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Who protects consumers from tax fraud?

FeaturedTax Avoidance
December 12, 2023

17 Comments

Currently, the answer is: nobody

Here are two examples I’ve seen in the last two days. They’re not avoidance schemes. They’re pure nonsense. If you follow the advice, you may be committing tax fraud. The people selling the schemes are either ignorant or scammers.

This is from LinkedIn today:

The idea is simple. You’re selling properties, one of which you live in and two which you don’t. Your own residence is exempt from CGT; the others aren’t. So an obvious trick: “tweak” the valuations so most of the capital gain is on your residence, and so exempt.

The obvious problem: filing tax returns on the basis of false valuations is tax fraud. I pointed this out to the author, and he deleted the post. But – if he’s to be believed – he actually advised someone to do this, and they did it.

UPDATE: Will Henderson emailed me to say that he has now spoken to an accountant, understands this was not appropriate advice, and has told his client to speamk to an accountant. I accept that he wasn’t trying to scam anyone… but it’s an example of someone with no tax knowledge giving very dangerous advice

And here’s another, sent to me by a correspondent this morning:

This is the “GDPR tax credit” scam we reported on earlier this year. The idea is that GDPR fines can be hefty, so you can amend your tax return for last year to book an appropriate reserve, and get an immediate corporation tax refund. This doesn’t work at all for a bunch of reasons, not least that you don’t get tax relief for fines.

So this is just a scam. A firm called Forbes Dawson had previously published a warning about it. After our report, AccountingWeb and Computer Weekly also ran stories. If you google “GDPR tax credit” now, most of the results are people warning that there’s no such thing. But the people pushing the schemes don’t care.

This stuff is all over social media – and that’s just the part that’s visible. Plenty else going on under the radar, such as those outfits sending “SDLT refund” letters to people who’ve just bought a house.

Who is liable if you buy a tax scheme that doesn’t work?

You are. Always. Even if you were deceived by the adviser. You may then be able to try to recover your loss from the adviser, but that’s not easy – even if they’re still around.

It has to be this way, otherwise there would be no risk in buying a tax avoidance scheme… you could claim the benefit if it works, and claim you were deceived if it doesn’t.

Why isn’t HMRC stopping this?

HMRC’s job is to collect tax. It isn’t a consumer protection body. In many of these cases it will recover tax that was underpaid, but it has at least six years to do this and so can and will take its time. And when HMRC does act, it is required to do so behind the scenes. Only in exceptional cases can it name promoters.

That means that promoters can continue flogging duff schemes for years before HMRC take action, and sometimes keep on flogging them after HMRC has started to take action.

What about the professional bodies?

Many of the people promoting these schemes aren’t qualified or regulated in any way. Will Henderson⚠️ is one of many “property gurus” selling terrible tax advice as part of their overall package. Research Grant Solutions⚠️ tell you nothing about who they are, not even the company name.

When we do see regulated professionals pushing hopeless tax schemes, most of the various professional bodies – Bar Standards Board, Taxation Disciplinary Board, ACCA Disciplinary Board, etc won’t investigate proactively but require a referral (the SRA is the exception: they will investigate cases without waiting for a referral). Complaints typically take over a year to resolve.

All this means that regulation can’t help most of the cases, and is of limited help in the minority of cases involving regulated professionals.

So what’s the solution?

I’m not sure. Creating an elaborate equivalent of the FCA to regulate the detailed content of tax advice would take years and I’m unconvinced how workable it would be.

So my answer is to instead create powerful economic and legal incentives for people not to provide irresponsible tax advice. More on this soon.

Many thanks to R for the tip-off.
Photo by Nicolas Spehler on Unsplash

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17 responses to “Who protects consumers from tax fraud?”

  1. Susan Bradley avatar
    Susan Bradley

    Why can’t there be a similar system to the Gas Safe Register for people giving advice on tax? If you are not on the register your work is non compliant. You can fit your own hob if you are competent at DIY but you cannot charge someone else for your services. Ditto for doctors, they have to be registered with the GMC. Again that doesn’t stop you from taking an aspirin if you have a headache but you are not allowed to practice medicine without a licence.

    Reply
  2. Mind the Gap avatar
    Mind the Gap

    The GDPR nonsense is still being sold:

    https://www.theandersonpartnership.co.uk/Corporationtaxrebates

    https://www.guildmc.com/member-support/corporation-tax-refund-opportunity/

    Reply
  3. John avatar
    John

    Dan, I don’t agree with the premise that HMRC couldn’t do more. All it takes is a bit of wider thinking around statutory objectives and the willingness to take a degree of risk. For example, look at the FSA/FCA. At one point they were massively risk averse to ever naming potential fraudulent entities; now they do it regularly. There has merely been a change of approach and a view that “are scammers likely to sue us? no”. What is there to _stop_ HMRC posting material all over social media such as “Many property schemes are fraudulent. There is no such thing as a GDPR tax credit. if you try to claim it, this is fraud” etc etc. To me, it is the same as the argument that Companies House has to accept any old registration baloney – I’m afraid that is a minimalist interpretation of what the CA actually says which is that “If the Registrar is satisfied..” A decision could have been taken that the satisfaction of the Registrar would only be satisfied with truthful documents and some degree of checking would be done. It needs regulators, HMRC, etc. to think a bit more creatively and be a bit less timid about their powers. With fraud making up 50% of all crime (?) this is clearly warranted.

    Reply
  4. Tigs avatar
    Tigs

    This is tricky. But there are ways that HMRC is doing this:

    1. GAAR: penalties and reputational risks for advisors. But there are relatively few cases and there doesn’t seem to be any publicity around the penalties that have actually been charged (assuming that some have been charged!).

    2. Enablers: penalties and reputation for people who help impliment a dodgy scheme. For example, will conveyencers and lawyers be as keen to help on a SDLT scheme knowing that they can get penalties.

    3. POTAS: These now comes with “stop” notices that are published on HMRC’s website. There are penalties for breaching them and I think that 16 have been publised (most around remuneration). From around March/April time there will be a new criminal offence for breaching some parts of these rules. HMRC can talk to overseas tax authorities about collecting penalties. There’s also new director disqualification rules.

    4. DOTAS: These rules have got tougher over time and many people will be aware that DOTAS is a bad thing. But it does help protect people.

    5. ASA: After a poor start, this has made some decisions on dodgy tax schemes.

    6. Banking Code Of Conduct: Banks now won’t get involved in dodgy schemes.

    7. Professional bodies: Member need to think about the PCCT and this stops some dodgy stuff. But I don’t see much proactive stuff or enforcement (but I tend to not look at enforcement).

    8. People like you: You seem to have been a magnet for people providing you with information about dodgy schemes. Keep it up please! BZ

    Some things that are missing:

    1. Speedy HMRC investigations. Some of that is HMRC’s fault, some is COVID, some of it is the promoters slowing things down by giving misleading info, appealing information notices, judicial reviews, etc.

    2. Speedy HMRC publicity around dodgy things – spotlights are helpful but generally they are not speedy.

    3. Slow FTT process. I feel that the process is clogged

    4. Poor tax policy. Why don’t politicians listen to people telling them that their hare-brained ideas can lead to more avoidance? Why do we need intermediaries and even more intermediaries between the “employer” (client) and the worker, with each taking a margin and also taking the opportunity to avoid or evade tax.

    5. Professional bodies: There doesn’t seem to be much activity.

    6. Companies House: My dog is a director of two companies.

    7. Open-source intelligence – part 1: I can’t help feeling that there is something that can be done here. But the difficulty is the availability of public data around how much tax is paid as HMRC are not able to share data. So why not publish all tax returns for non-individuals and then, if that works, start publishing it for individuals. Why not require the publication of the details of the chain of intermediaries between the client and the worker.

    8 Open-source intelligence – part 2: Why not have a more formal version of you where people can send details of dodgy schemes on an anonimised basis and then interested people (like you and all the other initials you work with) can look at them and generate more publicity if they look dodgy? That’s doing HMRC’s job but I guess many people don’t trust HMRC, especially if they’ve also fallen victim to the scheme already.

    Reply
    1. SDLT interest avatar
      SDLT interest

      Some great thoughts and ideas there. My area of interest, SDLT, seems to attract all sorts of nonsense! Buyers are routinely getting approaches suggesting that SDLT was overpaid for the most unmeritorious of reasons.

      Reply
    2. Dan avatar
      Dan

      that’s a brilliant list – thank you (and please thank your dog on my behalf).

      Reply
      1. Tigs avatar
        Tigs

        While I remember, HMRC can also issue joint and several liability notice to someone connected to a company that has received a tax avoidance or tax evasion penalty (and the company has started, or is likely to start, insolvency). So this can discourage, for example, dodgy remuneration schemes where the employer is left insolvent because HMRC decide PAYE and penalties is due.

        Reply
  5. Roy Dean avatar
    Roy Dean

    Lester Piggott ended up in Prison
    And Ken Dodd almost did
    People will always look for such silliness to avoid tax
    Its never ending

    Reply
    1. Alex Batchelor avatar
      Alex Batchelor

      Both Ken Dodd and Lester Piggott are old cases – Nadim Zahawi, Harry Redknapp, Jimmy Carr are more recent – and even when there is substantial tax owing there are no custodial sentences. Partly because jails are full and sentencing guidelines would discourage them.

      Reply
  6. Robert Kingston avatar
    Robert Kingston

    One thought – a requirement for businesses offering tax advice to have professional indemnity insurance if their annual turnover exceeds a certain figure? Would need a lot of thought but would also level the playing field with qualified professionals.

    Reply
    1. Alice avatar
      Alice

      This idea was mooted by government only 2 years ago, and fell by the wayside in large part because the tax profession is unregulated, so the insurers were not willing to offer policies for professional indemnity insurance to people they could not confirm were actually ‘professionals’. It doesn’t mean it can’t be done, but you need to start with a clear framework for regulation before the product could be offered.

      Reply
  7. StephenS avatar
    StephenS

    Many websites for companies fail to comply with their disclosure requirements, specifying registered company details (as per Companies Act and E-commerce Regulations). Here’s an example for a property investment company punting bonds https://commercialpropertyinvestor.com. Also fails to give adequate risk warnings.

    Why is this not a matter that triggers an automatic fine on all directors and significant shareholders? £5k each, £10k if not paid within 30 days? Hefty fines could be used to tidy up so much shoddy activity these days.

    Reply
    1. StephenS avatar
      StephenS

      Having looked into this, this is one of the promotions they have pushed out through this site: https://commercialpropertyinvestor.com/gc-evcharing. A bit more info but still a breach of regulations on disclosure.

      The GC bit refers to Godwin Capital https://godwingroup.co.uk/capital & https://godwingroup.co.uk/category/ev-charging

      Reply
  8. Michael Richards avatar
    Michael Richards

    All of these scams target greedy and gullible people, with some demographics preferred more than others. Some perceived unfairness thrown in helps also (eg. CGT on second homes, s24 FA 2015 or GDPR fines). Slandering professional advisers is a popular tactic too “he’s not being aggressive enough”.

    Reply
  9. John Barnett avatar
    John Barnett

    Is there not already a powerful legal and economic incentive against this….namely that fraud is a criminal offence which can result in imprisonment or fines?

    Reply
    1. James Robertson avatar
      James Robertson

      But almost never results in either and is clearly not a deterrent. How many cases have you seen the police take up? I saw many fraudulent schemes in my career and I cannot recall a single one where the promoter was prosecuted (as opposed to taxpayers). As Dan points it this is because nobody polices this, nobody is protecting the public. I shall be interested to see if his proposal works across the whole of the UK.

      Reply
  10. Offshore tax exile avatar
    Offshore tax exile

    Hi Dan, why not ‘simply’ amend FSMA to expand the FCA’s remit to the provision of tax advice?

    Reply

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