I had to laugh when I saw this headline in the Times on Saturday: “Barrister loses dispute over tax avoidance”. I checked it out and it’s true. A leading Tax Counsel has failed in his claims that a LEGAL tax avoidance scheme reduced his tax bill. In other words, it was ineffective.
Ten years ago Rex Bretten QC devised a tax scheme that was within the letter of the law and he sought to take advantage of this. HMRC were not happy and the dispute went to Court. As so often happens many years have passed since the tax planning was put into effect. Times have changed and the tax tribunal has disagreed with Mr Bretten’s analysis. He is not entitled to any tax relief for the £475,000 loss he was claiming would reduce his tax bill for 2002/03 by £190,000.
Shock; Horror. It seems Counsel’s opinion was wrong. Not for the first time. (That’s a comment re Tax Counsel in general). Sometimes their analysis holds up, sometimes it doesn’t. The one thing on which they are generally correct is when they confirm that it is legal to take part in such a scheme – assuming that the taxpayer and the promoter of the scheme make full disclosure of all salient issues.
Last year I wrote a series of posts to which this latest development is effectively a postscript that endorses my views. In effect, tax avoidance schemes are risky and are rarely worth an accountant’s time and effort. Such schemes MAY be legal but this does not mean that the hoped for tax savings will be secured. And, if the scheme fails then, for most people, the final outcome will be worse than had they not undertaken the tax planning involved in the scheme.
As tax avoidance schemes are often over hyped and do not always work, these days it rarely makes commercial sense for professional accountants to devote time and effort to checking out each new scheme or variation that is promoted to them.
- Failed tax avoidance schemes and dissatisfied clients
- Accountants discouraged by ICAEW from advising on aggressive tax schemes
- Ten things accountants need to understand about tax schemes
- Why weren’t all accountants promoting those tax schemes?