in tax avoidance.
More specifically, this proposal would allow HMRC to tax individuals if said individuals “deliberately set out to reduce UK tax by allocating excess profits to an offshore entity,” particularly targeting companies in low tax jurisdictions where services are supposed to be provided but, in fact, have little “substance.”
HMRC reports: “The reality is that the business is carried on by an individual resident in the UK, with core services such as office space, IT and support staff located in the UK, and that the profit allocated offshore is excessive [when considering] the services carried out in that territory.”
As reported in the FT Adviser, this specific rule would also target cases in which “an individual pays fees to an offshore company for consultancy work, which is deducted from their profits – but the fees paid almost entirely cover their profits. Funds held in the company are then returned to the individual through loans or payments of business expenses.”
HMRC did clarify that it has “no intention of catching activities where businesses are genuinely carried on, wholly or partly, in low tax territories for commercial reasons with genuine commercial substance.”
According to the Financial Times, this specific rule, which should come online in April 2019, will focus on “fund managers, entertainers, consultants, architects and specialist producers of high-value items,” sectors in which these types of tax avoidance schemes are predominant.
Sanjay Mehta, a Partner with Katten Muchin Rosenman in the UK, believes this move shows that HMRC is eager to shut down these tax avoidance schemes.
“Existing legislation can counteract most of [these] tax avoidance schemes. However, the amount of tax at stake for some taxpayers is sufficient to motivate them to try their luck with these schemes,” Mehta told the Financial Times.
“At a time when HMRC faces increasing questions about its own efficiency and effectiveness, it is not surprising that the authority feels it needs to take more decisive steps to avoid wasted time and costs,” he added.
HMRC Targets Premier League Footballers Too
In related news, 129 professional footballers in the UK are being targeted by HMRC for tax avoidance.
According to the UK tax authorities, these footballers stashed close to £250 million in a tax avoidance scheme set up by Kingsbridge Financial and are now being asked to pay back 70 percent of the original amounts invested, plus interest and pertinent fines.
As reported by Money Marketing, “the scheme Kingsbridge recommended gave tax breaks to investors by offering relief on money invested in movies such as Disney’s Enchanted.”
In return, Kingsbridge employees involved in these footballers’ recruitment into the scheme made “huge bonuses on the back of the payments.”
On this crackdown, a HMRC spokesperson said, “Tax avoidance doesn’t pay. Most schemes simply don’t work – and people can end up paying more than they were trying to avoid in their misguided attempts to save money.”
Manchester United, Liverpool, Aston Villa and Blackburn stars have been named amongst those involved, with the Manchester United footballer having allegedly invested close to £34 million, both in cash and as a bank loan, as part of this scheme.
However, Stuart Cotton of Investor Rescue Organsation believes most players are oblivious to the sorts of tax avoidance schemes sold to them.
Speaking to The Mirror, Cotton said, “Footballers have been demonised over years for investments into tax avoidance schemes.”
“The truth is most were not privy to how the arrangements work. The result of investing in such schemes is beyond comprehension at times,” he added.
The tax breaks that were part of this scheme popularized during the Tony Blair administration were eliminate in the late 2000s, and Kingsbridge closed its doors in 2015.