They say that reputations are built in a lifetime but destroyed in seconds. Trying to justify today what was created 20 or 30 years ago can be the undoing of a life’s work. It is a fact that some structures have less than robust origins and yet sometimes we can be put in the position of trying to defend the indefensible. Historically some structures were no more than a brass name plate and having no economic substance.
Times have changed but has the structure kept pace?
Back in the 1980’s, it was not uncommon for a family and its business to be protected by the use of trusts and in an offshore jurisdiction by using a tax scheme. Often out of sight was also out of mind. Some of the promoters of tax schemes are no more and the structure itself may no longer be “fit for purpose”. Now you may be at risk of an HMRC challenge.
The tell tale signs
We often encounter a structure that has some or all of the following traits:
- The entrepreneurial spirit has enabled the family business to develop a unique selling proposition
- Being headstrong has helped the business grow at breakneck speed
- Financial discipline was lax and has remained unchecked for many years
- The client has never “opened up” and spoken about their intentions preferring instead to keep matters private
- A key driver was avoiding UK tax on the growth in the family’s wealth
- ATED and Non Resident Landlord returns have been overlooked
- The administrators of the structure may have changed more than once
- Proportionate and principal charges missed as family members are excluded from benefit
- The business is entirely UK based and there is economic substance to being offshore
Is it tax avoidance gone wrong or deliberate tax fraud?
Coming forward now is fraught with danger. HMRC may look at the facts and agree that there was no deliberate intent but more a question of the structure not keeping up with the ever changing landscape. Alternatively, they may say “If it is too good to be true, then it probably is”.
The consensus can be that a settlement needs to be reached with HMRC. The way in which this is approached can be measured either in financial terms or impact on family members, or both.
Voluntary Restitution and penalties
Determining how much tax is due and in what year is often down to the facts and how negotiations have been conducted. Whether or not interest is chargeable depends upon whether the matter falls under voluntary restitution or not.
Whether or not penalties are payable depends upon whether the penalties can be suspended or not.
How we can help with an HMRC challenge
We have a track record of helping clients and their advisers on their journey to salvation. Perhaps we can help you next? Follow the links below to get in touch.