The company was created in July 2024.1 But fair enough – people start new firms all the time.
The website lists no staff. That’s very odd for an accounting firm – it’s a business where reputation and client relationships are everything. Firms often start with barebones websites, but the website hasn’t been updated since it was created in July.
Despite the “let’s talk” button, there’s no phone number.
The Turner & Abel website says “You’re paying for qualified finanical (sic) and legal experts to build the best possible case for your innovation”. We can’t identify any qualified legal or financial professionals working for the firm.
In fact we can’t identify any staff at all. No staff are visible on LinkedIn. Someone gave Turner & Abel a LinkedIn account, but didn’t do anything with it. Zero followers. Zero employees. No text. That’s not how people launching a new firm normally behave.
The website has three testimonals, from Pixelbox, Tolemy Pharmaceutical and Bosen. We can find no evidence any of these companies exists. There is a Ptolemy Pharmaceutical and a Tolemy Bio, but they have different logos (and of course slightly different names). There is no manufacturing company called “Bosen” (there’s a Bosen Ltd, but it’s a mail order company). Pixelbox also doesn’t appear to exist, except in Wisconsin.
The three companies’ logos are also curious. The Pixelbox logo is taken from a stock image library – and, astonishingly, the name also comes from the stock image. The Tolemy logo comes from an image stock library. The Bosen graphic is in a few places on the internet, e.g. this blog. All three logos are all in the same colour.2Reverse images searches don’t find the three logos anywhere else on the internet.
The privacy page is unfinished, with template “suggested text” left in place throughout.
It’s not just coincidence. The website code shows that Turner & Abel has the same webmaster as Green Jellyfish’s affiliate, Kirby & Haslam.3
And we’ve heard the full story from sources at Green Jellyfish. The company made hundreds of fake R&D tax relief refund claims, claiming thousands of pounds for businesses that didn’t actually do R&D. At some point HMRC identified this, and started blocking refunds where Green Jellyfish was the agent.
So the answer was to create Turner & Abel and use it to make the claim. That’s what Turner & Abel did, and perhaps still does.
Who owns Turner & Abel?
On paper, the company is owned and run by Matthew Woolham. But we understand he’s just a junior sales manager who doesn’t make any business decisions. People should be more careful before they agree to become a company director, but in the circumstances of this group, Woolham’s ownership of a fraudulent company doesn’t necessarily make him a fraudster.
Green Jellyfish and its associates appear to intentionally hide the true ownership of their companies. That’s a criminal offence – but the individuals behind these companies (particularly Scott Herd, Daniel Robinson and Steve Christophi) probably have more serious problems than this right now.
Coleman Clarke’s website is similar to Turner & Abel’s, and similarly suspicious. Again the website illegally doesn’t provide the registered addressl it doesn’t even provide the legal name of the entity. However the registered address at Companies House gives the game away. Again the owner has no obvious connection to Green Jellyfish.
Clearview has been extensively used by Green Jellyfish and its affiliates but is hard to spot. The registered address is different, and there’s another owner with no obvious connection to Green Jellyfish. The company appears to have undertaken legitimate business; but more recently it’s been used as a “name” by Green Jellyfish staff, for making calls to clients, and for submitting claims to HMRC.
Comments are now closed for legal reasons. Our apologies.
The Turner & Abel users.json file shows that the Turner & Abel has the gravatar hash 18f89a4653223cd15cfcde8eea0c3cb7. The webmaster of Kirby & Haslam has the same gravatar hash. ↩︎
We frequently receive tip-offs from accountants and lawyers who’ve seen firms promoting dubious tax schemes.
This often requires a large amount of analysis from us to work out exactly what’s going on, and what the true tax consequence is.
But sometimes it’s obvious that what’s being proposed is wildly improper, even fraudulent. We’re going to start publishing cases like this as “tax scam of the day” – documents and links plus a short explanation of why what’s proposed is a scam.
We hope that this helps warn potential clients off dangerous scams, and prompts HMRC and other authorities to be more proactive identifying and closing down cowboy tax advisers.
What’s the claim?
Corporation Tax Rebates’s website says they’re the “UK’s First Corporation Tax Recovery Service Based on Data Risk Compliance”. The pitch is that GDPR can lead to large claims against businesses, so accounting rules permit companies to make large provisions against future liabilities, resulting in tax rebates.
If Corporation Tax Rebates Ltd is the “first” company offering this service, that’s for the very good reason1 that you can’t recover corporation tax based on vague thoughts that you might have to pay GDPR fines/damages at some point in the future. We explained why here but, in short, the fines/damages have to be probable and quantifiable, and for almost all small businesses this won’t be the case.
We can see no proper basis for timber wholesalers, architects, land developers or financial consulting business to have six figure provisions for GDPR damages. The obvious way to test this: how many companies in these sectors have had six figure damages awards against them? The answer is: hardly any. Civil damages awards are rare and small.
The danger for Corporation Tax Rebates’ clients is that this scam will appear to work. If you amend your corporation tax return then you may just get a refund automatically (although even this isn’t straightforward – see Richard Thomas’ comment below).
If HMRC become aware that a company’s doing this, we are confident they would open an enquiry, and the consequences for the company are likely to be bad. Any HMRC enquiry could come up to a year after the refund scheme… and, if it all goes wrong, good luck recovering your fee from Corporation Tax Rebates.
The documentation
There are many websites pushing GDPR tax credits, but most appear highly amateurish, and our suspicion is that they’re just low-level scams. Corporation Tax Rebates Ltd is different. The company and its introducers send out glossy publicity material that goes into some detail.
Ian Andrew Sinclair-Ford is listed as the “person with significant control” of the company 3 and the document metadata shows him as the author of the “confidential briefing note”. He gives his profession as “solicitor”.
We believe anyone with legal, tax or accounting training should know this scheme is improper. We therefore believe it should be investigated as criminal tax fraud, not as tax avoidance. We have reported Sinclair-Ford to the SRA
Many thanks to M for the original tip, and to Trevor Fenton for sending us the documents and looking into the Companies House materials.
We note that the documents are asserted to be confidential. They are not; they were sent to our source without any prior agreement of confidentiality, pre-existing business relationship or any other circumstances under which it is reasonable to expect a duty of confidence to arise. Even if they were confidential, there is a public interest in disclosure, and the iniquity rule means that there is never confidentiality in a fraud. ↩︎
Although it’s not clear that’s correct – each of the three holds 1/3 of the company. There are other oddities in the Companies House filings, with share capital of £105 but only one £1 share ever alloted/issued. ↩︎
R&D tax fraud outfit Green Jellyfish is part of a complex group of companies. Two of those companies, Macadam & Grant and Toucan Blue, promote “GDPR tax credits”. There is no such thing. It’s plain tax fraud.
We wrote last year about firms advertising that they’d help businesses claim “GDPR tax relief”.
The idea is that the Information Commissioner is very scary, and can slap large fines on businesses who breach GDPR, you might suffer massive damages. So it’s only prudent to amend your accounts for last year to put a reserve in place – reducing your profits and resulting in a tax refund.
But that’s wrong in three different ways. Only on rare occasions would accounting principles actually permit such a reserve – the liability has to be “probable”. Very few businesses ever suffer material fines or damages as a result of data privacy breaches.1 Civil damages awards are rare and usually small. The really big liabilities would be fines or punitive damages – but (aside from being unlikely) they’re not tax-deductible.23 And a reserve isn’t a “credit” – a credit is forever, but a reserve will be reversed over time.
A junior accountant would spot these issues in five minutes. In fact, one did – Yisroel Sulzbacher originally brought this to our attention.
One of the companies promoting the GDPR tax relief scam was Macadam & Grant:5
The launch of this product was seen as a big success by those running this business:6
And here’s Daniel Robinson, CEO of the Impact Business Partnership Group7 that owns Green Jellyfish and Macadam & Grant. Robinson says (at 1:40 in the video): “we also tested Macadam & Grant, which is our GDPR tax relief scheme business, which we’re currently taking to market at full scale during Q1 [2024]”:8
It’s jarring to see a bland corporate quarterly results presentation for a fraudulent business. Of course it’s possible that Robinson doesn’t understand that “GDPR tax relief” doesn’t exist. However, we know that employees raised concerns about this “business” with the board and were brushed aside.9 So it seems to us that, at the least, Robinson and the others were reckless
The hard sell
Macadam & Grant operated in exactly the same way as Green Jellyfish. Cold-calls from the BDEs (“business development executives”) and then follow-up emails promising massive tax refunds.
Here’s an example email from Macadam & Grant, forward to us by an outraged tax adviser:10
Like Green Jellyfish’s R&D claims, the figures bear no relation to reality. The idea any company, other than the very largest, faces six figure GDPR fines/damages is laughable. But this is worse than Green Jellyfish – at least R&D tax relief is real. Macadam & Grant was promoting a tax relief that doesn’t exist. This email was fraudulent on its face.
Here’s a promotional video posted by Toucan Blue on LinkedIn. They avoid the term “GDPR tax credits” and talk about “data security relief”, but it’s clearly the same fraudulent product:
And a website:
Toucan Blue appears to have soldother tax products – we are highly suspicious of how genuine those products are.
Toucan Blue is registered to the same address as Macadam & Grant and the other Impact/Green Jellyfish companies. It was owned by Daniel Robinson until June this year. Between then and 27 August 2024, the sole director, and sole “person with significant control”11 was Trudi Duncombe. Ms Duncombe ceased to be a director on 27 August, two days after we published this article, but is still listed as a PSC.
Who else is flogging this scam?
There are other companies flogging this. We believe all are fraudulent, including:
However there are significantly fewer people pushing this than when we first wrote on the subject – many of the companies we listed then have taken down or amended their websites.13
Green Jellyfish’s response
We wrote to Daniel Robinson on 22 August, and said that we believed these companies’ GDPR relief claims were fraudulent.
We received no substantive response, but the Toucan Blue website was taken offline shortly afterwards.
The Impact Group
Most R&D tax fraud is carried out by individuals or small companies. It’s very unusual to see a reasonably sophisticated group of companies (the Impact Group) involved in something like this. To see them involved in another unrelated fraud suggests a systemic problem with the group.
We hope there is a criminal investigation of all involved.
Many thanks to Paul Rosser for the chart, to M for the tip-off about Macadam & Grant, and to the current and former Impact Group employees who’ve bravely spoken to us.
And thanks to Yisroel Sulzbacher for the original tip about the non-existent relief.
Comments are now closed for legal reasons. Our apologies.
Footnotes
FRS 102 says a company can only recognise a provision if the liability is “probable” and can be “estimated reliably” ↩︎
A GDPR fine or punitive damages claim is non-deductible for corporation tax purposes, even if it reached by way of settlement. Damages paid out in a civil claim that compensate for actual loss (as opposed to punitive damages) may be deductible, but such claims are unlikely (and the figures would for most companies be small). ↩︎
Even if you manage to book a reserve and get a deduction, you still fail, because reserves created primarily for a tax benefit aren’t deductible anyway (and neither are the adviser’s fees). A tax tribunal recently used that principle to deny a business a tax benefit from a reserve created for unfunded pension liabilities – which were much more real than these fictional GDPR liabilities. ↩︎
We’d missed the Forbes Dawson and Justin Bryant pieces when we wrote our first article; full credit to them for spotting the issue. ↩︎
This is from an Impact Group internal communication sent to us by a source. ↩︎
There are many companies/groups called “Impact” – please be wary about drawing conclusions about any similarly named company, unless it operates from Rose Lane in Norwich ↩︎
Video kindly provided to us by a source, and authenticity confirmed with other sources. ↩︎
There appears to have been significantly more internal resistance to their GDPR tax relief business than to their R&D tax relief business. We expect the reason is that some technical knowledge is required to know that their R&D tax relief business was fraudulent; however one Google search reveals the problem with GDPR tax relief. ↩︎
We have redacted identifying information, but none of the text is changed. This was sent to us before we started investigating Green Jellyfish, and we only belatedly made the connection. ↩︎
It’s unclear why, as no Companies House documents show Ms Duncombe holding any shares; possibly there is a trust arrangement behind the scenes? ↩︎
Possibly defunct; the website’s security certificate is out of date. Not to be confused with the reputable and unrelated Osborn Knight Solicitors↩︎
None responded to us last year when we wrote asking how they justified advertising a relief that did not exist. We’ve written to the four above. We found a few others, but the websites appeared to be broken/abandoned – the above four appear live. ↩︎
The UK loses £1bn each year to fraudulent claims for research and development (R&D) tax relief. We revealed last week that one of the largest firms in the market, Green Jellyfish (and its associated firm Kirby & Haslam), made fraudulent claims. We can now reveal in detail how the fraud worked. We believe they’re responsible for over £100m of fraudulent claims.
Unqualified sales people cold-called businesses with no R&D (like carpenters and care homes), and promised them R&D relief would be available. “Technical writers” – none of whom had any relevant experience or qualifications, and many of whom had creative writing degrees – wrote reports justifying the relief. The employees were given briefings with examples of supposedly valid claims. But those briefings were false – none of the example projects actually qualified.
We are today publishing the details of how Green Jellyfish, Kirby & Haslam and other “Impact Group” companies worked from the inside, together with their internal briefing documents.
Green Jellyfish promised their clients they had a team of expert R&D specialists.
This is from a promotion sent by Green Jellyfish to care homes in 2022, talking about their team of “Tax Specialists”:
This is from their website and LinkedIn pages (as of 23 August 2024) – “we are the R&D tax experts”, a “team of specialists” and “a team of Research and Development Tax Specialists”:
And this email to a client (in 2022) talked about “an FCA regulated team of experienced experts in this field”.
The reality – zero expertise
We have not found a single Green Jellyfish or Kirby & Haslam employee with any background in tax, accounting, law, science, or technology.1
We identified ten Green Jellyfish technical writers using open source materials, and metadata from our dossier of the company’s R&D claims. In most cases they were hired straight from university. In other cases they had unrelated previous experience.
The cold-calls to clients, in which clients are assured that R&D tax relief will be available, came from “business development executives” (BDEs). Successful leads were passed to “business development managers” (BDMs) who would have telephone meetings with the clients.
This was a large team with high turnover- we’ve identified over 50 individuals who worked in this role for Green Jellyfish from 2021. They typically had a sales background, but none had any expertise in any legal, accounting, tax or technical area:3
So this was a team with zero expertise. Clients were lied to.
The employees’ story
We have been speaking to current and former Green Jellyfish employees. We have verified their employment from LinkedIn, historic emails, and document metadata.
Their stories are consistent, and paint a picture of a business that worked like this:
The sales teams
The business development executives (BDEs) cold-called clients and sent follow-up emails which (without exception, as far as we’re aware) said the BDE was confident a claim could be made.
They would target different sectors on different days, obtaining company details from Companies House and then looking up phone numbers on Google. For example: two days electricians, then plumbers, then bricklayers, groundworkers, pubs etc. The one thing these sectors had in common was that they were highly unlikely to qualify for R&D tax relief. Two sources have told us they believe that was intentional: it meant Green Jellyfish wouldn’t be competing with other advisers.
Potential leads were passed to business development managers (BDMs) for follow-up calls. There were about 15-20 BDEs at any one time, and 10-15 BDMs. As we note above, none of the BDEs or BDMs had any technical background or experience.
The BDMs asked clients about their business in very general terms, and were supposed to identify “innovative projects”. The BDMs were given lists of example qualifying R&D expenditure (see below), but in practice BDMs almost always said R&D relief was available.4
The BDEs and BDMs saw this purely as a sales job, and had no understanding of the legal requirements, or the consequences of wrongly claiming tax relief.
Several BDMs/BDEs have told us they were given the initial explanation that almost everything qualified for R&D tax relief if you worded the claim correctly.
BDEs and BDMs were under huge pressure to meet sales targets. There was rapid turnover of the BDE and BDM teams (unusually high even by the standards of junior sales jobs).
Some of the BDMs relied heavily on ChatGPT to write their notes.
That was particularly the case when, later on, BDMs were hired in the Philippines and South Africa – they heavily (one source thought “exclusively”) wrote to the technical report team using ChatGPT.
The numbers
The BDMs would put numbers together for the tax relief claims based on the clients’ accounts and corporation tax returns.
Sometimes this followed a discussion about potential R&D projects. Often it didn’t.
We have seen multiple emails from BDMs to clients saying that they would establish the qualifying R&D expenses by looking through the company’s accounts and tax returns. Qualifying R&D expenses cannot be calculated in this way – individual projects must be identified.
Several sources5 have told us that the BDM team would have “industry standards” of the amount they could claim for each sector – for example 20% for care homes. Later they would adjust percentages slightly so the numbers didn’t look too round, for example 20.21%. Later still, different percentages were used for different categories of expense. If our sources are correct, this would be blatant fraud. We would, however, caution that (unlike most of the other information provided to us by our sources) we have no documentary evidence to directly support this claim, and our sources could be mistaken or exaggerating. However we have noted many of the claims in our dossier are almost-round percentages of the company’s expenses.
Our sources have different views on the total volume of claims made by Green Jellyfish, but they all agree the total must be more than £100m. We believe that’s consistent with Green Jellyfish’s accounts. 6
HMRC are now very alert to refund claims. Several sources told us Green Jellyfish had been “blacklisted” by HMRC, and no refunds would be made when Green Jellyfish was the agent. One solution was to use affiliated entities. Another was to find businesses who were about to submit corporation tax returns, and make last minute changes to add large amounts of R&D tax relief – HMRC would then have no idea any R&D agent had been involved. (We would caution accountants to be alert to this.)
The technical team
Sometimes a BDM sent a note of their call with the client to the team of “technical writers” to prepare a report.
A report was required after August 2023, when HMRC tightened claim procedures. Before that, the technical team were only involved in some cases (we believe, but aren’t sure, it’s where there was a more realistic identifiable R&D project). More often, the claims were like Sophie’s, where a claim was submitted without a report (but a report produced much later if there was an HMRC enquiry).
The technical writers were formally employed by Kirby & Haslam, not Green Jellyfish, but in practice the two companies operated as one business.
As we note above, most of the “technical writers” were hired straight out of university with no prior experience. Many had English literature and creative writing degrees; a few had other Arts degrees. None had any prior R&D, legal, accounting or tax experience.
Two of the “technical writers” were referred to as “R&D Tax Specialists” by BDEs on client calls within a few weeks of starting work for Green Jellyfish.
The technical writers realised quite quickly that there was nobody around with any tax qualifications. The BDMs and BDEs sometimes did not realise this, and one we spoke to appears to have genuinely believed that the technical writers were experts.
The reports
We have seen images of notes sent by BDMs to the technical writers. We aren’t publishing them because of the risk our sources could be identified – but we would describe the text as poorly written half-descriptions of a standard care home business. We believe we can link one to a case where a six figure sum was claimed from HMRC (and later had to be refunded, with penalties).
It was made very difficult for the technical writers to refuse to write reports based on the BDM’s notes. If they could not write a report, the claim would go to HMRC anyway, pre-Aug 2023 (after that, the rules were tightened and additional information specifying the R&D had to be provided to HMRC).
The technical writers were dissuaded from telling BDMs that claims did not qualify for tax relief – this was considered “aggressive language”.
Some of the BDMs referred to the technical writers as the “sales prevention department”.
We have now seen many reports prepared by the technical writing team. We have not seen one which actually meets the conditions for R&D tax relief.
The group structure
The business was run day-to-day by Daniel Robinson and Scott Herd, with Steve Christophi known to be involved at board level, but rarely seen.
Several of our sources commented on the obscure group structure, with the BDMs in a different company from the technical writers. They thought this to make it easier for the technical writers and BDMs to blame each other for poor quality claims.7
There was also a “legal team” made up of recent law graduates. They were called “paralegals” but this was not accurate – the term “paralegal” usually means someone with legal training working under the supervision of a qualified lawyer. So far as we are aware, there were no qualified solicitors or barristers working for Green Jellyfish or any of the associated entities.8 The paralegal team got involved when HMRC opened an enquiry into a Green Jellyfish claim. We have also seen a number of legal letters and emails drafted by the “paralegal” team. The letters rely heavily on Google and show signs of being written by ChatGPT or a similar LLM.
The junior personnel working for Green Jellyfish had an appalling experience in a very hostile environment. We don’t see them as morally or legally responsible for the false R&D tax claims. At least two made anonymous reports to HMRC. The blame lies with those who hired staff with no experience and fed them false information, knowing that clients would be misled.
The fake training materials
Green Jellyfish gave the business development and technical writing teams examples of what they said were valid R&D relief claims; these were sometimes also given to clients to “help them identify” qualifying projects.
Here’s Green Jellyfish’s list of examples of R&D projects run by care homes (PDF here):
As a general proposition, the prospect of any care home having qualifying R&D relief is highly unlikely. A care home and its staff may be very innovative in how they plan and deliver care, but it is hard to see how they will ever look for “advances in science and technology”.
But, despite this, care homes were a key market for Green Jellyfish. Two of our sources estimated that care homes made up 40% of Green Jellyfish’s business and 25% of the group companies’ business.
In our view it is clear that none of the examples in this list are valid:
Some are not science and technology at all: e.g.: “Manage and control symptoms of dementia through a wide range of interior and exterior designs” and “Management of a specialised outdoor garden design to mitigate common dementia symptoms”
Others are just using existing technology, e.g. “new software… installation of sensors… to optimise the delivery of care services and… in particular, the detection of symptoms relating to diabetes, addiction, and dementia”, or “create a data analysis tool that can detect and recognise dementia traits”.
Some of the projects would qualify, but it’s implausible a care home would ever have the expertise, resources or facilities to carry them out. Seeking to “advance the field of clinical neuroscience” or “advance the scientific field of neurology” are realistic objectives for a hospital or laboratory, but not a care home.
Green Jellyfish also gave their staff and clients this document, again focusing on care homes (PDF here):
The summary of the qualification criteria are reasonably accurate. We believe anyone with an accounting, tax, legal or technical background reading these paragraphs will realise immediately that care homes usually won’t undertake “research and development”. But nobody in the business development or technical writing team had that background.
In our opinion the examples are, once more, all clearly invalid:
“Developments in care plans” are not an advance in science and technology. Green Jellyfish seem aware of this, by adding the caveats “if the specific care plan is an advance in science or technology” and “and is not easily deducible by a competent professional within the field”. But we don’t believe any care plan can be an advance in science or technology, and given it’s devised by professionals in the ordinary course of their business, it will be “easy deducible”. The caveats look like someone was trying to cover their back.
“IT software designed by organisation for bespoke needs of clients/ carers”. Software will only in exceptional cases be an “advance in science or technology”.9 Realistically, care homes will use existing platforms and technology with minor modifications.10
“Use of AI for service standardisation, operations, and capture of new symptoms within patients”. We doubt any care home will develop its own AI systems. It is much more likely it uses existing platforms such as OpenAI/chatGPT – and that will not be an “advance in science and technology”.
“Development and implementation of biosensors and trackers in clothing of residents and carers to monitor changes in health”. We very much doubt the care homes are developing biosensors/trackers. They will be buying off-the-shelf products. That is not an advance.
“Technology suppliers in the sector (e.g., Birdie) during COVID-19: e.g. partnering… with NHSX for Techforce19 to build the NHS111 symptom tracker into the Birdie app”. Integrating an existing service into an app is obvious, and not an advance in science or technology.
“Revolutionising technology relating to medicine (trying to mitigate medicine waste)”. It is not plausible a care home has the equipment, resources or staff to “revolutionise technology”.
“Improving or creating technology to address a specific scientific or technological problem within the care sector”. This is so vague as to be meaningless.
“R&D within risk assessments – creating a plan that is able to reduce the potential for harm or risk”. Creating a plan is not a scientific or technical advance.
“Innovation in approaches to Dementia care (or other neurological conditions), especially the use of activities and tools to aid recollection”. Using activities and tools is not a scientific or technological advance.
The more detailed “specific client examples” in the documents are, again, invalid:
Implementing behaviour strategies is not an advance in science and technology. Developing a computer programme is not usually an advance in science and technology (unless e.g. it goes “far beyond routine adaptation of existing technologies“). “Recording a person’s behaviour in real time” sounds routine, and not much like an advance at all.
Video interviews and streamlining recruitment are not advances in science and technology.
Designing gardens for people with dementia is not an advance in science and technology, and a garden designer is not a competent professional in the field of neurology.
Advancing the scientific fields of neurology and neurobiology absolutely could be a scientific advance qualifying for R&D relief, but we are very doubtful any care homes have the resources, expertise or budget for neurology research.
The game is given away by the second bullet point. A highly experienced nurse is providing care; he or she is not making scientific advances, and is not a competent professional in the fields of neurology and neurobiology.
The use of the term “neurobiology” is particularly silly. Neurobiology is the study of nerve cells at the molecular level, requiring a sophisticated laboratory. We expect the author didn’t know what the term meant.
These examples corroborate what we were told by current and former Green Jellyfish employees – that they were instructed that almost everything qualifies for R&D tax relief, provided the claim is worded correctly.
These instructions, and the lists of examples misled Green Jellyfish staff and their clients. We think this was intentional.
Who ran Green Jellyfish?
The different entities involved in the business have a variety of different owners, in some cases changing entity and owners over time. Back in 2023, all were listed as part of the “Impact Group”; today they are more shy about admitting that the entities are linked.
Three names come up again and again when we speak to current and former employees.
Steve Christophi, who owns Kirby & Haslam. He is not listed as a shareholder or director of Green Jellyfish, but he was described as a “stakeholder” in internal communications, and our sources report that he was one of those running it. It is notable that, when Paul Rosser wrote about Green Jellyfish, it was Steve Christophi who went to talk to Paul about it (Christophi’s version) or intimidate him (Paul’s version).
Scott Herd was listed as the “Non-Executive Chair” of the Impact Group in 2022 and 2023, and described as “a crucial board member at one of the leading R&D tax credit firms in the UK”. He was previously a director of the current Green Jellyfish entity.
Others are undoubtedly responsible. Paul Rosser researched a structure diagram which reveals other names; we will be writing more on this soon.
Green Jellyfish’s response.
We asked Green Jellyfish to comment on the documents and the evidence of their unqualified staff and unethical business practices. We also warned Messrs Robinson and Herd that we would be naming them in this article:
Green Jellyfish’s lawyers, Fladgate, are still acting. However, despite the seriousness of the allegations, we received a response from Green Jellyfish rather than from their lawyers. This is surprising given the seriousness of the allegations we are making.
The response complains about our timetable, makes a series of irrelevant claims about Steve Christophi’s peculiar visit to Paul Rosser, demands that we review a recording of that visit (we are unaware a recording exists), and demands “specific, detailed questions and concrete evidence to substantiate [our] claims”. They refuse to respond until we do this.
Our response was as follows:
Evidence of fraud
One explanation is that this was all an accident. That those running Green Jellyfish and its other affiliates were acting in good faith, but completely misunderstood the law. They thought all innovations qualified for R&D Tax relief, hired the wrong staff, created wrong examples, and so forth. It would follow that, whilst they were responsible for a large number of incorrect R&D tax relief applications – they did not know that would be the outcome, and no question of fraud arises.
We find this explanation implausible on its face.
As we have mentioned above, we believe that anybody with any appropriate experience would realise that the guidance provided to the staff was (and Steve Christophi, one of those who run the company, is a chartered accountant).
And even if we (charitably) assume Christophi, Herd and Robinson started out acting in good faith, they surely would have realised something was going on when they started to see HMRC challenge their claims and explain very clearly why the claims were being challenged.
At this point an honest person would stop and ask whether there was something in their procedures which was resulting in so many failed claims.
But there is no sign that this happened. Our sources suggest that things actually got worse, not better, as HMRC tightened up its procedures. Even by the sorry standards of cowboy R&D claims firms, this was extraordinary.
It is therefore our view that those in charge of Green Jellyfish (who we believe were Christophi, Robinson and Herd) knew that false R&D claims were being made, and knew that they were misrepresenting the nature of their team to clients. If they were “dishonest” then this amounts to a fraud on their own clients, and on HMRC.
Dishonesty
Whether Green Jellyfish’s leadership team were actually dishonest is a question for a jury.
The jury would be asked to decide whether their conduct was dishonest by the standards of ordinary decent people (regardless of whether the individuals in question believed at the time they were being dishonest).11 The leading textbook of criminal law and practice, Archbold, says:
“In most cases the jury will need no further direction than the short two-limb test in Barton “(a) what was the defendant’s actual state of knowledge or belief as to the facts and (b) was his conduct dishonest by the standards of ordinary decent people?”
We expect that, presented with the evidence we have published to date, most ordinary decent people would say the behaviour of those running Green Jellyfish was dishonest. However, ultimately that is something for a jury to decide.
In our view there is more than enough evidence to justify a criminal investigation of Green Jellyfish’s leadership team, which we believe includes Christophi, Robinson and Herd.
Thanks above all to the current and former employees of Green Jellyfish for telling us their stories. Given Green Jellyfish’s history of legal and physical intimidation, this involved considerable bravery on their part.
Many thanks to K and T for their R&D tax relief expertise, and to P for additional research. Thanks, as ever, to S for his review and technical suggestions.
Paul Rosser of R&D Consulting reviewed a late draft of this article – Paul deserves full credit for discovering and pursuing this story over the last couple of years.
Two exceptions. First, Steve Christophi, who is a chartered accountant. Christophi was one of those managing the business and perhaps had ultimate ownership of it, but he played no part in day-to-day advice. Second, the web design and IT staff, who had obvious technical ability but played no role in the R&D tax relief claims ↩︎
After the events of the last few days, many Green Jellyfish employees and former employees have removed their profiles from LinkedIn and/or removed Green Jellyfish from their online CVs. We would discourage others from trying to identify junior Green Jellyfish personnel; we don’t think it’s fair to hold them responsible for the misdeeds of the business. ↩︎
“Complete Care Advisory” is another firm associated with Green Jellyfish; it provided services to care homes including false R&D tax relief claims. We do not know if its other services were bona fide or not. ↩︎
Possibly this should say “always”; nobody we spoke to was aware of a case where a client was rejected. The very poor quality of the projects that were identified by the BDMs suggested that few if any were rejected. ↩︎
Current/former employees of Green Jellyfish and its affiliates ↩︎
Because trade debtors are shown as £2.3m at December 2021 and £3m at December 2022. We can conservatively assume clients paid within 90 days, which implies over £25m of fee income, which (given their 20% fee) implies £125m of tax benefit claimed before the business became much harder in August 2023. Update – 27 August: Mark Strafford, of Sedulo Forensic Accountants and his R&D tax colleagues kindly conducted a high level review of these accounts for us, pro bono, and they agree that this is the right ballpark figure. (Although they believe 60 days would be more typical for this kind of business, implying that the true figure of Green Jellyfish claims may be higher than our previous estimate). ↩︎
We are not sure that’s right; the scattered group structure looks more like an attempt to hide the true ownership of the business and segregate liability. But we do not know for sure, and we could easily be wrong. ↩︎
Nor were any of the “paralegals” registered with the (voluntary) Professional Paralegal Register. We see the use of the job title “paralegal” as a cynical way to hire law graduates and hold out the false promise that this is the start of a legal career. ↩︎
See the Get Onbord case where an “impressive” machine learning/AI system created by a tech startup was found to qualify. The judgment says that a “massive amount of new code was written as part of the project, which goes far beyond “routine” adaptation of existing technologies”. ↩︎
One can imagine a scenario where a care home commissioned a tech company to develop a very sophisticated AI system, but we haven’t seen any examples of this in our Green Jellyfish dossier, or heard about any such case from our industry contacts. ↩︎
The subjective element of the test for dishonesty (see Ghosh (1982)) was removed by Ivey [2017] for civil cases, and that decision was confirmed to apply to criminal cases in Barton [2020]. The fact that a defendant might plead he or she was acting in line with what others in the sector were doing, and therefore did not believe it to be dishonest is no longer relevant if the jury finds they knew what they were doing and it was objectively dishonest. ↩︎
Comments are now closed for legal reasons. Our apologies.
BBC Merseyside is reporting on a ludicrous attempt to avoid business rates using snails. It is so stupid that I cannot do justice to it – please read the story (radio version here).
This is, however, just one of many stupid schemes to avoid business rates. And the bizarre thing is that historically they have mostly worked. Here’s why – and how the Government should step in.
The most well-known scheme doesn’t involve snails – it’s all about cardboard boxes.
The idea is that landowners grant a lease to a tax avoidance firm. The firm stores a few boxes in the property for six weeks1, then leaves and terminates the lease. This is claimed to be “occupation” and so, after the short lease terminates, the landowner claims “empty property relief” from business rates for the next three months.2 The landowner pays 20% of its tax savings to the tax avoidance firm. And then does the whole thing again when the three months ends. And again.
To a tax lawyer, this looks laughable. It’s an artificial scheme where the only purpose is tax avoidance – and the courts have spent the last 25 years striking down almost every tax avoidance scheme they’ve seen. This one isn’t even clever. I think most tax lawyers would expect the courts to shred box-shifting schemes in minutes.
But in fact the courts have repeatedly approved these schemes.
In the Principled case from 2013, the judge ruled for the landowner, saying:
“I cannot see any good reason why, if ethics and morality are excluded from the discussion, the thing of value to the possessor should not be the occupancy itself. The verb “occupy” and the nouns “occupation”, “occupancy” and “occupier” are, in the end, ordinary English words. Their meaning has developed in case law to give them a sensible construction, but they have not been given technical statutory definitions.”
And the same judge, in the Public Health England case from 2021, applied judicial reasoning from 1949:
And then one of his “propositions of law”:
“it does not matter if the possessor’s predominant or sole motive is mitigation of or exemption from rates liability“
(I’m appalled that a government body would not only buy a tax avoidance scheme, but then cause government money to be spent on both sides of litigation defending it.)
The reason this is so surprising to tax lawyers is that it’s not how modern statutory interpretation of tax law works. Following the Ramsay case in 1982, and the Furniss v Dawson case a year later, the courts began to apply tax law purposively, interpreting terms in light of their realistic purpose. There is an excellent summary of the law here, from law firm Norton Rose Fulbright. So when a judgment starts off by using the words “tax avoidance”, the result is almost always that HMRC wins, and the taxpayer loses.
Except business rates. As this article says, the courts seemed to accept that “rate mitigation schemes” were legal and proper practice.
The result was an explosion in business rates avoidance, driven by a mini-industry of “business rates mitigation advisers” charging 20% of the tax saving.
Box-shifting was the most common scheme, but there were numerous variants – my favourite (upheld by the High Court) involved the entirely tax-motivated installation of “blue tooth3 equipment”. The snail scheme seems particularly egregious, but it’s not insane to suggest it would have worked.4
Why did the schemes succeed?
So why was it that the courts have been merrily striking down every tax avoidance scheme they see, but approving business rates avoidance schemes? There’s no reason to think that business rates are any different from any other tax.
Informed observers5 have suggested three key reasons:
HMRC has had massive success litigating avoidance schemes in the last 25 years, and lost very few cases.6 However, business rates cases are usually litigated by local authorities, who don’t have this experience or expertise.
The lawyers acting for the local authorities tended to be planning and local government lawyers, not tax specialists. Undoubtedly they are very able, but they did not run the cases as tax avoidance cases. So in the Principled and Public Health England cases, Ramsay was not even argued.7
Cases don’t come before tax tribunals and tax judges, who would have disposed of these schemes in fifteen minutes. Instead they usually end up as judicial reviews8, and (very unsatisfactorily) these courts did not apply the modern approach to interpretation of tax law.9
This all changed in 2021 with the Hurstwood case, when a particularly aggressive business rates avoidance case hit the Supreme Court.
Things are looking bad for the landowner when we get to the fourth paragraph of the judgment:
“The liquidation version of the scheme (in the form described in this judgment) has already been judicially branded an abuse of the insolvency legislation in proceedings for the winding up in the public interest of a company which promoted and managed such a scheme: see In re PAG Management Services Ltd [2015] EWHC 2404 (Ch); [2015] BCC 720. As will appear, the dissolution version of the scheme is no less an abuse of legal process and may in certain circumstances involve the commission of a criminal offence.“
And, as often happens, particularly bad facts result in a significant change of judicial approach that will affect everybody.
And then it only took one paragraph to reach the obvious conclusion:
“In our view, Parliament cannot sensibly be taken to have intended that “the person entitled to possession” of an unoccupied property on whom the liability for rates is imposed should encompass a company which has no real or practical ability to exercise its legal right to possession and on which that legal right has been conferred for no purpose other than the avoidance of liability for rates. Still less can Parliament rationally be taken to have intended that an entitlement created with the aim of acting unlawfully and abusing procedures provided by company and insolvency law should fall within the statutory description.“
When it comes to tax avoidance schemes, the common-sense result is usually the correct legal result. The taxpayer lost.11
So how come the High Court, and the Court of Appeal had come to the opposite conclusion? Because, said the Supreme Court, the local authorities and their lawyers had been rubbish at arguing their case. I paraphrase only slightly:
“The courts below appear to have received little assistance from counsel for the local authorities as regards the purpose of the rating legislation; and the same was true in this court. It is perhaps unsurprising that in these circumstances the judge and the Court of Appeal did not adopt a purposive approach to interpreting the relevant statutory provisions and considered that the “owner” as defined in section 65(1) of the 1988 Act must invariably and even on the assumed facts of these cases be identified as the person who is entitled to possession of a hereditament as a matter of the law of real property.“
They should have hired a tax lawyer – and then the local authorities wouldn’t have spent a fortune on taking a simple case all the way to the Supreme Court.
But aren’t business rates an unfair burden on many businesses?
Not as much as is often claimed. The evidence suggests that most of the economic burden of business rates falls on landowners, not retailers/tenants. This is a counter-intuitive result, and retailers often argue strongly that it’s they who are paying. They are, however, wrong – retailers pay the tax, but in the long term the burden is passed to landowners in the form of lower rents, with 75% of the cost of business rates passed onto landowners after three years.
There are certainly problems with business rates, not least that the slow five year cycle of revaluations means that retailers can be caught paying business rates that are out of all proportion to their rent.
The Sunak Government ran a consultation last year on business rates avoidance. The 2024 Spring Budget announced three outcomes:
The Finance Act made box-shifting a bit harder, by requiring premises to be reoccupied for 13 weeks rather than six weeks.
The Government said it would consult on extending the general anti-abuse rule (GAAR) to business rates.
There would be communications to warn landowners off cowboy “mitigation” firms.
This doesn’t go far enough.
The Hurstwood judgment should end all the avoidance schemes, but experience suggests that the avoidance firms will continue to flog schemes, take their 20% fees, and then disappear when – years later – the courts strike them down.
The Government should do three things.
First, drag business rates into the 21st century, and make sure all modern anti-tax avoidance rules apply to business rates. That means:
Introduce a targeted anti-avoidance rule (“TAAR”) for business rates. We see TAARs in most modern tax rules, and they work like this: if you do something artificial which has the sole or main benefit of reducing or eliminating your business rate liability, then it has no tax effect. Scotland has already done this; the rest of the UK should follow their lead.
Business rates should be covered by DOTAS, the rules that require tax avoidance schemes to be disclosed to HMRC.
Second, and more controversially, consider fixing the administrative problems that led to ten years of stupid avoidance schemes:
Everyone involved will hate this proposal; but Government should give serious consideration to requiring all non-valuation business rates litigation to be delegated to HMRC. Or, if that’s too unpopular, or administratively difficult, require HMRC to be consulted on business rates appeals involving points of law.
Another unpopular proposal: the Government should consider a new right of appeal to tax tribunals for non-valuation business rate disputes. Tax tribunals are far better placed to hear what are in reality tax disputes. The risk would be a large increase in poor quality appeals, taking up both tribunal and local authority time – one way to avoid that would be to charge higher fees for business rate tribunal appeals.
And: local authorities, when you’re dealing with tax avoidance, please hire lawyers who have expertise in tax avoidance.12
Finally, none of these technical measures will deter cowboys like the snail promoter:
So the Government should crack down on promoters of hopeless schemes – business rates as well as other tax avoidance schemes.
Make failure to comply with DOTAS a criminal offence.
Make it a criminal offence to promote a scheme or tax position which is so unreasonable no reasonable adviser would think that it works.
And impose tax-geared penalties on advisers, and their directors/shareholders, when they promote a scheme or tax position that is so unreasonable no reasonable adviser would think that it works.
Business rates need to grow up and be treated like other taxes. And the Government should empower HMRC to go after promoters, not the taxpayers they exploit.
Rachel Reeves vs the snails shouldn’t be a close fight.
Meaning: not me. I am a tax avoidance expert but not a business rates specialist, and this article leans heavily on people who are business rates specialists ↩︎
Their failures have been in failing to challenge schemes early enough). ↩︎
See para 76 of Principled: “[The Ramsay doctrine] is not relied on in the present case and [it is something] which I will not attempt, at my peril, to paraphrase.” ↩︎
Most business rates disputes are around the value of the property and these go to the Valuation Tribunal; but there is no route for appealing technical business rates points other than judicial review ↩︎
Para 117 of Principled suggests the judge didn’t understand Ramsay at all – he said “The cases on sham transactions, those founded on the Ramsay principle, and those founded on lifting of the corporate veil, do not provide the answer either. There is no question here but that the transactions are genuine and produce the legal results for which, by the wording of the documents, they provide.”. That is not the test in Ramsay – the genuineness of the transactions and the absence of sham does not prevent it applying. The judge should have required the parties to present arguments on Ramsay and other common law anti-avoidance caselaw. ↩︎
Although, in fairness, the not tax lawyers did occasionally beat the tax lawyers, although an appeal is pending. Many thanks to H (a tax lawyer) for bringing this to my attention just after publication. ↩︎
The Hurstwood judgment came just a few weeks after Public Health England, which must be regarded as wrongly decided. ↩︎
I accept no fee-paying work and have no interest in any law/accounting firm, so I can say this without a conflict of interest. ↩︎
The UK loses £1bn each year to fraudulent claims for research and development (R&D) tax relief. We can reveal that one of the firms responsible is Green Jellyfish – one of the largest firms in the market. Green Jellyfish says it’s a specialist in research and development tax relief, and that they help companies claim an average of £32,000 in tax refunds from HMRC. But they claim tax relief that doesn’t exist, and then cover it up with the help of an affiliate, Kirby & Haslam. They’re making £3m a year in profits from ripping off the taxpayer and their own clients.
We can identify that one of the largest R&D firms in the market has submitted a series of fake and potentially fraudulent R&D tax relief claims: Green Jellyfish. We have a dossier of clearly fake2 R&D tax relief claims made by Green Jellyfish and its associates. This article focuses on one – where Green Jellyfish’s client/ victim was Sophie3, who runs a small therapy business.
Green Jellyfish promised Sophie a “no win no fee” R&D tax relief claim, but there was never any basis for it, and when HMRC challenged it, Sophie was left with large bills. We believe she was defrauded. In other cases, where HMRC didn’t spot Green Jellyfish’s false claims, it will be the taxpayer who was defrauded.
We believe there is enough evidence for HMRC and the police to commence a criminal investigation, shut down Green Jellyfish’s business, and protect both their clients and the wider public interest.
R&D tax relief
R&D tax relief was created to encourage small companies to invest in research and development. It gives profit making companies a tax deduction which reduces their corporation tax bill, or in the case of loss-making companies the ability to surrender their losses for a cash payment from HMRC.
The Times reported in 2022 about highly questionable R&D tax relief claims, with restaurants being encouraged to claim R&D relief for vegan menus. In our view, claims like this have no legal basis and may be fraudulent.
Sophie runs a small therapy business. In 2021 she had £46k of revenue. She paid herself a salary of £12k, and had a profit of £18k (after other costs and corporation tax).
In 2022, Sophie was cold-called by Green Jellyfish, who said they thought her business could claim R&D tax relief.
As Sophie puts it:
“GJF from the start were persistent but very friendly and approachable, they seemed to know exactly what R and D was about, whereas I had never heard of it before. They were confident that my business could claim and after initial doubts I naively put my trust and faith in them.”
After the call, Green Jellyfish sent a follow-up email to Sophie saying this:
There is and was nothing on Sophie’s website that suggested any R&D activity. Green Jellyfish was at no point FCA-regulated. 5
And they explained their process:
We don’t believe anyone who’d even casually perused the HMRC website could “safely say that [Sophie would] easily fall within the parameters of the scheme”.
Sophie had no financial or tax background, and trusted that Green Jellyfish knew what they were talking about. She took up the offer of a telephone consultation. During the call, Green Jellyfish asked Sophie about her business and whether she thought it was “innovative”. Sophie said it was6, but didn’t provide much detail about what she did
Green Jellyfish didn’t ask about whether there were any specific R&D projects – it’s pretty obvious there weren’t, and couldn’t be, when Sophie’s business had one employee/director who was a therapist, not a researcher or engineer.
The evidence of fraud
Green Jellyfish then asked for Sophie’s accounts and corporation tax return:
And off the back of that, with no information about any R&D activity, Green Jellyfish submitted an R&D tax relief claim.
We believe this was likely fraudulent for two reasons.
First, Green Jellyfish had no basis for making a claim, because Sophie gave them no basis. They never provided her with any statement of what precisely the claim would be for, much less the kind of report you’d expect from an R&D firm. As Sophie put it to us:
“I remember chatting to Andrew about my business on the phone but I still don’t know what he was claiming for!“
This therefore isn’t a case of Green Jellyfish staff misunderstanding the legislation or guidance. There’s no evidence they paid any attention to the rules at all.
Second, Green Jellyfish claimed Sophie’s entire staff costs as qualifying R&D expenditure.
Here’s Sophie’s accounts for 2021 – we’ve blanked out the last three digits to preserve her anonymity:
Note the staff costs of £12k – the only staff member was Sophie herself. And Green Jellyfish claimed all of that as qualifying R&D expenditure:
This doesn’t survive five second’s scrutiny. Nobody in the business of filing R&D tax credit claims could seriously think Sophie spent absolutely all of her time on qualifying research and development activity.
So why did they claim the entire £12k? We expect that’s because the only way an R&D relief claim for a company of this size would make sense, and justify Green Jellyfish’s fee, is if they claimed 100% of staff costs.
We should add that we can be certain from this evidence that a false R&D tax relief claim was made, but we cannot be certain that a fraud was committed. That depends on whether those involved were dishonest to the criminal standard, which ultimately would be decided by a jury. We set out the criminal standard for fraud by false representation here, and for tax evasion (“cheating the revenue”) here.
But the evidence is in our view sufficient to merit a criminal investigation.
HMRC’s response
Green Jellyfish filed false R&D tax credit claims for Sophie for 2021 and 2022. HMRC immediately paid the refund, and Green Jellyfish took their fee.
A year later, HMRC told Sophie they were opening “compliance checks” into her R&D tax relief claims. That would mean Sophie would have to refund HMRC – and she’d remain out of pocket for Green Jellyfish’s fees.
Why does it work like this? Why couldn’t HMRC have checked the claim before paying the refund?
Because HMRC generally operate a “refund now, check later” policy. It’s a rational approach in a world of normal taxpayers and normal advisers. If HMRC checked first then refunds would take months. And who would put in a fake refund claim knowing that the consequence of getting it wrong would mean paying back the refund, plus interest and penalties?
But, unfortunately, “refund now, check later” creates a loophole for bad actors to exploit. Rogue R&D tax relief firms can file hopeless claims knowing that they keep their fees whatever happens, and that the risk sits with their poor clients like Sophie.
Kirby & Haslam
Sophie told Green Jellyfish she’d received a compliance check, and they passed her to an associated firm7, Kirby & Haslam.
At this point Sophie realised there was something very strange going on. Andrew had left Green Jellyfish, and the firm had no documentation for her claim. There was no report identifying the qualifying R&D expenditure, and not even a summary of her business activity. So Kirby & Haslam wrote to her asking the kind of questions that Green Jellyfish should have asked right at the start (but didn’t):
At this point an honest and competent firm would have realised that Sophie had no qualifying R&D expenditure. Kirby & Haslam took a different approach. They used Sophie’s responses to construct a response to HMRC which tried to claim that running remote therapy sessions during the Covid-19 lockdown was an “advance in science and technology” qualifying for R&D relief:
The idea this was an “advance in the field” is ridiculous, particularly at a time when almost every service business was finding ways to work remotely. We don’t believe any R&D tax expert would believe this claim had any prospect of success.
But the more serious problem is that it was entirely created after-the-event by Kirby & Haslam.
The consequence for Sophie
HMRC unsurprisingly rejected the Kirby & Haslam justification for her R&D tax relief claim (and another made subsequently for 2022). They sent Sophie a letter which explained why in some detail. For example:
This left Sophie with an unexpected bill of over £7,500 to repay to HMRC. That stung – because she’d only received a £4,500 refund… the rest had been taken by Green Jellyfish as their fee.
Sophie says:
“Just before Christmas I received a notice from HMRC that not only was I going to have to pay back the full amount of the first claim made by GJF, they had also found the second claim to be non-compliant, and I would also need to pay this back. I had no idea that HMRC were evaluating both claims so this came as a huge shock. I remember rushing over to my friend’s house in a state of distress, crying at the injustice of the situation and terrified about how I could pay the money back when it had already been absorbed into my business. At this stage my anxiety sky rocketed, and I spent a few days over Christmas feeling sick and stressed. I tried to put on a brave face around my children over Christmas as I did not want them to worry. The situation impacted on my mental health and triggered many negative emotions of fear, anxiety, isolation, anger, hopelessness and despair.”
The lies to escape penalties
At this point it looked likely Sophie would be hit with penalties for submitting a tax return that was “careless”.
Kirby & Haslam wrote representations to HMRC on Sophie’s behalf.
A normal firm in Kirby & Haslam’s position would have been appalled at Green Jellyfish’s original claim, and the representations would have described how Sophie had in essence been defrauded.
Instead, Kirby & Haslam wrote representations to HMRC which lied about the background. Here’s an email from them “correcting” Sophie’s initial answers to HMRC:
None of this was true. Sophie had relied entirely on the claim submission company. Andrew at Green Jellyfish (to whom Sophie had been speaking) was a “Business Development Manager”, not a tax specialist. She didn’t have a “thorough discussion” regarding her project, because she never discussed a project. Sophie had made no effort to understand the R&D tax relief claim criteria because they were never mentioned to her; she didn’t know what they were, or that they even existed.
Sophie was very uncomfortable with Kirby & Haslam’s proposed responses. She told us:
“Kirby and Haslem were pushing to avoid penalties from HMRC, and in my state of fear, I allowed them to talk me out of telling HMRC what I really wanted to say about GJF and their unscrupulous process. I was constantly told that as a company director I was expected to know about R and D and to have paid due diligence to the claim. I am a clinical professional, working in therapy. I am not a tax specialist and I’m rubbish at maths, so of course I couldn’t know the ins and outs of R and D. I had been led by the group of so called “specialists”. But apparently this was not good enough. Kirby and Haslem made me take responsibility for the claim without blaming GJF. I was so angry but felt alone with the problem, so saw no option but to take their guidance.“
Sophie escaped penalties. We think that’s a fair outcome under the circumstances – but it’s deeply unjust that Green Jellyfish and Kirby & Haslam aren’t subject to penalties themselves.
Could it just have been a mistake?
Not according to Green Jellyfish. When Sophie complained to them, they told her their “approach in preparing and submitting claims is always meticulous, based on the information provided to us and to the highest standards of care and skill”.
They refunded their fees for the 2021 claim, but not the 2022 claim (despite their “no win no fee” promise).
And it wasn’t a one-off either. We have a dossier of similar cases, often for much more money: R&D tax relief claims being made by Green Jellyfish on the basis of absolutely nothing, by businesses who realistically could never qualify. And then in these cases we again see Kirby & Haslam coming in after the event, and inventing rationales for the original claim. But at least in Sophie’s case the Kirby & Haslam document described her actual activity; we’ve seen other Kirby & Haslam letters which invent entirely fictitious R&D projects.
Green Jellyfish is not a small operation. Its accounts show that in 2022 it had 38 employees and made a profit of at least £3m.8
How much of Green Jellyfish’s business consists of genuine R&D claims, and how much fake claims? We can’t know. The size of our dossier convinces us there are many fake claims – but we can’t know if it’s 10% of their business or 100%.
We would, however, speculate that what we’ve seen is Green Jellyfish’s standard approach. We say that for several reasons:
Sophie’s experience, and the other businesses we’ve spoken to, was consistent with that. No analysis of any projects, just the numbers in the accounts and tax return.
Green Jellyfish doesn’t appear to employ any tax advisers. Only salespeople and business development officers. This isn’t how you build a legitimate R&D tax relief business – R&D tax relief is highly technical.
Kirby & Haslam didn’t seem to think there was anything strange about the absence of any records from Green Jellyfish, or the fact that they were constructing entirely original arguments for R&D tax credit relief.
Sophie’s complaint was the opportunity for a bona fide company to look at its processes and consider whether her tax relief claim had been properly handled. They instead just lied to her (“meticulous”).
Even if most/all of Green Jellyfish’s R&D tax relief claims are false, we expect some of their clients will be very happy. HMRC are unlikely to be able to identify all the false claims, and some clients will inevitably keep their refunds (even if there’s a criminal investigation).10 In those cases, it’s HMRC and the wider body of taxpayers that lose out.
Paul Rosser
This report only exists because of years of work by Paul Rosser.11
Paul is an R&D tax specialist. He’s often asked by non-specialist accountants to check R&D claims, particularly when they’re prepared by outside firms who the accountants don’t know. In 2020 he started to see claims prepared by Green Jellyfish which he thought were clearly invalid. Paul had been writing about the dubious end of the claims industry. Paul now wrote specifically about Green Jellyfish on LinkedIn, and named the firm.
On the evening of 25 April 2024, Sotiris Christophi arrived unannounced at Paul’s home and threatened him. He said Green Jellyfish had been through Paul and his wife’s social media accounts, and was preparing to release some unfavourable information about Paul to the public. Paul immediately told him to leave. Christophi then made a series of calls to Paul’s wife’s personal mobile phone.
We asked Christophi about this back in April: he responded saying he regretted his actions, and asking to speak to us in person. We said we would prefer if Christophi could put his position in writing;12 we never heard back.
The tip of the iceberg
There is a large network of companies associated with Green Jellyfish:13
The precise links between the companies aren’t clear but there is clearly a close relationship between Green Jellyfish and Kirby & Haslam. An adviser acting at arm’s length would have advised Sophie to tell HMRC she was misled by Green Jellyfish. A normal adviser would not accept repeated referrals of improper claims. The letter from Green Jellyfish responding to Sophie’s complaint was (according to the metadata) written by a paralegal working for Kirby & Haslam.
Kirby & Haslam and Aston Shaw are owned by Sotiris/Steve Christophi, an accountant regulated by the Association of Chartered Certified Accountants (ACCA).15 Christophi denies a connection to Green Jellyfish, but he certainly seemed to be speaking for Green Jellyfish when he visited Paul Rosser’s home to threaten him.
We have a dossier of other apparently fraudulent tax relief claims made by these companies, and will be writing more about them soon.
We put to Fladgate that Green Jellyfish submits R&D claims with no technical basis, and all it does is review a company’s corporation tax returns and accounts. We also put to them that Kirby & Haslam invent justifications for Green Jellyfish’s claims after the fact.
The Fladgate letter was labelled as “confidential”. It wasn’t. Solicitors are not permitted to falsely label letters as confidential, and one solicitor is currently appearing before the Solicitors Disciplinary Tribunal as a result of such a mislabelling.16
Most of Fladgate’s letter to us is taken up with allegations of an “unlawful means conspiracy” against Green Jellyfish by former employees, rival R&D advisers, and an individual who Christophi is currently suing. We have no interest or understanding of any of this (we’re confident that Sophie’s story is real). It is, however, most unusual for a solicitor to put in correspondence what amounts to a conspiracy theory.
Fladgate deny that Green Jellyfish or Kirby & Haslam is behaving improperly, but the denial is very non-specific.
Specific denials are then included in a separate email from Christophi (on behalf of Kirby & Haslam) and an unknown individual representing Green Jellyfish, which Fladgate forwarded to us. The evidence above (and other evidence we have collated) shows these denials to be false.
The Christophi/Green Jellyfish email rather deceptively ducks our allegation that it’s improper for Green Jellyfish to claim that care homes, restaurants and childcare companies can often claim R&D relief. (“The legislation is very clear and doesnot exclude a company from making an R&D claim based solely on the sector.“)17
Fladgate is a fine firm with a good reputation. We think there will be widespread disquiet amongst its partners that it’s acting for a business that is widely suspected of fraud, denying that fraud in the face of public evidence, and repeating their client’s wild conspiracy theories.
Everyone, guilty or innocent, deserves a criminal defence, and no criminal lawyer should be criticised for acting for any defendant, no matter how repugnant their crimes. However, defamation is very different. There is no professional or moral duty for a solicitor to write defamation threats on behalf of a business when there is good reason to believe it is carrying on a fraud. Particularly when the consequence of acting is that the solicitor will be facilitating the fraud.
HMRC’s response
HMRC is prohibited from commenting on individual taxpayers, but told us:
“With R&D claims, public money is at stake and taxpayers rightly expect us to scrutinise them, which is why we have increased compliance activity. We do that thoroughly and fairly, and the overwhelming majority of valid claims are paid on time.
Any customers who have a concern about an R&D claim they have made, or may have been made on their behalf, should email: [email protected] They should title the email as ‘For the attention of the R&D Anti Abuse Unit’“
What should happen to Green Jellyfish?
Sophie has been deeply affected by what happened to her:
“I contemplated closing my business, as it does not make a huge turnover and I wondered if all this pressure was worth it. I used most of my savings paying back the requested amount and I am still trying to build my savings back up.
I always follow the rules and trust others to do the right thing, and it felt like I had been taken for an idiot. I don’t understand the mentality of people who act like this and I feel let down by what I’ve experienced.“
We don’t think Sophie should blame herself. She was the victim of what looks like a fraud. Those responsible should pay the price.
We will be referring Christophi to the ACCA, although we don’t have much hope – the ACCA unaccountably is refusing to investigate Christophi’s threat to Paul Rosser. We will also be reporting Green Jellyfish’s false claim of FCA regulation to the FCA.
And the evidence presented in this article suggests that Green Jellyfish and the individuals who run it have defrauded both their own clients and HMRC.
We believe there should be an immediate criminal investigation.
We hope the authorities can move quickly; past experience is that Green Jellyfish and those behind it may not stick around to face the consequences of their actions.
How to stop the tax cowboys
Green Jellyfish are not the only tax firm defrauding their clients and HMRC.
The previous Government thought the answer was regulation – they ran a consultation on “raising standards in the tax advice market“.18 We don’t agree. Green Jellyfish weren’t regulated, but acted with total disregard for the law – they’d disregard regulation too. And Kirby & Haslam was regulated.
So it’s not at all clear that regulation is the answer. It would, however, come with a cost – a new regulatory edifice to be created for currently unregulated advisers, most of whom do a good job. That means cost for them, cost for their clients, and cost for the taxpayer.
The better answer is a simpler and more powerful one: change the incentives. Right now, the reward of churning out fake tax claims is large, and the risk of serious sanctions, or criminal prosecution, is perceived to be low. That needs to change.
Our suggestion: create a new criminal offence of promoting tax schemes, or technical tax positions, that are so unreasonable that no reasonable adviser would think they were correct.19 The offence would be accompanied by civil tax penalties equal to 100% of the tax in question, chargeable on the companies involved and the people behind them.
The challenge is to shape the new rules so that the cowboys are pushed out of the business, but legitimate advisers have nothing to be concerned about. That’s hard, but not impossible. And it’s been achieved before. When the General Anti-Abuse Rule was introduced in 2013, some feared it could apply to “normal” tax planning – in practice it hasn’t.
That’s what we’re proposing – a GAAR-style rule that’s carefully aimed at the cowboys, and with very serious consequences when it applies.
Many people’s instinctive response is that we should “make tax avoidance illegal”. That can’t, and shouldn’t be done, because we can’t rigorously define “tax avoidance”.
But we can rigorously define “trying to avoid tax by taking a position that isn’t in fact legally correct, and is so unreasonable that no reasonable adviser would have taken it”. And then make that a criminal offence.
It would be more effective than a new regulatory framework, and an awful lot simpler.
Full credit to Paul Rosser of R&D Consulting for discovering and pursuing this story over the last couple of years. It’s an extraordinary story of a tax professional doing the right thing despite considerable professional, legal and even physical risk. This article wouldn’t exist without Paul.20
Thanks above all to Sophie (and other clients/victims of Green Jellyfish) for telling us their stories. We’ve anonymised Sophie’s details but she’s aware that Green Jellyfish and K&H may identify her; in the unlikely event they’re stupid enough to threaten her, we will take full responsibility for her defence.
Many thanks to K and T for their R&D tax relief expertise, to P for additional research, and as ever to S for his invaluable review and insights. Thanks to J for picking up an accounting error in the original draft.
Hopefully the figure will be much smaller going forward, following new rules requiring much more detail in applications from 1 August 2023 ↩︎
By which we mean not just technically wrong, but indefensible ↩︎
Sophie is not her real name. For the reasons we set out below, we will not be identifying any of our sources for our Green Jellyfish investigation, except Paul Rosser. We have hidden Sophie’s name, and the details of her business, but not changed anything material to her story. ↩︎
Prior to 2 July 2021, Green Jellyfish was owned by Glide Business Solutions, which was FCA-regulated. However that is irrelevant to the status of Green Jellyfish and its staff, and in any event Glide wasn’t the shareholder when the email was sent to Sophie in 2022 ↩︎
We agree; the way Sophie carried on her therapy business during lockdown was “innovative” in the normal business meaning of the term; but that’s very different from having qualifying R&D expenditure. ↩︎
The precise nature of the association isn’t clear; more on that below ↩︎
The accounts show £558k of corporation tax owing to HMRC; the corporation tax rate at the time was 19% – this implies taxable profit of £558k/19% = £3m. The P&L reserve increased by £2.6m from 2021 to 2022, implying that taxable profits were lower then accounting profits by at least £150k. Some of this was likely due to capital allowances, as there was a c£200k addition to plant and machinery. Dividends may also have been paid. And we would not be surprised if the company artificially depressed its taxable profit, given how cavalier Green Jellyfish was with its clients’ tax position. Note that there was an accounting error in the original version of this footnote; many thanks to J for picking this up. ↩︎
Click “What documentation do I need to prepare my claim” ↩︎
It is important to add, however, that the contents of this report were written by Tax Policy Associates independently, and the only element which relies solely on evidence from Paul Rosser is the tale of Christophi’s unexpected visit. Christophi has, however, admitted that the event took place. ↩︎
The subjects of our investigation often ask to speak in person; standard journalistic practice is that responses should be in writing, and we believe there are numerous reasons why that is the only sensible approach. ↩︎
Many thanks to Paul Rosser for the diagram, which is a product of considerable research by him. The group structure has since changed slightly. ↩︎
Fladgate subsequently told us that they labelled the letter as “confidential” because they mention a police investigation. They have no first hand knowledge of that investigation and don’t appear certain it exists. We have no idea why they thought the repetition of what is little more than a rumour would be “confidential”. ↩︎
Technically it is highly unlikely for businesses of this type to be eligible for R&D relief, but there is little point in debating the law when there is evidence of fraud. We don’t intend to go into this point any further with Christophi/Green Jellyfish. ↩︎
It closed shortly before the election, and so we haven’t had a response or any follow-up, but we believe officials are still proceeding on the assumption this will be the way forward. ↩︎
There would have to be a fair defence for cases where a mistake was made by genuine accident, or where a rogue employee acted despite compliance measures being put in place. ↩︎
But, as ever, Tax Policy Associates Limited takes sole responsibility for the content of this article. ↩︎
Comments are now closed for legal reasons. Our apologies.
This page contains an automatically-updated list of every public limited company that’s missed the deadline for filing its confirmation statement. Listed companies are highlighted in yellow, and FCA-regulated companies in red.1
The confirmation statement used to be called the “annual return” – it’s simply a short confirmation that the company’s details held with Companies House are still correct. Accounts can be late for legitimate reasons (e.g. auditors raising a technical query that takes time to resolve), but there’s no legitimate reason for not filing a confirmation statement. It’s a “red flag” that something is up with a company.
In principle it’s a criminal offence to fail to file a confirmation statement, but it’s very rarely prosecuted. Companies House will automatically start the process for striking off a company that fails to file, but it’s easy to object and stop this.
You can click on each column to sort it, and click on a company name to jump to its Companies House entry.
Confirmation statements are usually filed online so, unlike accounts, if a company is on this list it’s unlikely to be due to processing delays at Companies House. 2
We publish a separate list of PLCs that failed to file their accounts on time,.
The list is generated by a script that runs at 2am every Monday morning.3
The code is available on our GitHub. Thanks to M for original idea and original coding, and to Companies House for the API which enables all this.
Tax Policy Associates provides this list as a useful tool but accepts no responsibility for any errors; if a company’s filings are important to you, please check directly with Companies House.
Footnotes
Most PLCs aren’t listed. So why become a PLC? Perhaps because you’re planning to get a listing at some point. Perhaps you want to offer securities to some of the public, without a listing. Perhaps you just like the cachet of having “PLC” in your name. But it comes with a somewhat higher level of compliance obligations. ↩︎
The companies that are many years in default are strange “zombies” which were dissolved, and then restored to the register – I don’t know what’s going on there. ↩︎
This page contains an automatically-updated list of every public limited company that’s missed the deadline for filing its statutory accounts.1 Listed companies are highlighted in yellow; FCA regulated companies in red.2
You can click on each column to sort it, and click on a company name to jump to its Companies House entry.
Note that some of the companies may have filed a few days before the deadline, but Companies House hasn’t yet processed the accounts.34
We publish a separate list of PLCs that failed to file their confirmation statement on time.
The list is generated by a script that runs at 2am every Monday morning.5
The code is available on our GitHub. Thanks to M for original idea and original coding, and to Companies House for the API which enables all this.
Tax Policy Associates provides this list as a useful tool but accepts no responsibility for any errors; if a company’s filings are important to you, please check directly with Companies House.
Footnotes
Companies House’s penalties for late filing are pretty hefty for a small business, but utterly irrelevant for a large company. In theory failure to file is a criminal offence, but it’s very rarely prosecuted. ↩︎
Most PLCs aren’t listed. So why become a PLC? Perhaps because you’re planning to get a listing at some point. Perhaps you want to offer securities to some of the public, without a listing. Perhaps you just like the cachet of having “PLC” in your name. But it comes with a somewhat higher level of compliance obligations. ↩︎
That’s a particular problem for companies who file paper accounts; for some large companies this is unavoidable, because Companies House’s systems won’t accept their accounts in electronic form. And this gets worse around year end/Christmas. However any company that files close to the deadline is asking for trouble; it’s notable that well run companies don’t do this, and to our knowledge no FTSE 100 company has ever been late filing its accounts. ↩︎
The companies that are many years in default are strange “zombies” which were dissolved, and then restored to the register – I don’t know what’s going on there. ↩︎
On 1 August 2024, there were 4,430 active public limited companies. Ignoring those that appear completely defunct1, there were 132 that hadn’t filed on time by 1 August.
Companies House’s penalties for late filing are pretty hefty for a small business, but utterly irrelevant for a large company:
It would make sense to make the fine geared to the size of the company, e.g. with the maximum fine becoming the greater of £7,500 and 0.1% of net assets (about £150k in Brewdog’s case).
The complete list is here. Note that some of these may have filed a few days before the deadline, but Companies House hadn’t yet processed the accounts.2
Many thanks to M for the idea and the coding – indeed everything.
That’s a particular problem for companies who file paper accounts; for some large companies this is unavoidable, because Companies House’s systems won’t accept their accounts in electronic form. Brewdog’s very pretty accounts get printed out, sent to Companies House, scanned, and end up ugly and unsearchable (which is bad for accessibility as well as open data). I expect that is a consequence of Companies House’s limitations and not Brewdog’s fault. ↩︎
Rachel Reeves has said there is a £22bn “black hole” in the public finances, and that she’ll have to raise tax to fill it. Labour are heavily constrained by their pre-election promises, and that makes raising £22bn a challenging endeavour. But certainly not impossible.
So, whilst I’ve previously written about eight tax cuts that the new Chancellor could consider, this article will look at ways in which the Government could raise the £22bn through new taxes, or increases in existing taxes. I won’t go into the political and economic debate over whether these tax increases are necessary or desirable.
How much room for manoeuvre does Rachel Reeves have?
Here’s how UK tax receipts looked in 2023/24 – about a trillion pounds in total:1
During the election campaign, Labour ruled out increasing income tax, national insurance, VAT or corporation tax. They’ve committed to reform business rates, so an increase there seems unlikely. Stamp taxes and bank taxes are already probably past the point where more can be raised. Customs duties are complicated by trade treaties. Raising insurance premium tax without raising VAT would be distortive. Raising alcohol duty would be unpopular out of all proportion to its significance. Labour have already planned an increase to oil/gas taxation.
What does this leave? About £150bn of taxes:
It’s going to be hard to find £20bn there – particularly when it’s dominated by council tax and fuel duties, which are politically challenging to increase.
One answer would be radical tax reform – for example replacing business rates, stamp duty land tax and council tax with a land value tax. Most people would pay broadly the same tax as before, but those owning valuable land would pay a lot more. I wrote about that here. Sadly I don’t think this is likely to happen – the poll tax casts a long shadow over anything that affects local government taxation, and some would say (not unreasonably) that the Government has no mandate for such radical change.
Absent radical tax reform, it’s a matter of scrabbling for relatively small tax increases here and there. Here are some ideas, in rough order of likeliness.2
Pension tax relief – £3-15bn. Right now, contributions to a pension are fully tax-deductible.3 If you’re a high earner, paying a 45% marginal rate, you get 45% tax relief on your pension contributions. Some view this as unfair, and suggest limiting relief to 30%, or even the 20% basic rate. That could raise significant amounts – £3bn (if limited to 30%) or up to £15bn (if limited to 20%). But withdrawals from a pension, after the tax free lump sum, are taxable at your marginal rate at the time. Offering a 20% or 30% tax deduction for pension contributions, but taxing withdrawals at 40%, isn’t a great deal. High earners may shift their investments to other products. There could be complex second and third order effects. I’d say this is streets ahead of all other tax raising candidates given the large amounts that can be raised, and the ease of implementation. But there’s a catch – applying to defined benefit schemes (meaning, in practice, public sector pensions) is more complicated. And exempting defined benefit/public sector schemes from new rules would be widely – and correctly – seen as unfair.
Limiting inheritance tax reliefs – £2bn. It’s daft that my estate would pay 40% inheritance tax on my share portfolio, but if I move it into AIM shares and live for two more years, there would be no inheritance tax at all. Commercial providers sell portfolios designed solely to take advantage of this. But it’s not just AIM shares – if, like Rishi Sunak’s wife, I hold shares in a foreign company that’s listed on an exchange that isn’t a “recognised stock exchange” then those shares would also be entirely exempt. It’s similarly daft that a private business of any size is exempt from inheritance tax – protecting small businesses and farms makes sense, but why should the estate of the Duke of Westminster pay almost no tax?4. There’s potential for £2bn or more here, for a measure that could fairly be presented as closing loopholes.
Pensions inheritance tax reform – £1bn. If you inherit the pension of someone who died before age 75, it’s completely tax free. But if they died aged 75 or over, the pension provider deducts PAYE, which means up to 45% tax if the beneficiary takes a lump sum (or less if they drawdown the pension over time). This is a very odd result. Simply applying the usual 40% inheritance tax rules could raise about £1bn (and in some cases would be a small tax cut for beneficiaries of the over-75s).
Increase capital gains tax – £1-2bn. The Lib Dems proposed equalising the rate with income tax, and said it would raise £5bn. At the time I said that, on the basis of HMRC figures, this would cost around £3bn in lost tax. There is potential to raise some tax from capital gains tax, but it would have to be a modest increase, probably raising no more than around £2bn. A more significant increase would make the UK look like an outlier, and would realistically have to be accompanied by the return of relief for inflationary gains, which would wipe out much of the revenue. And a key point – any CGT increase should be implemented immediately, at the moment it’s announced, or people will “accelerate” disposals and take their gain while the old rate still applies.
Eliminate the stamp duty “loophole” for enveloped commercial property – £1bn+. It’s common for high value commercial property to be sold by selling the single-purpose company in which it’s held (or “enveloped”). So instead of stamp duty land tax at 5%, the buyer pays stamp duty reserve tax at 0.5% of the equity value or if (as is common) an offshore company is used, no stamp duty at all. This practice has been accepted by successive Governments for decades. It would be technically straightforward to apply 5% SDLT to such transactions, and this would raise a large amount – over £1bn.5
Increase ATED – £200m+. The “annual tax on enveloped dwellings” is an obscure tax that was introduced to deter people from holding residential property in single purpose companies to avoid stamp duty. As we explain here, it’s currently failing because it’s been set too low, and raises a derisory £111m. There’s a good case for tripling it.
Increase inheritance tax on trusts – £500m. When UK domiciled individuals settle property on trust, the trust is subject to a 6% tax every ten years, and another 6% charge when property leaves the trust (broadly pro rata to the number of years since the last ten yearly charge). These taxes currently raise £1.3bn, on top of the 20% “entry charge” when property goes into trust. This all seems rather a good deal if we compare it to the 40% inheritance tax paid by estates on property that isn’t in trust. So there’s an argument for increasing the rate from 6% to 9% – and that should raise somewhere north of £500m.6
Reverse the Tories’ cancellation of the fuel duty rise – £3bn. For years, Governments have been cancelling scheduled (and budgeted) rises in fuel duty. Most recently, the Conservative Government did that in March, forgoing £3bn of revenue. It would be easy to reverse that – but (unlike most of the other tax changes listed here) it would impact people on median/lower incomes.
Abolish business asset disposal relief – £1.5bn. This is a capital gains tax relief supposedly for the benefit of entrepreneurs. But the Treasury officials forced to create it named it “BAD” for a reason. The benefit for genuine entrepreneurs is limited (a 10% rather than 20% rate). It’s widely exploited. Abolition would raise £1.5bn.7
Council tax increases for valuable property – £1-5bn. It’s indefensible that an average property in Blackpool pays more council tax than a £100m penthouse in Knightsbridge. The obvious answer is to “uncap” council tax so that it bears more relation to the value of the property – either by adding more bands, or applying say 0.5% to all property value over £2m. Depending on how it was done, this could raise several £1bn. The argument seems compelling for any Government, and particularly a Labour government. And whilst Labour promised not to change the council tax bands, that was in the context of revaluation, not adding more bands at the top.
End the pension tax free lump sum – £5.5bn. On retirement, we can withdraw 25% of our pension pot, up to £268k, as a tax free lump sum. The argument for abolition is that most of the benefit goes to people on higher incomes paying a higher marginal rate. The argument against is that people have been paying into their pensions for decades on the promise of the rules working a certain way, and it’s unfair to now change that (and I agree with this position). Labour also seemed to rule out the change. But it’s another “easy” way to raise lots of tax – limiting the benefit to £100,000 would raise £5.5bn.
Tax gambling winnings £1-3bn. The US taxes gambling winnings. The UK doesn’t (unless you are a professional gambler so gambling becomes your trade or profession). In theory this would raise £1-3bn.8 It would have two ancillary benefits: (1) discourage gambling (in a way that raising betting duties would not), (2) end the oddity that spread betting isn’t taxable when equivalent derivative transactions are. But there are two big downsides. First, it would be (in my view) unfair to tax gambling winnings without giving relief for gambling losses (as the US does). That reduces the yield. It also creates a relief that would be exploited for tax avoidance and tax evasion.9 Second, it would in practice be regressive, hitting the poor disproportionately. So, whilst an interesting thought, I can’t see this happening.
Cap tax relief on ISAs– up to £5bn. Cash and shares/stocks in ISAs is exempt from income tax and capital gains tax. This tax relief costs about £7bn of lost tax each year. Most ISAs are small – only 20% hold more than £50,000. But I expect this 20% receive around 80% of the benefit of ISA relief. So in principle the Government could save £5bn by capping relief for the first £50k (or some lesser amount for a higher cap, with diminishing returns setting in fast10). However many would regard this as unfair – they took advantage of a widely promoted Government saving scheme, and now the rules are being changed after the event. I think that’s a compelling argument.11
Reduce the VAT registration threshold – £3bn. There is compelling evidence that the current £90k threshold acts as a brake on the growth of small businesses, as they manage their turnover to stay under the threshold. Reducing the threshold so everyone except hobby businesses are taxed would raise at least £3bn, and in the view of many people across the political spectrum, could increase growth. The economy as a whole would benefit, and small businesses would benefit in the long term. But in the short term there would be many unhappy small businesspeople. I fear this is, therefore, too difficult for any Government to touch. It would also take time to put into effect – APIs/apps would need to be ready to assist micro-business compliance, and HMRC would need to significantly gear up.
Raise the top rate of income tax – <£1bn. The top rate of income tax (outside Scotland) is currently 45%. The rate was briefly 50% under Gordon Brown – could we return to that? I would be surprised. It raises very little – raising the top rate is a political signal more than it is a fiscal policy. And any increase would probably break Labour’s campaign pledge not to increase income tax.
Wealth tax – £1bn to £26bn. Manycampaigninggroups are keen on a wealth tax targeted at the very wealthy – e.g. people with assets of more than £10m. But the practical experience of wealth taxes is that they’ve been failures, with only a handful of countries retaining a wealth tax12. The recent Spanish tax – which adopted the modish idea of only hitting the very wealthy – raised a pathetic €630m. It’s another failed wealth tax to join a long list. The academics on the Wealth Tax Commission recommended against an annual wealth tax, but supported a one-off retrospective tax raising up to £260bn over ten years. My feeling is that such an extraordinary tax would require a specific political mandate, which Labour do not have. And one-off taxes have a habit of not in fact being one-offs
The last six seem unlikely to me.13 Implementing all the others should raise around £22bn (if pension tax relief was capped at 25%).
The headline and start of the article is misleading – trusts aren’t the reason the Duke of Westminster’s estate paid so little tax – it’s all about APR/BPR ↩︎
We could find no figures that enable a proper estimate to be produced – the £1bn is no more than an educated guess at the lower end of the yield – see the discussion here. ↩︎
Taxpayer responses, and the complexity of trust taxation, mean that determining the actual yield would be complicated. ↩︎
The source for this and the other reliefs are the tables found here – this one is the CGT tab on the December 2023 non-structural reliefs table. ↩︎
Rather unsatisfactorily the source is a private conversation with someone knowledgeable and I can’t provide any further information. ↩︎
Although one could imagine designing a tax to minimise these effects, e.g. automatic deduction of 40% tax from winnings, with winnings and losses reported to HMRC by regulated gambling businesses, and no other losses permitted. ↩︎
Those who say that ISAs should be capped at £1m are engaging in symbolism not tax policy – there are only a few thousand people with £1m ISAs, and most of those will be only a little over the cap. A £1m cap would raise little. ↩︎
Disclosure: I have an ISA, but not a terribly large one. ↩︎
The exception is the Swiss wealth tax – but that is charged at a low rate on most people, not just the very wealthy, and so has little in common with the campaigners’ proposals. ↩︎
But please note the caveat about taking my predictions with a pinch of salt. ↩︎
We’ve been investigating a Belize company called GCWealth. It says its offshore trusts can eliminate tax on your assets, and prevent your spouse or creditors ever accessing the assets. And GCWealth claims that billions of pounds have been put into their schemes in the last fifteen years.
Our experts believe GCWealth’s claimed tax, divorce and insolvency benefits don’t actually exist. The schemes only work if the authorities don’t find out about them. That suggests this may be fraud, not avoidance.
The GCWealth schemes, like others before them, shows that the current approach to dealing with tax avoidance isn’t working.
Promoters remain free to push highly aggressive schemes that border on fraud. They do so from offshore companies that – they think – make them untouchable. And we believe that this kind of avoidance/evasion is part of the reason why the small business “tax gap” is so large. It’s time to make promoters of such schemes pay, with harsh penalties and criminal sanctions.
This report outlines the GCWealth schemes, explains why they don’t work under current law, and proposes specific changes to criminalise promoters like GCWealth.
The two schemes
This is GCWealth’s document promoting its “business asset trust” (PDF version here):
The scheme works like this:
GCWealth’s client declares a trust over property (or indeed any asset), so that it remains in the taxpayer’s name, but beneficial ownership passes to a Belize trust.
The taxpayer sets up a new UK company which becomes the beneficiary1 of the trust2 (i.e. it’s a trust inside a trust).
Then, through steps that are not set out in these documents, the asset supposedly becomes free from income tax, capital gains tax and inheritance tax.3
GCWealth also claim that the trust means that your “assets protected from 50/50 split upon divorce”. In other words, if you divorce, and a court split the marital assets, you’d keep all the assets in the trust.
And GCWealth say the “assets [are] immediately sheltered from bankruptcy, insolvency proceedings”. So if you owe your creditors money, but have put assets in trust, your creditors wouldn’t have access to them.
These are bold claims.
Here is the document promoting a second scheme, the “creditor protection trust” (PDF version here):
This second scheme works like this:
The client has a pre-existing small business run through a company.
Normally the company would pay corporation tax on its profits, and pay dividends to the client – with the client paying income tax on the dividends.
Under this scheme, all the profit made by the client’s company is contributed to the trust.
GCWealth say the company’s payments to the trust are deductible for corporation tax purposes. So the company pays zero corporation tax.
The money, now in the trust, is then lent by the trust to the client under successive ten year interest-free loans.
And GCWealth say that the client receives the loans tax-free.
GCWealth say the structure “spans over a hundred years in its use”. We don’t know what that means.
Again these are ambitious claims.
The PDF metadata4 of both documents show that they were created by “Bobby” in 2021; we have received reports of the scheme being promoted in 2022, 2023 and 2024.
Both schemes have a fee of 15% of the amounts put into trust.5 That will be a very large amount. If the claim that billions of pounds have gone into these schemes is correct, then over £100m of fees will have been received.
Why the schemes fail
We’ve spoken to leading private client tax advisers, and they believe the claims made in the two documents are fictitious.
The documents say that the taxpayer retains control of his assets at all times, despite the trust arrangement.6 That suggests that the arrangements may in fact be a “sham“, and there is no trust at all.
But a sham may be the best-case outcome for GCWealth’s clients. If it’s not a sham, the first scheme (the “business asset trust”) won’t be effective, and may trigger large up-front taxes:7
We’d expect capital gains tax to be triggered on the transfer of assets to the trust unless “hold-over relief” applies. Whether hold-over relief would in principle be available isn’t clear from the description in these documents, but it requires a taxpayer to make a claim to HMRC, and we suspect users of this scheme wouldn’t be minded to tell HMRC about it.
The client (as settlor) or company (as beneficiary) would ordinarily be subject to capital gains tax on the trust’s capital gains, and the trustee subject to income tax on the trust’s income. We’ve no idea why the document says “any rental stream for the asset is now tax free” and “any sale of the asset is free from CGT”. Possibly there are mechanics behind the scenes that supposedly prevent the usual trust tax rules applying. We are doubtful this is possible in principle8, but even if it was, we would expect the general anti-abuse rule (GAAR) would apply.9
Where the assets consist of UK shares13 and (as the document suggests) the beneficiary is a connected company, there will be a stamp duty reserve tax charge equal to 0.5% of the market value of the shares.
The document says “It does not matter if the asset has borrowing/mortgage. The lender does not need to be notified as the beneficial title of the net equity is transferred to the client’s own UK new company”. We’ve seen these claims before and they are usually false. That’s our view, and also that of the mortgage lenders’ industry body. So, if a mortgaged property is put into trust, the mortgage will probably be defaulted.
We expect the second scheme (the “creditor protection trust”) also fails to provide a tax benefit, and may trigger large up-front taxes:
The contribution to the trust by the client’s company will be non-deductible for corporation tax purposes, because it isn’t made for wholly and exclusively for the purposes of the company’s trade. Indeed it’s nothing to do with the trade.14
After the most recent wave of attempts to avoid employment tax, the “disguised remuneration” rules were introduced. If you are a director, and receive what is in substance a reward, via a third party, then you get taxed. These rules will apply here.15 Possibly there are mechanics intended to defeat the disguised remuneration rules16 – it is not obvious how even in principle this could be achieved but, even if it was, we expect the GAAR would apply, as it already has to another variant on a remuneration trust structure.
Realistically, the contributions to the trust by the company are gifts. We expect they will be subject to a 25%17 inheritance tax entry charge in the hands of the company’s shareholders (beyond the £325k nil rate band).18
Both schemes end up being a tax disaster for GCWealth’s clients.
Failure to disclose the scheme
DOTAS
Tax avoidance schemes are required to be disclosed to HMRC under the DOTAS rules. Given that the two GCWealth schemes have a main benefit of creating a tax advantage, and there is a 15% fee, it is in our view reasonably clear that the schemes should have been disclosed. We asked GCWealth on three occasions if they disclosed and they failed to answer. We therefore believe that GCWealth unlawfully failed to disclose.
There is a special reporting rule that applies to anyone who, in the course of their trade/profession, is involved in the creation of an offshore trust for a UK settlor, but inheritance tax isn’t paid when the trust is established.
We expect no inheritance tax was paid on the establishment of these trust structures, which means that this rule will have applied, and a return should have been made to HMRC. We doubt that it was.19
Other registration rules
Any offshore trust/settlement owning UK real estate is required to register with the Trust Registration Service. Does GCWealth register its trusts?
Offshore entities with beneficial ownership of land in England & Wales are required to register with the Register of Overseas Entities. Does GCWealth do this?
Tax avoidance or fraud?
There are a number of signs that the promoter either has no understanding of tax, or is engaged in a deliberate deceit:
The claim that this is “not a tax avoidance scheme” is laughable. The only purpose of this arrangement is to avoid tax and other legal obligations.
The first document (“business asset trust”) says that “HMRC are bound by the validity of the structure”. They are clearly not, and we don’t believe any competent lawyer or tax adviser would think otherwise.
The second document (“creditor protection trust”) says that “HMRC accept the validity of the structure”. Either HMRC have been shockingly negligent, or this is a lie.
The description in the second document says “the client will also be a beneficiary to the trust ie a creditor”. A beneficiary is not a creditor. Perhaps this is a deliberate attempt to muddy the waters, or perhaps the author does not understand trusts.
The documents claim that “The very nature of the structure means that it is not subject to the general anti-avoidance rule (GAAR)”. The GAAR guidance contains numerous examples of the GAAR applying to trusts and the GAAR advisory panel has issued a decision on an offshore remuneration trust structure. Why wouldn’t the GAAR apply to these variants? And any tax adviser knows it is the general anti-“abuse” rule.
We see no proper basis for a DOTAS disclosure not being made.
We are confident HMRC would challenge these schemes if it became aware of them (and we are aware of one case where HMRC did become aware and did challenge). But the way the first scheme works, with a “silent” trust that operates behind the scenes, means that it will be very hard for HMRC to discover the existence of the schemes unless they are properly disclosed in tax returns. We expect that scheme users do not properly disclose the scheme, with either no disclosure or misleading disclosure. Deliberate concealment is potentially tax fraud.
How much have these schemes cost taxpayers?
GCWealth says that the structure has “Protected several £Billion wealth since 2009” and that their clients includes “business owners in every major industry sector; some of the UK’s wealthiest families; some of the UK’s leading sportspeople; property developers and investors”.
We don’t know if these claims are true. But if they are, we expect that the schemes have resulted in a cost to the taxpayer of around £1bn, thanks to GCWealth’s clients having failed to pay tax that in our opinion was legally due.
Divorce protection
GCWealth claims the first scheme, the “business asset trust” means your “assets protected from 50/50 split upon divorce”. It’s a variant of the “deed in the drawer” structure that’s been used for centuries. As one judge recently summarised it:
“The phenomenon of the “deed in the drawer” is one that is now frequently encountered. X appears to be the owner of a property, and people lend to him or otherwise deal with him on the footing that he owns it. But if X becomes bankrupt or the subject of enforcement proceedings a deed is produced which shows that in truth he holds the property upon trust for somebody else. In some cases these deeds are simply not authentic. In other cases they are authentic, but simply not noted in any public register.”
We spoke to barristers and solicitors specialising in chancery law, family law, and nuptial agreements, and they all expected the trust would fail to achieve this:
As noted above, it could be attacked as a sham on conventional Chancery principles (because in a real trust the settlor does not have full control of the assets).
If not a sham, the fact the client has control of the assets suggests that it is simply the “property and other financial resources“20 of the client, and part of the “matrimonial pot” in the same way as any other asset. The arrangement achieves nothing.
If not a sham and the client somehow doesn’t have influence/control, the question is whether the trust was created “with an intention to defeat” the spouse’s financial claims. If it was, then the court could make an order to set it aside under section 37 of the Matrimonial Causes Act. There is a rebuttable presumption that the trust was created with such an intention if it was created less than three years before the date of the court application. Even after three years21 the experts we spoke to thought that the structure was plainly motivated by a desire to defeat a claim for financial relief, and therefore it would be hard to resist a section 37 order.22.
The specialists we spoke to concluded from this, and the incorrect reference to the “50/50 split”, that the promoters of the scheme have no expertise in this area and did not take appropriate advice.23
Insolvency protection
The documents also promise that the trusts mean your assets are “immediately sheltered from bankruptcy, insolvency proceedings”. This claim is false.
Gifts into a trust will be set aside if made within two years of your bankruptcy, or five years if you were insolvent at the time. And a gift made at any time can be set aside if a court is satisfied that the gift was made for the purpose24 of putting assets beyond the reach of a person who is making, or may at some time make, a claim against him. 25
The confidence with which a clearly incorrect claim is made again suggests that the promoters have no expertise and did not take appropriate advice.
Bobby Gill
The man behind these companies is a British solicitor called Bobby Gill.26
Gill says he’s “been a leading international corporate lawyer for over 2 decades”. He is indeed a solicitor (non-practising) but, whilst we have extensive contacts in international and offshore law firms, we couldn’t find anybody who’s heard27 of him.28 He has no web presence except amateur looking Wix and WordPress sites, and what looklikepaid-forprofilepiecesonobscure websites.29
Gill’s sole public visibility arises from his ownership of a business called Swisspro Asset Management AG30 which attracted investors on the basis it would undertake currency trading and pay them a 2% per month fixed return (which equates to a 27% annualised return). We’ve spoken to FX traders and fund managers – none regard this as plausible.
Gill gave a personal guarantee for £1.5m borrowed by Swisspro.31 Swisspro started to get into financial difficulties in 2017 and the lender called on the loan in 2018. Gill tried to argue that, because the guarantee had been signed electronically, he wasn’t bound by it. The dispute ended up at the High Court, which wasn’t impressed with Gill’s attempt to escape the guarantee he’d signed.
It’s hard to understand why Gill ever thought his business could produce such high returns for investors. He told us that the failure was the fault of an FX trader engaged by Swisspro, who has since been convicted for fraud and money laundering and is currently an international fugitive.32 That doesn’t explain why Gill made the claim of a 2% return per month, or why he continued to take customer money well after the point that Swisspro was unable to repay the £1.5m loan.
GCWealth has no online presence (the similarly named company that does is completely unrelated). It reaches clients and wealth advisors through direct sales.
Gill established GC Wealth Limited as a UK company, and in 2016-2018 it had significant fee income. But its accounts for 2019 appear to be badly wrong, with the 2019 balance sheet identical, to the pound, to the 2018 balance sheet:
It also looks as those there may have been aggressive tax avoidance to prevent the company’s profits being taxed.3334 At some point around 2019 that company became dormant and the business moved to “GCWealth Administrators Limited” and two associated companies in Belize:
Has the scheme been challenged?
One client sued Gill and his associated companies for negligence back in 2018. We don’t know the outcome, but infer from the lack of action that it was settled. There was another case against Gill around the same time; we don’t know what it involved.
There are signs that HMRC is aware of GCWealth’s activities. We believe there is one live case where HMRC is challenging a UK taxpayer who used a GCWealth scheme. And HMRC applied at the end of last year to wind up GCWealth RT Limited (but we don’t know why, or what that company did35).
Bobby Gill appears to be connected to notorious tax avoidance scheme promoter Paul Baxendale-Walker.36 We understand that Gill used to sell PBW remuneration trust schemes, and the trust schemes described in this article are very similar to PBW structures. We do not know if this is coincidence, if PBW helped create the schemes or if Gill just copied/modified existing PBW structures.37
There also a surprising connection to the OneCoin Ponzi fraud we covered earlier this year, through the “C” in “GC Wealth” – a lawyer called Robert Courtneidge. Gill’s original UK company was once called Gill & Courtneidge Wealth Limited (although Courtneidge no longer appears directly involved), and Courtneidge was described by the High Court as a friend of Gill. Courtneidge was a lawyer to the OneCoin Ponzi fraud and has been associated with other failedbusinesses (although he has not been accused of any wrongdoing).
The other individual known to have been involved in GCWealth is a woman called Marianna Timmini. We don’t know anything about her.
We are working on an application that will visualise connections between individuals linked to UK companies – it’s not quite ready for public consumption, but the GCWealth connections look like this:
Bobby Gill’s response
Gill sent us a response in which he said “The company has never engaged in any form of ‘tax avoidance’, aggressive or not. Indeed it has never engaged in any form of tax planning.”
We view that as completely untrue. The trusts have no purpose other than to avoid tax and hide assets from creditors or a spouse. We believe any reasonable tax adviser would see this as highly aggressive tax avoidance. 38
We put to Gill that the structure was technically hopeless. His response was that we’d only seen two page summaries. In many cases that would be a fair criticism: it would be unwise to judge the efficacy of (for example) Google’s tax structure, or the Duke of Westminster’s inheritance tax planning, on the basis of a two page summary. However just as a physicist would feel confident dismissing a miraculous perpetual motion machine on the basis of a two page summary, we feel reasonably confident dismissing a scheme that achieves the fiscal miracle of nullifying all tax from an asset.39 We have also seen correspondence between Gill and advisers acting on behalf of people interested in the GCWealth schemes. The pattern is always the same: when advisers ask technical questions, Gill stops responding to emails.
We asked Gill three times if the trusts had been disclosed under DOTAS. He avoided answering directly, but instead said HMRC were aware of the trusts,. That is not the same thing. The requirement to notify HMRC of a tax avoidance scheme applies regardless of whether HMRC are “aware” of the scheme.40 We infer from Gill’s response that no DOTAS notification has been made. And that’s what we’d expect for this kind of scheme – marketing it is much more difficult if it’s been disclosed to HMRC as a tax avoidance scheme.
When schemes are put on the list, it’s only for twelve months. That’s a silly limitation of current law – the law should be changed.
Second, make it a criminal offence to fail to disclose avoidance schemes
One constant in all the tax avoidance schemes we see is that none are disclosed to HMRC under DOTAS, the rules requiring notification of tax avoidance schemes. The technical basis for this is either non-existent or nonsensical. The real rationale is that nobody can sell an avoidance scheme that’s been disclosed under DOTAS
This needs to change.
It should be a criminal offence to fail to disclose a scheme under DOTAS where no reasonable adviser would have thought there was a reasonable basis for failing to disclose.41 It would be important for HMRC to make clear that the offence would never be applied to a genuine mistake; the measure would be a failure if it concerned normal tax advisers. The offence should be carefully calibrated to only impact the cowboys, and there should be a defence where the breach occurred despite a person taking reasonable steps to comply with DOTAS.42
Third, end the offshore promoter loophole
Many of HMRC’s powers are hard to enforce against offshore promoters of tax avoidance schemes. Obtaining an offshore promoter’s client lists and documentation is, for example, very difficult.
Tax avoidance scheme promoters have taken ruthless advantage of this by moving their businesses offshore. We would speculate that this is why Gill moved his GC Wealth business from the UK to Belize in 2018.
The obvious solution is to simply prohibit offshore entities from promoting tax avoidance schemes (broadly defined), with criminal penalties for breach, and enhance penalties for taxpayers using such schemes.
Many thanks to all the experts who contributed to this report, including: O, M and James Quarmby (personal tax), Elis Gomer (chancery law), S (SDLT and general technical review), N (divorce law), K (insolvency law), C and P (accounting), E (additional research) and O, F and B for their FX and fund management insights. As is always the case, Tax Policy Associates Ltd takes sole responsibility for the content of the report.
The document actually says that “the beneficial title sits” with the company. That can’t be right, because it implies the arrangement is a bare trust, which would have no tax effect. Probably the author doesn’t understand the difference between a beneficiary and beneficial title. ↩︎
The document expressly says the company is the beneficiary of the trust. But it also says, in the previous sentence: “The trust structure is set up so that the power in the trust to hold the assets are held by the client in a UK new company specifically set up as part of the structure, of which the client is the sole shareholder and director” which is incoherent, but perhaps suggests the company manages the trust? ↩︎
These steps sometimes include an intermediate non-UK company which acquires the asset and makes the contribution to the trust. This appears to be an attempt to fool UK settlement rules – it won’t work. ↩︎
Metadata is the data created when by software that creates or edits documents, but which is not visible onscreen when you view the document. The metadata in a PDF file can, for example, be seen in Acrobat by selecting File/Document Properties. It is important not to read too much into metadata – if I set up a computer as belonging to Napoleon then PDFs created on that computer by Acrobat would (by default) show Napoleon as the author. And the author, data and other metadata in a document can easily be manipulated. So metadata should be regarded as no more than indicative. ↩︎
It looks like GCWealth accept that VAT should be paid on 5%, but then try to argue the remaining 10% is exempt. That is in our view incorrect – it’s all realistically a fee for advice, and VAT therefore applies. ↩︎
The incoherent sentence noticed above (“The trust structure is set up so that the power in the trust to hold the assets are held by the client in a UK new company specifically set up as part of the structure”) also adds to the feeling that this is not a real trust. ↩︎
This is just a short summary; there are a large number of anti-avoidance rules which may apply here, not least the transfer of assets abroad rules↩︎
The GAAR doesn’t care about how clever your technical argument is, which is one of the reasons why we are reasonably confident this scheme doesn’t work despite not having access to those technical arguments. ↩︎
The rules in Scotland and Wales are different; we expect there would be adverse effects, but we have not discussed with Scottish and Welsh tax experts. ↩︎
The deemed market value rule in s53 will apply if the purchaser for SDLT purposes is a connected company. The rules as to who is the “purchaser” in para 3 Sch 16 Finance Act 2003 have the effect that, if the beneficial owner under the trust is the company, then the company is treated as the purchaser. GCWealth’s promotion document suggests that “the beneficial title sits with the client’s own UK new company.” If that is the effect of the documents, then large SDLT liabilities are likely to arise. ↩︎
i.e. 3% above the normal rate if a company holds the property, and 2% extra if the company/ trust/new owner is treated as non-UK resident for SDLT purposes. The flat 15% rate could apply if an individual dwelling were worth over £500K, although though with reliefs, eg for a property rental business. The non-resident 2% rate applies on-top of the 15% rate. ↩︎
Broadly speaking – it’s a little more complicated than this ↩︎
Payments to a trust for the benefit of employees are only deductible when and if the employees are taxed on the payments. However that’s only if the payments are deductible on general principles. Here the document goes out of its way to say that the loans “aren’t in any way connected in (sic) the client’s capacity as employee/director of the business”. That is supposed to help the analysis. It doesn’t – but query if it would prevent the company obtaining a deduction, even when (inevitably) the client is taxed on the loan. ↩︎
The claim that “The loan is taken by the client in his capacity as a creditor to the trust (ie not in any way connected in the client’s capacity as employee/director of the business)” is presumably an attempt to avoid these rules, but it is obviously untrue. Of course the loan is connected to the client’s capacity as a director – the company only made the contribution to the trust because the client/director knew he would receive it back as a loan. ↩︎
The penalties for a breach of section 218 are ludicrous – £300 plus £60/day. It is, however, unacceptable for a solicitor to ignore a legal requirement. ↩︎
The courts have found trusts to be “other financial resources” in numerous cases of “real” trusts where the settlor influences the trustees, but does not have complete control. The test in Charman v. Charman [2006] 1 WLR 1053 is “whether, if the husband were to request [the trustee] to advance the whole (or part) of the capital of the trust to him, the trustee would be likely to do so”. ↩︎
Note that if there is sufficient evidence then there is no limitation period for s37. ↩︎
i.e. because the divorce “advantage” is specified in the promotional material for the trust, and further evidence would likely emerge from disclosure (including the client’s correspondence with GCWealth. Indeed it is unclear what purpose the client could say the trust had, other than tax avoidance and “asset protection”. ↩︎
There is one an additional point that probably isn’t relevant, but some arrangements of this kind get caught by. If the wife were a beneficiary of the trust, even to a small amount, that the trust could qualify as a “nuptial settlement”, which the court has almost unlimited powers to vary. ↩︎
The Lemos judgment provides a useful example of how the courts apply section 423 in practice. ↩︎
Gill tells us he doesn’t own GCWealth Administrators Limited but is merely a consultant. The reports we’ve received of GCWealth’s sales efforts only mention Gill. Gill clearly was the owner of GCWealth’s predecessor UK company (of which more below), which appears to have transferred its business to the Belize operations. Obfuscation of ownership is a common tactic of tax avoidance scheme promoters. ↩︎
Aside from the Swisspro High Court case we mention below. ↩︎
Gill says that, until 2009, he was an associate at Allen & Overy and Mallesons in Sydney, and then a partner at an unspecified top 20 international law firm. The internet has no evidence of any of this, although companies House suggests that from 2006 to 2010 Gill worked for a boutique law firm called iLaw. ↩︎
An obvious caveat is that we cannot know whether Gill actually created these pages or someone else did; it is, however, difficult to see what motive anyone other than Gill would have to write them. Gill may have been conned by one of the firms like Mogul Press that promise to raise their clients’ profiles, but actually just publish poorly written articles on low impact websites. ↩︎
There was also a UK company, Swisspro Asset Management AG Limited, owned by Gill, which appears to have been dormant – if we can trust the accounts. And a Canadian company, Swisspro Asset Management Inc, which was dissolved in 2022 for non-compliance after failing to file any accounts since its incorporation in 2017. ↩︎
Which suggests Swisspro wasn’t originally established as a fraudulent enterprise. ↩︎
Gill continued “There is an ongoing police investigation, and me, my family and many others are victims of this fraud. I have assisted the police to the best of my abilities and been praised for my support and assistance. I am unable to comment much further on this given the ongoing investigations”. ↩︎
This is on the basis of the 30 January 2019 balance sheet, which show £1,252,124 cash at bank, £351,007 debtors, and almost all of that (£1,602,985) owed to creditors (of which HMRC account for only £11). The figures in the 30 January 2018 balance sheet are exactly the same, to the pound, which the accountants we spoke to thought was likely a bad mistake (it is just about possible in principle for a company with so much cash to have no balance sheet movements at all from one year to the next, but none of the experienced accountants we spoke to had ever seen such a thing). The 30 January 2020 accounts then show the 2019 balance sheet as all zeroes, but there was no filing of amended accounts, and no explanation for the change, so this appears to be another error or a rewriting of history rather than a proper correction in accordance with usual accounting practice. ↩︎
The 30 January 2017 balance sheet shows £2,250,066 cash in bank, £119,563 debtors, and almost all of that (£2,369,529) owed to creditors (none owed to HMRC). On the basis of these accounts, and what we know of the GCWealth scheme, we would speculate that the company made offshore payments it claimed to be tax-deductible. The accounts of other Gill companies, GCW Funding Limited, GCW Funding (2) Limited and GC Wealth RT Limited have similar features, with GC Wealth RT Limited also having a 2019 balance sheet identical to the 2018 balance sheet. ↩︎
Although “RT” often stands for “remuneration trust” ↩︎
One of the defendants in the negligence case brought against Gill was Bay Trust International Limited, which linked to Baxendale-Walker. There is another case involving Gill and two of Baxendale-Walker’s Minerva and Buckingham companies. And another case in which Gill applied to set aside a statutory demand; his lawyers were Morr & Co, who often act for Baxendale-Walker and his companies. ↩︎
We put to Gill that he was connected to PBW. His response was that he “repeated his comments above”. It’s not clear which comments he refers to, so this may or may not be a denial. ↩︎
If you are sceptical of this claim, have a look through decided cases where the first paragraph of the judgment describes the arrangement in question as a “tax avoidance scheme”. In the last 25 years, the result has almost always been that the taxpayer loses. ↩︎
That not’s quite true for SDLT, where a scheme that’s been around for ages, and HMRC are therefore aware of, can in some cases be “grandfathered” and not subject to DOTAS notification. ↩︎
So, for example, if a person relies on an opinion from an adviser that DOTAS doesn’t apply then the defence should be available. If, however, the opinion was obtained on the basis of incorrect assumptions of fact, the adviser was improperly briefed, or a reasonable layperson would suspect the opinion was incorrect (e.g. because the barrister had previously issued opinions on DOTAS which courts had found to be incorrect), then the defence would not be available. ↩︎
Tens of thousands of people (including me!) just received this email from Property118, attaching a rather scary HMRC “stop notice” (PDF version here, or click on thumbnails below):
We all received the email because we once downloaded an ebook from the Property118 website.
What should you do if you’re in this position?
Nothing.
If all you did was download the ebook, or book a consultation you never took forward, then the stop notice is irrelevant to you. Property118 may consider you a “client” for the purposes of the rules that force them to write to people, but if you didn’t use any of their tax schemes then you’re not a “client” in any way that matters.
You can happily delete the email, and stop reading this article.
It’s unfortunate Property118 didn’t make clear that the email is irrelevant to 99% of its recipients.
What if you were a Property118 client, or used their tax planning ideas yourself?
If you did use Property118’s tax planning then you should be alarmed by the stop notice. It’s a very rare use of an HMRC power to require a business to stop promoting a “tax avoidance scheme” that (in HMRC’s view) doesn’t work. If the business continues to promote the scheme then those involved commit a criminal offence.
A stop notice is a serious thing. It has no direct effect on Property118’s clients, but it is a warning that HMRC is likely about to challenge their historic tax returns.
I’d strongly suggest someone in this position obtains independent tax advice from a regulated law or accounting firm.
Are your details going to be passed to HMRC?
Unfortunately they may be, if they signed up to the Property118 website on or after 17 July 2024.1
Property118 protected its own position by taking a very cautious view of the legislation (and the definition of “client”).2 That’s why people are receiving an email when all they did was download an ebook or register with the Property118 website.
But it also means that people who only downloaded an ebook, or registered with the website, on or after 17 July 20243, may have their details passed to HMRC. That seems wrong, and potentially a breach of GDPR (i.e. if tax legislation does not in fact require an ebook downloader’s name to be given to HMRC). We will raise the matter with HMRC.
The first draft of this article said the opposite; it took me a while to realise that Property118 must have taken the position that ebook downloaders were their “clients” under the POTAS rules. My apologies. ↩︎
It’s revealing that Property118 took a very over-confident view of the law when other peoples’ tax and property was at stake, but are taking a very cautious view of the law now their own livelihood is on the line. ↩︎
Or such later date as Property118 were given the notice – I don’t know when that was ↩︎
We have previously reported on a high profile unregulated firm called “Property118”, which promoted a series of landlord tax avoidance schemes. HMRC took action, and Property118 has resorted to asking their clients to make donations to fund their appeals. Despite this, Property118 continues to promote tax avoidance that doesn’t work and will land its clients in a financial mess.
UPDATE 20 July 2024: HMRC issued a stop notice to Property118 on 18 July 2024, and most of the Property118 website has now been taken down
Property118 is continuing to publish tax advice for landlords, in the form of a 36 page ebook (now taken down; but you can read an archived version here). One of our team, a stamp duty land tax specialist, reviewed the ebook and was alarmed by its contents. We have discussed his concerns with other SDLT experts, and the consensus is that much of the advice is objectively wrong. By this we don’t mean that we disagree with it; we mean that it misses obvious points which a newly qualified tax adviser would immediately identify.
This article is solely focused on two significant SDLT errors. There are other serious problems with the SDLT advice in the ebook, as well as numerous non-SDLT problems (particularly around interest deductibility, capital gains tax and the potential to default a landlord’s existing mortgages). If this was a regulated firm then we expect disciplinary action would be taken. But Property118 is completely unregulated.
Failed SDLT avoidance on incorporation
It is sometimes sensible for landlords to incorporate – i.e. to transfer their properties, and their property rental business, to a company. This should be done with care, and will sometimes cost more in increased tax and financing costs than it saves.
One particular challenge is that, if properties are held by a landlord personally, then when the landlord transfers the properties to a company there will be an immediate SDLT charge.
Property118 think you can get round this by moving property into a partnership, and only subsequently into a company:
So if you plan to save SDLT by moving property into a partnership and later from the partnership into a company, then s75A will apply. It doesn’t matter if you wait a week or four years, and it doesn’t matter whether you say this is tax avoidance, or claim you have a commercial rationale. Section 75A doesn’t care about any of that. And taxpayers are expected to apply section 75A themselves under self assessment – it’s not a matter of waiting to see if HMRC applies it (but if a taxpayer doesn’t apply s75A when they should have done, HMRC would likely have 20 years to open an enquiry and would likely impose a tax-geared penalty for failure to make a return).
Section 75A isn’t an obscure provision – all SDLT advisers are very aware of it… and if you google “SDLT anti avoidance rule” you’ll find thousands of helpful articles.
The obvious conclusion: Property118 don’t know what they’re doing. Anyone following their advice risks triggering an SDLT bill far in excess of the expected savings from incorporation.
Increasing your children’s future stamp duty bills
One of the Property118 schemes involves a landlord moving their property into a limited liability partnership, and then adding their spouse and children as members of the LLP. The idea is that rental income is then taxed in the hands of the spouse/children, who are in lower tax bands:
But there’s a big problem with this – it means that the children are deemed to own property (“through” the LLP), and that can have expensive future consequences for them.
First, when/if the children come to buy property, they probably expect to benefit from the special threshold for first time buyers (presently £425K, due to fall to £300K with effect from 1 April 2025).
But here’s the definition of “first time buyer” in the SDLT legislation. Note how the words “own property” are not used, and instead specific technical terms are used:
The way these terms are defined kills the structure.
When the children are given an interest in the LLP after it has acquired a property, they will likely in practice be a “purchaser in relation to a land transaction” (see paragraph 17 Schedule 15 Finance Act 2003). If they’re a member of an LLP at the time it acquires a property, they’re deemed to enter into a land transaction themselves (see para 2(1)(b) of Schedule 15).
So the children likely won’t qualify as first time buyers when they come to buy a property later in life.
It gets worse. There’s a 3% SDLT surcharge on people buying second/subsequent properties. When the children come to buy their own property, I doubt they expect the surcharge to apply. But it probably will.
The rules are complicated, but broadly speaking, if the child’s interest in a property held by the LLP is worth more than £40,000 then he or she will be treated as already owning an interest in a property.2
So if/when the child buys property for themselves, not only will they be disqualified from the special first time buyer’s regime, they’ll potentially be hit with the 3% surcharge. This is a very poor result.
How can Property118 get the law so wrong?
Property118 is run by salespeople, not tax experts. As far as we are aware, they employ nobody with any tax or legal qualifications. They used to work in a joint venture with a barrister’s chambers called “Cotswold Barristers”, which again had no personnel with any tax experience (and, as a consequence, made a series of serious errors of law). It’s unclear if that relationship continues, as the Cotswold Barristers branding is no longer present on the Property 118 website.
We recommend that any landlords looking for tax advice approach regulated firms of tax advisers, not unregulated outfits run by salespeople. We set out more thoughts on choosing a tax adviser here.
Does this demonstrate why tax advice should be regulated?
It would be straightforward for Property118 to hire a junior accountant, give them straightforward compliance work, and then claim to be a regulated firm. And Property118’s approach to tax seems to originate with Cotswold Barristers, who were regulated by the Bar Standards Board.
We believe creating the right incentives will likely be more effective than creating layers of new regulation. Stiff penalties for people who promote tax avoidance schemes without disclosing them to HMRC under DOTAS, and perhaps even criminal sanctions.
Thanks to J for spotting these points and writing the initial analysis; thanks to P, T and Sean Randall for their subsequent review.
The General Anti-Abuse Rule (not “Rules”) certainly exists, but isn’t terribly relevant to this structure. The fact Property118 mention it (and not s75A) shows their lack of expertise. Indeed a small but telling detail is that nobody in the tax world calls the GAAR the “G.A.A.R” – it’s a bit like calling an ISDA an “I.S.D.A”. ↩︎
Updated polling evidence from Tax Policy Associates and WeThink shows that half the public doesn’t understand a basic principle of income tax: the way that tax rates apply to income above a threshold. Half of voters believe that, once you hit the higher rate threshold, the 40% higher rate applies to all your earnings.
The full data polling data and our analysis spreadsheet is available here.
In the 1990s, the Liberal Democrats had a policy to “put a penny” on the basic rate of income tax to increase funding for schools. Daniel Finkelstein was then the Conservative Party’s head of research. He and their head of polling, Andrew Cooper, commissioned ICM to look into how popular this policy was. They found the policy was very popular, but that many of those supporting it thought it would cost them one penny. Not 1%, but one shiny copper penny.1
Which made us wonder whether there is a similar confusion in the UK. When we poll people about different tax rates, do people understand that (for example) the higher rate of tax only applies to the part of your income that falls in the higher rate band?
All things being equal, Americans should understand more about their tax system than we do, given that they are required to file tax in a much more detailed and laborious manner than us.3
How tax bands work
For example: if you live in England4, earn £50,269, and receive a £1 pay rise, you’ll pay an additional 28p in tax – 20% income tax and 8% national insurance.
The £50,270 you’re now earning puts you at the top of the basic rate tax band. Get another £1 pay rise and you’re now in the higher rate tax band – and you’ll pay an additional 42p in tax – 40% income tax and 2% national insurance.5
The important thing is that the higher 40% rate applies only to your income above the £50,270 40% threshold. Hitting that threshold doesn’t mean all of your income becomes subject to tax at 40%, so that the £1 pay raise results in thousands of pounds of additional tax.6
The polling evidence
WeThink kindly included this issue as part of their regular opinion polling back in April. They polled 1,164 people, before weighting (a pretty typical number for this kind of poll). I wrote about it at the time, but the answers were so surprising that WeThink, even more generously, carried out some more polling to obtain an unusually large sample (3,312). That lets us at the subgroups and try to figure out what is going on.
Our question was:
“Suppose that you earn £50,270, the highest amount in the basic rate 20% income tax band. You get a £1 a year pay rise, and are now in the 40% higher rate tax band. How much additional tax do you think you will pay?”
We have large enough subgroups that we can test if there is a statistically significant difference between supporters of different parties – there isn’t:9
This suggests that whatever is driving the difference we’re seeing, it isn’t ideological.10
That is very different from YouGov’s US polling, where there was a very large difference between the parties, perhaps reflecting the very partisan nature of US politics and peoples’ views of the US tax system (i.e. the “substantial” answer from Republications signally a hostility to tax and the US Government rather than an assessment of the arithmetic):
An obvious question is whether understanding of the tax system changes with age.
It does not – again, no statistically significant difference here:11
We do, however, see a highly statistically significant difference if we look at income levels:12
Scotland
The Scottish rates are different. There is a 21% “intermediate rate” income tax band for earnings up to £43,662, and then a 42% “higher rate” tax band.
It looks on the surface as if there’s better understanding in Scotland; but the Scottish and Welsh samples are both too small to be able to rule out a fluke – this difference is not statistically significant.13
There’s a similar story if we look at the other subgroups; small differences, but mostly not statistically significant (and the large number of subgroups mean we should be careful not to cherry-pick or “p-hack“).
Did we ask the wrong question?
When we published our initial results, there were two ways in which some people said our question could be misinterpreted.
The first is that people could think that paying 40% tax on your next £1 of income is a significant amount. So when we thought we were getting an arithmetic answer, we were getting a political one. I’m unconvinced this is a natural reading of the question. But, more importantly, if the answers were driven by politics more than misunderstanding, then we’d see differences between e.g. Labour and Conservative supporters. We don’t.
The second is that people are accurately understanding the effect of the loss of the savings allowance. This is the £1,000 of interest you can earn tax-free until you become a higher rate payer – it’s then reduced to £500. For someone with around £12,000 of savings outside an ISA that could mean the £1 tax increase costs them £200 (£500 x 40%). For such a person “a substantial amount of tax” might be a correct answer. Intuitively it seems unlikely many people are aware about this effect. But if it was driving the answers, then we’d expect higher awareness of it, and more “a substantial amount” answers, as we go up the income levels. We see the opposite – which is consistent with people understanding the question as expected.
I’m grateful to the people who made these observations; it’s largely thanks to them that we went back to obtain more polling data.
Another possible criticism is that many people didn’t understand the question, and that plus the “forced choice” means that we’re seeing a lot of random noise. We can’t exclude that possibility.
So, if WeThink is kind enough to give us the opportunity, it would be interesting to re-run this polling with a slightly different question. We’d welcome suggestions.
But the consistency with the US polling results suggests that the effect we are seeing is a real one.
Why is this important?
It used to be that only a small number of people paid higher rate tax – that is no longer the case. By 2027/28, the IFS has estimated 14% of adults will be in this tax band, which equates to about a quarter of all individual income taxpayers. It’s reasonable to expect that about half of all households will include someone paying higher rate tax at some point in their lifetime. So the higher rate is more important than it ever was.
Our poll findings shouldn’t cause concern that people are paying the wrong amount of tax. Employees are paid by PAYE, which deducts the correct tax automatically. The self employed either use HMRC’s self assessment system (which calculates the tax due) or use an accountant.
There are, however, other potential consequences of a widespread misunderstanding as to how income tax works.
First, and perhaps most importantly, there are anecdotal reports of people turning away work because they believe entering the higher rate tax band will cost them large amounts of money. If that’s true for even a small percentage of the population, then it’s a problem for the individuals in question and the country as a whole. We’d suggest it’s something that HMRC and policymakers should investigate. (We are unlikely to be able to look into this ourselves with further polling, due to the statistical limits of polling samples.)
Second, it would be sensible to assume that other basic tax concepts are equally misunderstood. Policymakers, media and others communicating about tax (including Tax Policy Associates) should try to bear this in mind.
Finally, it means that we should be careful when looking at opinion polling on tax questions: the responses may be based upon fundamental misunderstandings of the question.
Many thanks to Brian Cooper and Mike Gray at WeThink/Omnisis for their generosity in running polls for us pro bono. They ask for nothing in return, and don’t even ask to be credited.
Many thanks to Daniel Finkelstein for the top quality anecdote.
This story has been going round for years, and is often regarded as an urban myth, but Baron Finkelstein kindly confirmed it to me earlier in the week; prompting me to finally update this article. ↩︎
The difference presumably down to the wording of the poll. The first poll had “You pay your marginal tax rate on all of your income” vs “You pay the same rate as others on income up to a certain amount, then a higher rate on every dollar up to the next threshold”. This seems a little technical and long-winded, particularly given there is no “don’t know” option. The second is much simpler, but refers to “tax brackets”, which rather presupposes their existence is understood. I favour the YouGov approach ↩︎
The amazing reason why the US doesn’t have a UK-style self-assessment system is that Intuit and the tax preparation industry lobbied to prevent the IRS creating a free automated filing system. This sounds like a conspiracy theory but is well established. ↩︎
It used to be slightly more because of the High Income Child Benefit charge, but that’s now moved from £50k to £60k. However that doesn’t change the point of this article – the additional tax is still less than the £1 of additional earnings ↩︎
In other words, a marginal tax rate of over 100%. There are some points in our income tax system where that actually happens, but not here (with the exception of the savings allowance, of which more later). And stamp duty land tax used to work in this way. ↩︎
Note that we forced people to make a choice, and didn’t provide a “not sure” option. The question of whether “forced choice” is the best approach has a long history… I have no expertise in this, and was happy to be guided by the experts at WeThink. ↩︎
Depending on how you read the question, the additional tax might be 14p, 20p, 40p, or 42p – but I don’t think that matters.. the amount is “small” in each case. The only exception is if you have significant savings, due to the loss of £500 personal savings allowance you’re a higher rate payer – more on that later. ↩︎
chi-squared test for independence, p-value=0.34, all calculations in spreadsheet linked at the top of this article. ↩︎
Our initial polling had a very high understanding of the “correct” position amongst Green Party supporters – at 66% it was the highest of all subgroups. However the small numbers in that subgroup suggested it wasn’t statistically significant, and the updated polling with larger subgroups has confirmed that, with the high Green figure disappearing. ↩︎
At a time when the UK’s finances look fragile, the new Chancellor would be forgiven for thinking the only purpose of changing the tax system is to raise Government funding.
There is, however, another purpose: to fix those elements of the UK tax system which stand in the way of growth and those elements that are desperately unfair. It’s often the same elements.
Everyone involved in the tax system knows that radical tax reform is overdue. As Isaac Delestre puts it, “there are few corners of the British tax system that are not in urgent need of repair.”
Some tax reform is easy and obvious. A lot of it isn’t. And some of the most important tax reforms will take political bravery. But this is a splendid opportunity for a new Chancellor to deliver both equity and economics.
And there are equal signs of failure in the cases that HMRC do pursue. Bad technical positions with no policy rationale. Penalty appeals involving vulnerable people. HMRC’s Litigation and Settlement Strategy has become an albatross that creates too many impediments in the way of dropping bad cases.
Increased funding is part of the answer, but the problems go much deeper. The Chancellor should bring in people with deep experience of how HMRC used to work, and keen insight into how it could work.2
2. No more crazy marginal tax rates
I had a message yesterday from a consultant anaesthesiologist.
He earns just under £100k – that’s typical for a junior consultant. He currently receives fifteen hours a week of free childcare.
His hospital trust has asked him to work extra hours, for which they pay £125/hour. But there are two problems. First, the personal allowance taper means that he has a marginal rate of 62% on earnings above £100k. Second, If his earnings hit £100k then his eligibility for free childcare disappears.
These factors together mean he’d have to work 61 hours3 to make even £1 of additional net income. So he doesn’t. And many people have a much worse result – the total benefit of the free childcare can be as much as £20,000, and it all disappears at £100k.
There are hundreds of thousands of people in the UK in this position, and we’ve created an incentive for them to avoid work. It’s hard to think of a more anti-growth feature of the tax system.
First of all: own it. Acknowledge that this is how things are, and it’s a problem.
Second: don’t make it worse. Commit to taking no steps that will create further anomalously high marginal rates
Third: plan to end it. Smooth out the rates and, when circumstances permit, abolish them.
3. Stop playing the tax avoidance game
Tax avoidance used to be much like cricket. Teams of brilliant (albeit amoral) lawyers creating fantastically complicated structures which may have been morally questionable, but were legally defensible.
That amazing figure that 1/3 of all small business corporation tax isn’t being paid, almost £10bn/year? I think a lot of it isn’t real small businesses – it’s “umbrella company” tax avoidance and tax evasion, and schemes involving people like Barrowman and Baxendale-Walker. We’re talking huge sums of money being essentially stolen from taxpayers.
It’s time to stop treating this as a game.
The Government should scrap the current consultation on regulating the tax profession. Some of the worst offenders are barristers, who are already regulated. And the bad actors who are currently unregulated will either ignore, or game their way round, any new regulations.
The answer isn’t to suffocate the bona fide tax profession in red tape. It’s to come down extremely hard on the cowboys, so their business ceases to be economic.
Some mixture of:
Criminalising the failure to disclose a tax avoidance scheme to HMRC under DOTAS. That means a criminal offence for the individuals directly involved, as well as the companies, their directors, and advisers and other facilitators. This should be accompanied by financial penalties geared to the tax at stake. With a statutory defence to the offence and the penalties where a person took reasonable steps to ensure compliance, but the rules were breached due to circumstances outside their control.
Ending legal professional privilege for advice provided as part of a tax avoidance scheme which should have been disclosed under DOTAS, but wasn’t, and for schemes where the general anti-abuse rule applies. Too many barristers are hiding behind the pretence they are neutral advisers when what they’re really doing is enabling quasi-criminal behaviour.
A renewal of the Government threat in 2004 to counter disclosed tax avoidance schemes with retrospective legislation. That shouldn’t be like the loan charge – introduced 10 years too late, after the problem had ballooned out of control. Instead, each disclosed tax scheme should trigger a fast determination: can this be easily countered with existing laws and powers? Or is a new retrospective rule required? The timescale should be weeks, not months or years.
A properly staffed HMRC investigation unit to ensure new and old rules targeting avoidance and enablers are actually used.
All of this needs to be calibrated carefully, so it has no effect on bona fide tax advisers, but it drives the cowboys out of business.
4. End penalties for the poor
Over the last four years, HMRC charged 420,000 penalties on people with incomes too low to owe any tax. They shouldn’t have been required to file a tax return, but for some reason they were – and because they didn’t file on time, they received a penalty of at least £100. In most cases, that’s more than half their weekly income.
Astonishingly, 40% of all late filing penalties charged by HMRC over these four years fall into this category.
And penalties can go much higher than £100. TaxAid reports on Emma, who earned less than £6,000 per year, but paid HMRC penalties of £4,700.
The cause of this travesty is a change of law in 2011. Until then, a late filing penalty would be cancelled if, once a tax return was filed, there was no tax to pay. However the law was changed, and now the penalty will remain even if it turns out the “taxpayer” has no taxable income, and no tax liability. At the time, the Low Incomes Tax Reform Group warned of the hardship this could create, but they were ignored.4
The law should go back to how it was. Nobody filing late should be required to pay a penalty that exceeds the tax they owe. And HMRC needs to think carefully about how to improve tax compliance from the poorest in society without creating an unfair burden on them.
Instead of creating complex new subsidies for the UK market, like the “British ISA“, it would be better to remove the complex existing barrier created by stamp duty.
If only Nixon can go to China, perhaps only a Labour Chancellor can abolish stamp duty.
6. Tax simplification
Tax is too complicated, particularly corporate tax. It deters investment, and misallocates resources (too many tax lawyers!).
Nigel Lawson famously abolished one tax in every budget. The next Chancellor should take that as a starting point, and abolish one tax, or major tax rule, every Budget. Here’s a starting point:
Abolish old fashioned stamp duty – the one with actual stamps. It serves no purpose now we have proper taxes on securities and real estate. It’s a deterrence to using English law.
Abolishbearer instrument duty – very few people even know it exists, and when I asked HMRC, they were unable to identify any time in recent history it had actually applied.
Abolish historic complexity. Methodically go through tax legislation and abolish the legions of anti-avoidance rules that were once necessary but now aren’t. In the modern world, the courts are deeply hostile to tax avoidance, every tax rule has a specific targeted anti-avoidance rule, and there’s a general anti-abuse rule on top. I’m confident hundreds of pages of historic legislation could be abolished overnight. And, just to be safe, this should be accompanied by blood-curdling threats of retrospective legislation if anyone were foolish enough to take simplification as a licence to resuscitate tax avoidance schemes.
7. Property tax reform
The UK’s main three land taxes are no longer fit for purpose:
Council tax is unfair. It’s now farcically based on 1991 valuations. The low maximum rate means that Buckingham Palace pays less council tax than a semi in Blackpool.
Business rates are hated, and blamed for the destruction of the high street. Labour’s already committed to replace it.
We can scrap all three taxes, and replace them with a modern, fair, tax on the value of land. A tax that creates a positive incentive to develop land. That’s land value tax – and it has support from economists and think tanks right across the political spectrum.
A new government with a hefty majority has the chance to do something truly radical, both pro-fairness and pro-growth.
8. End the tax system’s bias against employment
One of Jeremy Hunt’s best and most principled moves was to start to phase out employee national insurance.
There was once a real link between national insurance and pension benefits – but national insurance is now just a tax on income with added accounting.
It is, however, a very regressive tax on income, because it applies to employment and self-employment income, but not to rental income, dividends on shares and other forms of passive income.
The answer is to abolish employee national insurance. That’s expensive, so (absent magical tax windfalls) it should be paid for by increasing income tax. And the broader base of income tax means that national insurance can go down by more than income tax goes up. Everyone making their money from their job will be a winner.
That still leaves employer national insurance.
This is a hard problem, but an important one.
Employer NI, at 13.8%, creates a massive difference between the cost of employing someone and the cost of engaging an independent contractor. This means that the thin – and ultimately fictional – line between employment and self-employment becomes hugely important. Complex rules are created to guard the line. HMRC’s efforts to police it waste their time and that of taxpayers. And there remains plenty of avoidance and evasion.
The question is whether there’s a way to abolish employer national insurance, force the benefit to be passed to employees and then tax the employees. It’s not at all obvious how this could be done, but there would be a substantial prize for achieving it.
9. Inheritance tax reform
Inheritance tax is deservedly unpopular. The rate, at 40%, is one of the highest in the developed world. The burden falls on the upper middle class. The very wealthy easily escape it:
And the loopholes used by the wealthy are economically distortive, encouraging unproductive investment in assets like woodlands.
The answer: end the loopholes and cut the rate. We should be more like Germany, which raises a comparable amount despite having a rate of 30%.
Reducing the VAT threshold will be politically difficult. But there is support across the political spectrum – the Adam Smith Institute says “the case for reducing the VAT registration threshold is overwhelming”. It would have to be combined with a push to enable better app-based VAT compliance for micro businesses.
And revenues should be ploughed into reducing the rate for everybody, to clearly demonstrate this is about doing what’s right for growth, not a Government tax grab.
11. Make full expensing real
Anther Jeremy Hunt success was “full expensing” – letting businesses deduct the cost of investment expenditure up-front, rather than over years or decades.
UK business investment is the lowest in the G7 and the third-lowest in the OECD. Full-expensing can help change that. The Tax Foundation has found that full expensing raises long-run GDP by 0.9 percent, investment by 1.5 percent, and wages by 0.8 percent. These are not numbers to be sniffed at.
But the UK’s “full expensing” isn’t quite full expensing. It doesn’t apply to all forms of business investment – that means we get uncertainty and tax avoidance at the margins, and the full benefit of full expensing is not being unlocked.
The answer is to abandon the complex rules on what kind of investment gets tax relief, and give tax relief for everything. That can boost investment and eliminate a huge source of tax system complexity. But that has to come with a quid pro quo. As the IFS has said, to afford this, and have a system that doesn’t encourage unprofitable investment, we also have to revisit the deductibility of interest.
That’s a radical step, but one that may receive support from a significant proportion of the business community.
12. Make environmental tax make sense
Our environmental taxes are a muddled mess. There’s an economic consensus across the political spectrum in favour of a carbon tax. This is hard to do unilaterally, but the UK could play an important role advocating for a carbon tax in current OECD discussions.
Why isn’t it?
13. Capital gains tax reform
Capital gains tax is broken. If you magically convert income into capital gains then you’re taxed on what is realistically income at the low rate of 20%. If, on the other hand, you invest patiently for years, you’re taxed on your notional return at 20%. Most of that may be inflation – it’s not gain at all. So the effective rate on your actual gain may be much higher than 20%.
We used to have an allowance for inflation. Gordon Brown abolished that, supposedly because inflation allowance was too complex to calculate. But in the internet age where almost nobody enters a tax return by hand, this is no longer an issue.
So we can fix the incentives, which are currently completely the wrong way round. As the IFS puts it: “the biggest giveaways go to those who make big profits without investing much money”.
The answer? Raise the rate of capital gains tax whilst also creating an allowance for inflation. And given that the new rate will apply to historic gains, the new inflation allowance should too. Long term investors will benefit.
Originally there were two number 10s. As they say, there are three types of lawyers: those that can count, and those that can’t. ↩︎
To be clear: I do not mean me. I have no knowledge or experience of HMRC and Government, and I would be the wrong person. ↩︎
In that tax year; more if it’s split across two years! ↩︎
See paragraph 4.4.1 of their response to the 2008 HMRC consultation paper on penalties ↩︎
Thanks to the commentator below who pointed out that the Irish rate is 1% – but given the relatively small Irish public market, the two effect of the two taxes isn’t in practice comparable. ↩︎
We wrote last month about Paul Baxendale-Walker, the former barrister and solicitor who helped create the “loan schemes” that cost the country £billions and caused misery for tens of thousands of people. HMRC say his schemes avoided £1bn in tax. His advice was negligent, and he eventually ended up struck off, bankrupt, and convicted of forgery.But HMRC made a series of errors, including missing a statutory deadline, which let Baxendale-Walker escape a £14m penalty.
We can now reveal that, at about the same time, HMRC issued a statutory “stop notice” to stop Baxendale-Walker’s latest “Nova Trust” scheme being promoted… but HMRC mistakenly issued it to a company that had been struck-off.
The Nova Trust scheme continued to be promoted after the stop notice. This would normally mean HMRC could apply penalties or even criminal sanctions – but, thanks to HMRC’s mistake, it’s likely there’s now nothing HMRC can do.
And HMRC seem to be making a habit of procedural errors in avoidance cases. Just last week, a major case was struck out because HMRC missed a 5pm deadline for filing a bundle of supporting authorities.1 And there was a similar case last year, where HMRC’s failure to meet deadlines led to it being permanently barred from a £7m VAT case.
Baxendale-Walker – the Nova trust
The background to Baxendale-Walker and HMRC’s efforts to pursue him is set out in our previous report. The summary in the introductory paragraph above gives just a small flavour of why investigating him should be an HMRC priority.
Baxendale-Walker says he retired in 2013 on grounds of ill-health.2 However businesses linked to Baxendale-Walker have continued to be actively involved in extensive litigation in the US and UK3. And they continue to sell tax schemes, largely based around solving problems created by their previous tax schemes.
In May 2023, HMRC published details of two schemes promoted by two Belize companies linked to Baxendale-Walker, Buckingham Wealth Ltd and Minerva Services Ltd.4. The companies appear to have no internet presence; the various other Buckingham Wealth companies found by a Google search have no connection to Baxendale-Walker.
The second scheme is a bizarre attempt to prevent HMRC enquiring into the first scheme, by claiming the “umbrella remuneration trust” was void6, and making a “replacement” contribution to a new trust called the “Nova” trust. This is not the first time a Baxendale-Walker scheme has attempted to “rebrand” a previous failed scheme – a court recently found a previous attempt to do so to be dishonest.7 Arguments of this kind are the subject of a number of current tax appeals, and they are (predictably) not going well.
HMRC went further, and alleged that Buckingham Wealth Ltd did not appear to believe that one of its own tax avoidance schemes works. If correct, that could amount to (criminal) tax fraud (although as far as we are aware no charge have been brought).
Metadata in this PDF shows that “Paul” created the document on 14 June 2022 using Microsoft Word.10 We have spoken to three people familiar with Baxendale-Walker’s writing style; they each independently, without prompting, identified him as the likely author.
When we initially asked Baxendale-Walker about Nova, he said there was no such thing as a “Nova” trust. When we subsequently put the evidence of authorship to him he said that the document “was the product of collegiate discussion”.
HMRC’s response – the stop notice
In July 2023, two months after publishing the Nova Trust materials, HMRC issued a “stop notice” to Buckingham Wealth Ltd.
The effect of a stop notice is that the recipient of the stop notice mustn’t promote the specified arrangements, or anything similar to them. This restriction also applies to (amongst others) anyone who controls, or has significant influence, over the recipient of the stop notice. And if the recipient transfers its business to another person, then the stop notice applies to them too.
The stop notice also requires the recipient to provide HMRC with detailed information on its clients, and to pass details of the stop notice to those clients.
HMRC’s mistake
HMRC’s stop notice was issued to Buckingham Wealth Ltd in July 2023.
This looks like a bad mistake, because Buckingham Wealth Ltd was struck off the Belize register of companies six months earlier:
Baxendale-Walker told us that his lawyers had assured him Buckingham Wealth Ltd “ceased to have legal existence”, and this makes HMRC’s stop notice invalid.
We asked HMRC for their response:
We’ve spoken to Belize counsel, and it’s our view that whether the company existed at the time is not the correct question.
The Belize Companies Act 2022 makes a clear distinction between a company that is dissolved and a company that is struck off. A dissolved company ceases to exist. A struck-off company which has not yet been dissolved exists in a kind of “zombie” state, where it can’t engage in activity, but remains liable for its debts and can be pursued by creditors (see section 220).
So the question isn’t whether Buckingham Wealth Ltd existed and the stop notice was valid – technically it’s reasonably clear that the company did exist. But the fact the Buckingham Wealth Ltd was struck off means that the stop notice was useless. Buckingham Wealth Ltd was not going to engage in promotional activities itself, had (we expect) already transferred its business to another person, and nobody11 had control or influence over it anymore. So the stop notice likely had no practical effect.
This was, therefore, a bad mistake by HMRC. It’s usually standard procedure for lawyers commencing any kind of transaction or procedure involving a company to, on the morning of the day in question, check if the company remains in existence. If we could check the Belize incorporation status of Buckingham Wealth Ltd, HMRC certainly could. Upon discovering the company had been struck-off, HMRC should have either issued the stop notice to another entity (such as Minerva Services Ltd)12 or to identifiable humans involved in these companies (such as Paul Baxendale-Walker himself, Saeedeh Mirshahi, or other of his associates).
HMRC doesn’t appear to have done this.
The consequence of HMRC’s mistake
It appears that Buckingham Wealth kept promoting the Nova trust, and ran a conference at Heathrow in January 2024.
This wasn’t “Buckingham Wealth Ltd”, which no longer existed. It was either another company called “Buckingham Wealth” hiding its name and place of incorporation, or a group of individuals acting under the “Buckingham Wealth” brand. This is not how people ordinarily run a business, and we’d speculate that the purpose was to make HMRC’s job harder.
Here’s an email summarising the conference from Osmai Management, a very dubious-looking BVI firm13 that appears to act as an “introducer” selling Buckingham Wealth’s schemes (PDF here):14
Baxendale-Walker did not deny that the Heathrow event happened. He said it didn’t involve Buckingham Wealth Ltd, because the company no longer existed. He said that he was aware that various persons refer to various tax arrangements under the umbrella “Buckingham Wealth”, and that is “merely a name or style”. He added, oddly answering a question we hadn’t answered, that he had “no knowledge who the natural persons are who own ‘Osmai’”.
We do not know for certain, on the basis of the information we currently possess, whether Baxendale-Walker was involved in the Heathrow event. However we infer from the non-denial, from Baxendale-Walker’s history, and from the very Baxendale-Walker-sounding summary of the Heathrow event in the Osmai email, that he may have been involved in it.
At this point, HMRC would ordinarily want to apply penalties for breaching the stop notice. This could be on the basis that the business of Buckingham Wealth Ltd had been transferred to a new person or persons, in which case the stop notice would now bind them. Or it could be on the basis that the people running the event (Baxendale-Walker or others) previously had influence/control over Buckingham Wealth Ltd, in which case the stop notice would bind them personally.
And if marketing continued past Finance Act 2024 coming into force on 22 February 2024, then HMRC would want to apply the new legislation that makes any breach of a stop notice a criminal offence.
However, HMRC are in our view unable to do any of these things, because they issued the stop notice to a struck-off company. The stop notice should have been issued to Baxendale-Walker personally.
What can HMRC do now?
We do not know if HMRC was aware of the problem with the stop notice before we contacted them. We also don’t know if HMRC was aware of the Heathrow event before this article. But we are concerned that HMRC’s investigation of Baxendale-Walker has been both extremely long-running and remarkably unsuccessful.
HMRC should investigate the Heathrow event and the background to Buckingham Wealth Ltd in more detail. It may be that we are wrong and there are facts and circumstances that mean the stop notice was breached. Certainly that should be checked.
And HMRC should share its information with the Official Receiver to see if any bankruptcy offences have been committed.15
Baxendale-Walker is subject to extended bankruptcy restrictions until 2030. This means that it’s an offence for him to act as director of a company or directly or indirectly to take part in or be concerned in the promotion, formation or management of a company, without the leave of the court.
If Baxendale-Walker was involved in the management of Buckingham Wealth Ltd, Minerva Services Ltd, or any other entity, that would appear to be an offence.
Baxendale-Walker firmly denied to us he was breaching the bankruptcy restrictions, and added that it would be a libel to say that he was. However, given the various allegations made in recent cases, the wave of litigation launched by associated entities, Baxendale-Walker’s history of using opaquely owned companies to pursue his own agendas, conviction for fraud, use of trusts to hide ownership, and his failure to make full and frank disclosure of his affairs to the Official Receiver, we would suggest there are good grounds for an investigation into his precise relationship with the large number of companies that appear to be associated with him.
Many thanks to M for his research and analysis on Buckingham Wealth, I for the Belize advice, and K for general research.
Ordinarily, missing a deadline doesn’t have this effect. The judge had made an “unless” order, which means that failure to adhere to his directions results in the case being struck out – we expect this was because HMRC had missed a series of previous deadlines. HMRC can apply for the case to be reinstated; this is often granted where there has been a one-off administrative mistake, but (as in last year’s ebuyer case) is not always granted where there has been a pattern of failures to meet tribunal deadlines ↩︎
His Facebook page describes him as “Songwriter & Guitarist, Scriptwriter, Actor, Director, Producer” ↩︎
There is no way of ascertaining the beneficial owner of Belize companies; we infer from facts in reported cases that PBW is likely associated with Minerva (see for example this footnote to our original report). Previously the Minerva business was carried out by a BVI company of the same name; an unsuccessful court application which bears the hallmarks of PBW attempted to transfer its assets to the Belize company. There is less information publicly available regarding Buckingham Wealth; but it appears to have been the promoter in the Hosking case, and the Ashbolt case described “Buckingham Wealth LLP” as the successor to Baxendale Walker LLP. We don’t know if these are different entities, perhaps another move from the BVI to Belize, one entity which changed form, or if the differences just reflect errors. ↩︎
which may or may not be the same scheme another dentist bought five years earlier, and appears similar to the “Sunrise” scheme at issue in the Hosking and Horsler cases. ↩︎
It’s pretty clear this doesn’t work, both on general principles and from the Hosking case ↩︎
Baxendale-Walker and his entities were not a party in that case and, as far as we know, HMRC has no accused Baxendale-Walker or his entities of behaving dishonestly. ↩︎
From someone who received a copy of the document from an introducer ↩︎
With minor textual differences, corrections of grammatical errors/partial sentences, and the addition of the ability to spread the fee out over time. ↩︎
It of course being noted that this does not prove Paul Baxendale-Walker wrote the document; it could be another “Paul”, or indeed anyone who setup Word with “Paul” as the author. ↩︎
Because it was probably held by a trust of some kind, rather than by Baxendale-Walker or another traceable individual directly. ↩︎
Despite being incorporated in the BVI, Osmai’s website provides only a UK telephone number and its website lists only UK taxes. Until January 2019 they promoted Baxendale-Walker’s “umbrella remuneration trust”, with the claim that it was fully disclosed to HMRC and wasn’t tax avoidance. HMRC predictably did not agree. Another Osmai entity, which gives the same UK phone number, appears to operate an unauthorised FX trading scheme which makes some very suspicious claims and may be fraudulent. We attempted to contact Osmai Management for comment and received no response. ↩︎
It’s redacted to protect our source, and we have masked the precise date for the same reason ↩︎
“In these proceedings, it is said that MSD [Minerva Services Delaware, Inc.] is a shadowy company, which seeks to rely on documents which appear uncommercial and which call out for an explanation, at the very least. It is also wholly unclear who is standing behind MSD. Mr Patel also says that it is obviously Mr Baxendale-Walker and he raises more than a prima facie case that this is indeed so. Indeed, Counsel for MSD accepted for the purposes of the strike out/summary judgment that the Court had to assume that this was indeed so. I note that Mr Baxendale-Walker was made bankrupt in 2018, after a former client sued him for negligence and obtained a judgment of over £16 million against him.” ↩︎
Over the last seventeen years most of the tax gap fell by two-thirds – a remarkable achievement.But a deep dive into HMRC’s new tax gap statistics shows HMRC has lost control of small business tax. About a third of corporation tax due from the sector is not being paid. The small business tax gap rose dramatically during the pandemic, and didn’t decline afterwards. If HMRC had closed the small business tax gap as effectively as it closed other tax gaps, HMRC would collect £15bn more tax revenue each year.
The difference between the tax that should be paid and the tax HMRC actually collect is the “tax gap”. HMRC say it’s £39.8bn.1 There are a large number of uncertainties, but HMRC’s tax gap estimate work is generally regarded as world-leading.2
Most of the tax gap is from small businesses, meaning businesses with a turnover of less than £10m and less than twenty employees:
That’s always been the case to some degree, but the increase in the small business tax gap over the last three years has been remarkable:5
The uptick in 2019/20 may have initially been caused by the pandemic, but other business types didn’t see that effect, and its now clear that the trend didn’t slow down after the pandemic.6 HMRC tells us that a review of their random enquiry programme found that their caseworkers “were more likely to detect non-compliance in the most recent random enquiry programmes, particularly for 2019 to 2020 and 2020 to 2021, than in previous random enquiry programmes”.7
Astonishingly, a third of all corporation tax due from small businesses is now not being paid.
There’s a sharp contrast with the large and mid-sized business corporation tax gap, which HMRC has been remarkably successful at closing. It stood at 0.85% of total UK tax revenues in 2005/6 but only 0.34% in 2022/23. Over the same period, the small business tax gap increased threefold, from 0.41% to 1.32% 8
If the small business corporation tax gap had remained the same, £7.5bn additional tax would have been collected. If it had improved in line with what we see for large and mid-sized businesses, £9.5bn additional tax would have been collected.
And it appears that problems are widespread. HMRC data shows that over a third of small businesses had undeclared tax of over £1,000 in 2019/20 and 2020/21 – a doubling since 2018/19:
There is no such trend seen if we look at the figures for tax returns from individuals:9
And it’s worse than this. The small business tax gap isn’t limited to corporation tax. If we step back and look at the HMRC figures across all taxes we see another dramatic divergence:10
HMRC have generally done an excellent job shrinking the tax gap, with declines across the board. But after 2017/18 something changed.
The total small business tax gap increased from 2.4% of total UK tax revenues in 2005/6 to 2.9% in 2022/23. The rest of the (non-criminal) tax gap declined over that period from 3.3% to 1.48%. If it had declined at the same rate as the rest of the tax gap, HMRC would have collected an additional £15 billion11 – £9.5bn corporation tax and £5.5bn other tax (mostly VAT1213).
The reason, and what needs to change
There have been many anecdotal reports of a decline in HMRC customer service (see page 31 of this CBI report and this from the Chartered Institute of Taxation). It’s not merely that HMRC funding has failed to keep pace with inflation; its most experienced personnel were moved onto other projects, particularly Brexit and the pandemic, and didn’t move back (see paragraph 1.8 onwards in this National Audit Office report). We are also hearing about long-term problems with the quality and length of staff training deteriorating.
It isn’t surprising that it’s small business that suffers the most from these problems.
We’ve talked before about realistic ways that the tax gap could be reduced.
Additional funding is a pre-requisite, but on its own isn’t enough.
We are increasingly hearing about problems with the length and quality of training new HMRC employees receive. Customer service needs to be prioritised. HMRC needs to get back in touch with taxpayer, so it can assist the vast majority that are trying to be compliant, and proactively identify those that are not. HMRC’s approach to investigations and disputes needs to change: right now it simultaneously pursues weak and irrelevant cases, cases that are oppressive to taxpayers (and sometimes inexplicable and disturbing) but at the same time misses what’s happening on the ground.
HM Treasury mustn’t just shower HMRC with additional funding; new funds need to be carefully directed and managed. Failures to deliver important cases, or drop bad cases, should be investigated; not to blame individuals, but to find out what, systemically, is going wrong, and how to fix it.
But HMRC’s success in reducing the tax gap over the last 20 years suggest that its failure to close the small business tax gap can and should be remedied. £15bn is an extraordinary sum to lose behind the administrative sofa.
Other figures are sometimes quoted, but they are statistically naive. Richard Murphy produced a figure of £90bn back in 2019, but he did this by adopting a “top-down” methodology which, as HMRC and the IMF (page 46 here) have explained, requires a series of significant adjustments which Murphy does not make. Murphy’s estimate also fails the “smell test”. It requires us to believe HMRC are missing more than 95% of all tax evasion – that does not seem plausible given that HMRC conduct random audits of businesses (absent HMRC being corrupt, which is Murphy’s view). We’re unaware of any tax expert who believes Murphy’s approach is credible, and no country has adopted it. ↩︎
Estimating the tax gap is a very difficult exercise, with numerous sources of error and uncertainty. HMRC does an impressive job to rigorous standards, generally believed to be the best in the world (most tax authorities only produce tax gap figures for VAT, which is a far simpler job given that it can be estimated with reasonable accuracy “top-down” from national accounts data). About ten years ago, HMRC’s homework was favourably reviewed by the IMF, who made various recommendations, most of which have been followed. More recently it was also reviewed by the Office for National Statistics. ↩︎
It’s sometimes said that the estimates ignore offshore avoidance. This is not quite right, and there are two separate points here.
First, our work identified that HMRC does not systematically match up offshore account reporting with self assessment data. But that is different from saying that offshore is not included in HMRC’s tax evasion estimates. At most, HMRC’s estimate may be missing some evasion that would be identified by cross-checking HMRC’s sources of data. If so, the amounts are likely modest.
Second, HMRC’s tax gap does not include areas where something we might describe of as “avoidance” is actually permitted under the rules – for example the “double Irish” structure Google used prior to 2015. So in 2015 it was a very valid criticism to say that the tax gap estimates ignore multinational tax avoidance. However, things have changed since 2015. The manyanti–avoidance rules implemented post-2015 make it much harder to see what “avoidance” remains permissible. Even the Tax Justice Network estimates (of which we’ve been very critical) show multinational avoidance costing the UK less than £2bn. This second criticism therefore feels of limited relevance today. ↩︎
Also note that the definition of “avoidance” doesn’t encompass planning that’s clearly permitted by the rules (even if many people wish it wasn’t). So, for example, the big tax advantages for non-doms aren’t a result of tax avoidance – they’re how the rules work. Ditto carried interest, avoiding SDLT on commercial property using enveloping, etc. More on the definition of “tax avoidance” here. ↩︎
Our source for this, and all the data in this article, are the HMRC tax gap tables. ↩︎
The only other taxes where the tax gap has gone up over this period are inheritance tax (which likely results from so many more estates becoming subject to the tax) and landfill tax (we don’t know why that is; it’s an area where our team has no knowledge or expertise) ↩︎
This resulted in figures being revised, but it’s unclear whether that reflects more non-compliance or a more effective enquiry programme, but the upward revision is about £800m and therefore does not materially change the trends we see – see table 1.5, cell R26. ↩︎
As the figure is based on the HMRC tax gap statistics, it is subject to considerable uncertainty; we cannot quantity this (given the lack of quantitative error analysis in the HMRC statistics). ↩︎
We can’t show this directly, as there are no detailed statistics for VAT non-compliance in the tax gap tables, and no figures for VAT revenues from small business in the VAT statistics. But HMRC figures show small business PAYE compliance has dramatically improved, with the tax gap reducing by 2/3 – we expect this is due to the widespread move towards outsourced automated PAYE services. Other taxes are not significant to most small businesses, and so by a process of elimination we can be reasonably confident that most of the non-CT tax gap here is VAT ↩︎
It can seem counter-intuitive that the corporation tax gap is bigger than the VAT gap, not just in this case but generally. Since VAT is 20% of turnover, and corporation tax (in this period) 19% of profit, if someone evades tax won’t the VAT loss be greater? Why is the corporation tax gap bigger than the VAT gap? Primarily because VAT compliance is (broad generalisation) easier than corporation tax compliance. It’s your turnover (if you’re a business that only supplies standard rated products) less your inputs. Corporation tax is much more nebulous – what ends up as your “profit” is often less than obvious. What’s more, VAT is hard to avoid or evade these days – sales to customers are visible; sales to business customers leave a paper trail. There’s an additional factor for small companies that every company pays corporation tax, but only companies with over £85,000 of revenue (in 2022/23) are subject to VAT. ↩︎
“A high-resolution image of a large stack of colorful papers and documents, with various colors such as yellow, pink, green, and purple, slightly blurred around the edges for an artistic touch, photographed against a plain light gray background. The documents are arranged in a disorganized pile, capturing a sense of clutter.” ↩︎
The Post Office recklessly published the names and addresses of 550 wrongfully convicted postmasters. But it takes a very different attitude to its own data privacy, running frivolous GDPR arguments to cover up its corporate failings.
This is how the Post Office protected the data privacy of the 550 wrongfully convicted postmasters:
The Post Office took months to fix that mess and send out letters and “top-up” payments to postmasters… a task that a small team of competent accountants could have accomplished in weeks. That meant thousands of postmasters had to complete tax returns, and pay tax, entirely unnecessarily.
This was the Post Office’s reply to me:
That’s nonsensical: knowing the number of staff cannot lead to identification of the individuals. I asked the Post Office for a review, and said that if they disagreed they needed to explain how such an identification could be made.
The review just came back (delayed by months) and taking an entirely different line:
They claim that the number of people working on a project is “personal data” because it “relates to” the individuals:
That is a frivolous reading of the legislation. Almost everything to do with an organisation “relates to” the people who work there – that doesn’t mean that almost everything is “personal data”. It’s only if the information relates to and concerns an identifiable individual – that’s clear on general rules of legal interpretation, and basic common sense. It’s also clear in the Information Commissioner’s guidance.
The legislation tells us that the key question is: can the individual be identified, directly or indirectly:
And the obvious is that, even if the answer is that only one person was on the project, that answer wouldn’t able their identification.
When we first revealed that the Post Office had failed to do as it promised, and help the postmasters resolve the Post Office’s tax mess, there was a flurry of internal Post Office communications. Not to fix the problem, or work out what had gone wrong, but to manage the PR.
It’s pretty obvious that’s the real reason the Post Office refuses to tell me how many people were trying to fix its tax mess. The Post Office knows it insufficiently staffed the project, and is covering that up.
We’ll be referring this to the Information Commissioner’s Office.
Paul Baxendale-Walker is probably the UK’s most notorious tax avoidance scheme promoter. He’s the former barrister and solicitor who helped create the “loan schemes” that cost the country £billions and have caused misery for tens of thousands of people. HMRC say his schemes avoided £1bn in tax. His advice was negligent, and he eventually ended up struck off, bankrupt, and convicted of forgery.
HMRC have been trying to pursue Baxendale-Walker for years, and finally last year imposed a £14m penalty on him. But HMRC made a series of mistakes, including missing a statutory deadline. The consequence, confirmed by a court judgment published earlier this month, is that Baxendale-Walker escapes the £14m penalty.
This appears to be part of a pattern of HMRC failing to properly use the many additional powers it’s been granted over the last few years.
Paul Baxendale-Walker is notorious amongst tax advisers, but is very little known outside that circle. To understand the seriousness of HMRC’s failure to make the £14m penalty stick, it’s necessary to go through some of his career.
Baxendale-Walker emerged as a prominent adviser in the 1990s, co-writing what was seen as the leading textbook on “remuneration trusts”. These were the vehicles used for the trust and loan avoidance schemes. The basic idea was that, instead of an employer paying its employees in normal taxable wages, it would make payments to the trust. The trust would then loan the amounts to the employees. The loans wouldn’t be taxable, and the employees would often be told (with a nod and a wink) that they’d never have to be repaid.2 So, as if by magic, taxable income had been converted into completely non-taxable income.
Baxendale-Walker charged enormous sums for his tax schemes – 10% of the value of the trust in one case (£612,000) and 10% of all ongoing contributions in another.4 In our view, none of these schemes worked technically.5 Some of his clients deserved their schemes to fail; others appear victims of mis-selling67
The downfall
Baxendale-Walker was suspended from practice as a solicitor in 2005 for a “remarkable and colossal” and “breathtaking” error of judgment in saying that a Mr Nurkiman, who he had never met or spoken to was a “person of integrity and good standing”. Mr Nurkiman turned out not to exist, and the arrangement was fraudulent.89
What’s hard to understand is that, after Baxendale-Walker and his associate Bill Auden were struck-off, promoters kept pushing Baxendale-Walker and his business, Baxendale-Walker LLP. That’s despite Baxendale-Walker’s website clearly describing Baxendale-Walker as a “former barrister and solicitor“, and his history being immediately apparent from a Google search.
When we told Baxendale-Walker we’d be reporting his fraud conviction, he told us “If you print that you must be sued for defamation, which would be actionable without proof of special damage.” But his conviction in 2016, and the accompanying fine and costs order, were widelyreported in the legal and thegeneralpress, and were cited as fact in a US court judgment.20
There were a large number of consequential court cases. The most serious for Baxendale-Walker was a negligence claim for £16m from his former client Iain Barker, which resulted in a 2017 Court of Appeal decision that Baxendale-Walker’s advice to Barker had been “clearly negligent”.
The £16m award seems to have caused Baxendale-Walker some financial difficulty. Having previously borrowed from two companies controlled by a client, he now tried to argue that the loans were void and he could keep the money – he failed. Baxendale-Walker failed to pay the now £16.7m owed to Barker, and was madebankrupt in 2018. Baxendale-Walker responded to the bankruptcy with a variety of legal strategems and court applications, all of which failed.21 Baxendale-Walker failed to make full disclosure of his assets to the bankruptcy trustee, and so the usual bankruptcy restrictions were extended for ten more years and remain in place.2223
Baxendale-Walker says he retired in 2013 on grounds of ill-health, was diagnosed with cerebral vasculitis in 2015, and since then has suffered a number of cerebral stroke events.25 He says he re-trained as a psychologist and psychotherapist and publishes books under the name of Paul Chaplin.
All of this is a brief and incomplete summary of an astonishing career.26
It’s hard to explain how someone so peculiar, and with so many legal troubles, could have been treated as an expert27 by people who should have known better, trusted by the likes of Rangers28and ended up causing so much damage to the tax system and to many peoples’ lives.
The HMRC investigation
There is a great deal of anger, among his former clients, HMRC personnel and many tax professionals, that Paul Baxendale-Walker appears to have escaped responsibility for his actions. It’s understandable that HMRC should look for every opportunity to recover tax and penalties from him.29
HMRC investigations are usually confidential, but thanks to US court documents30 we can reveal that HMRC started investigating Baxendale-Walker’s own historic personal tax affairs at some point around 2018.31
In the court documents, the IRS says HMRC claimed that, from 2007 to 201832, the total tax avoided using Baxendale-Walker’s schemes was £1bn,33 and that he used the same schemes to avoid tax on his fees. HMRC claim that £51m went into Baxendale-Walker’s own remuneration trust. But given Baxendale-Walker’s usual fees34 were 10% of the amounts put under trust, and the tax benefit was around half the amount put into trust, it seems reasonable to assume from this Baxendale-Walker’s total remuneration was much higher – potentially over £200m. And this is consistent with Baxendale-Walker’s own claim when he sued the Law Society back in 2011 – he was trying to recover £230m of lost personal revenue. The tax at stake could, therefore, be very large indeed.35
Baxendale-Walker says he “accounted for and paid all due tax on [his] fees. HMRC has never alleged anything different.”. That is untrue. The document the IRS filed with the US court says that HMRC “believes Walker used these same schemes to avoid paying tax on the significant fees he earned from their sales”.36.37
HMRC alleges that Baxendale-Walker was uncooperative with HMRC’s enquiries, and sought to frustrate its investigation. In particular, HMRC says that in 2013 he tried to hide evidence by selling the assets of his business, Baxendale-Walker LLP, including his records, to Hawk Consultants LLP, a US LLC entity. Baxendale-Walker tells us that he is being persecuted by HMRC, who lied to the IRS. He said:
“it is not ‘unusual’ that the rump business, including all papers, of an LLP which has ceased to trade, are sold to its ultimate owner entity, so that the LLP can be wound up properly.”
But in 2013, Baxendale-Walker LLP’s only registered members were PBW and Sargespace Limited (which was wholly owned by PBW). In June 2014, a form was filed with Companies House retrospectively appointing Belize Offshore Services Limited as member from 1 July 2013 and retrospectively removing PBW and Sargespace as members from the same date. In January 2015, a form was filed Companies House retrospectively appointing Hawk Consultants LLP as member as of 1 July 2013. This is highly unusual.
We cannot be sure whether HMRC or Baxendale-Walker is telling the truth. However it is our opinion, based on the known facts and Baxendale-Walker’s well-documented history of obstruction, that HMRC are correct and Baxendale-Walker did attempt to frustrate HMRC’s investigation.
We don’t know what happened subsequently, but these events may have led to HMRC making more specific information requests in the UK.
Baxendale-Walker told us:
“I was never subject to any amended or discovery assessment for tax in this jurisdiction in relation to the tax properly paid on my drawings from Baxendale Walker LLP.“
We don’t know what this means. Clearly you can’t be subject to a discovery assessment “in relation to tax properly paid”, but we don’t know if that is loose wording and Baxendale-Walker is saying there’s never been an enquiry or discovery assessment at all, or if instead this is a a very specific denial.
The £14m penalty
On 10 January 2022, HMRC successfully obtained an “information notice” from a UK tax tribunal against Baxendale-Walker, requiring him to provide HMRC with information about (we believe) both the tax affairs of Baxendale-Walker himself, and those of other entities (possibly his clients; possibly Minerva and/or the other companies with which he’s been linked).38
The information notice required Baxendale-Walker to provide the information by 11 March 2022.39
At this point something unfortunate and perhaps improper happened. HMRC waited four days to serve the information notice on Baxendale-Walker, and then (without permission of the tribunal) updated the deadline on the notice to 15 March 2022, to reflect that delay. It’s possible that this invalidated the penalty discussed in this article, but that’s a point the parties parked for the moment – it’s not HMRC’s main failing.
Information notices are usually taken very seriously by taxpayers, and nobody in our team has seen a client even suggest simply not complying with them. That, however, was how Baxendale-Walker appears to have proceeded:
Right before the new deadline expired, on 15 March 2022, Baxendale-Walker’s lawyers asked for an extension to 29 March 2022. Rather generously, HMRC agreed. Then on 28 March 2022 they asked for another 14 day extension; which HMRC understandably did not grant.
Having received nothing from Baxendale-Walker, HMRC issued a £300 penalty on 29 March. This was under paragraph 39 of Schedule 36 Finance Act 2008. By May, HMRC had still not received a response – daily penalties had reached £1,800.
On 1 March 2023 (i.e. almost a year later), for reasons that are unclear40, HMRC wrote to him withdrawing all previous penalties and providing a further 14 days for full compliance with the information notice, i.e. giving him until 15 March 2023.
Having still received nothing, HMRC issued a new paragraph 39 penalty on 15 March 2023.
Finally, on 28 March 2023, HMRC applied to the Upper Tribunal to impose a penalty under the separate provision in paragraph 50. This enables a penalty to be charged based on the amount of tax at stake. HMRC’s claim was for £14m – at this point we don’t know how that was calculated, or what the underlying avoidance was.
The Upper Tribunal now had to decide whether to impose the £14m penalty under paragraph 50.
If HMRC’s decision on 1 March 2023 to cancel penalties and give Baxendale-Walker more time amounted to a variation of the original 2022 information notice, then the penalty HMRC imposed on 15 March 2023 was invalid, because the time for compliance had not yet expired. So there was no valid paragraph 39 penalty, and therefore no possibility of a paragraph 50 penalty.
If, on the other hand, the 1 March 2023 decision was just giving Baxendale-Walker an informal grace period under the original information notice and not changing the formal compliance deadline (which in our view is the more likely result) then more than a year had passed, and the condition in paragraph 50(1)(d) was failed. There was, again, no possibility of a paragraph 50 penalty.
That’s in addition to the possibility that HMRC’s original change to the deadline in the 2022 information notice, without the Tribunal’s authority, rendered the information notice invalid (the Upper Tribunal didn’t need to decide this point, given HMRC had already failed to apply the penalty; we have not considered this point either).
It appears that the judge41 was unhappy with this outcome:
The Upper Tribunal gave judgment back in July 2023 – it appears as if either HMRC or Baxendale-Walker tried to prevent publication; it was eventually published on 3 June 2024 with the name of the HMRC official removed.
What went wrong
There were at least five serious failures by HMRC:
HMRC should not have amended the deadline in the information notice without the Tribunal’s permission.
HMRC shouldn’t have waited a year once it became clear Baxendale-Walker was not complying with the information notice – the standard £60 penalty was clearly inadequate. HMRC is able to apply to a tribunal to increase the daily penalty from £60 to up to £1,000 – it should have used these powers.
HMRC should not have set a new deadline on 1 March 2023; it was an unnecessary step which (foreseeably) created legal problems.
However, once HMRC had decided to go down the path of allowing Baxendale-Walker more time, it should have been made clear that this was an exercise of HMRC’s discretionary “care and management” powers and the original information notice remained in force.
HMRC should have procedures to track the elapsed time after paragraph 39 penalties are issued, so that paragraph 50 penalties can be assessed well within the one year deadline. The importance of statutory deadlines is something that’s drilled into trainee lawyers; but it appears that HMRC either had no such procedures, or they were insufficient.
HMRC may have lost all hope of obtaining a £14m penalty, but that does not mean they should give up on obtaining the information they were seeking. We would very much hope that, when the judgment was issued last year, HMRC responded by immediately issuing a fresh information notice42, and following that up carefully and aggressively. We do not know if this is what happened.
Why did HMRC fail?
Conversations with HMRC insiders suggest there is a wider problem with a lack of resources, a lack of experienced staff, and inadequate systems and training.
In the Baxendale-Walker case, one officer was involved throughout43; it is unclear if they were appropriately supervised, given the seriousness of the matter. The information notice legislation is not terribly complex, but there are some pitfalls which can catch out the inexperienced.
We asked HMRC for comment – they responded that:
“We continue to robustly tackle promoters. We have safeguards in place to ensure future penalties are issued within the time limits”
… which looks like an admission that there were insufficient safeguards in place in 2023.
However it seems that whatever new safeguards were put in place are inadequate.
We are aware of an avoidance case just two days ago (not yet reported) where HMRC submitted their bundle of authorities just over two hours late (19:05 rather than by 17:00 on Monday). There was an “unless” order which meant that the case would be struck out unless the authorities bundle was submitted on time. And so at 17:01 on Monday the case was struck out automatically.
Once again, the current law and practice of HMRC seems insufficient to deal with bad actors. We’ll be writing more about this soon.
Baxendale-Walker’s response
We asked Baxendale-Walker for comment.
The letter he sent us was extraordinary.
First, he denied a series of established facts about his history, including the fact he was struck-off and the fact he was convicted of fraud (we’ve footnoted some of the key denials). He specifically denies promoting tax avoidance schemes, and says he was just an adviser. However it is reasonably clear that Baxendale-Walker had a financial interest in FSL, the entity promoting his structures in the 90s and early 2000s – this was in fact the reason he was struck off.44 It is also reasonably clear from reported cases that he had an interest in Minerva45 and Buckingham Wealth46, the entities promoting his structures more recently.4748495051525354
We would strongly recommend reading Baxendale-Walker’s communication with us in full. The black text is from an email we sent to him; the blue text is his response. It refers in places to an earlier communication which we agreed we would not publish (and this is why it starts with point 9). We have redacted parts of the correspondence relating to matters we will be covering at a later date.
Second, he accused our founder, Dan Neidle, of committing the criminal offence of harassment by emailing him for comment. Dan was replying to an email Baxendale-Walker had sent him, after Dan sent a message to Baxendale-Walker’s solicitors asking for contact details.
Third, Baxendale-Walker was keen that we didn’t publish his denials, and so constructed a “unilateral contract” that purported to charge Dan £500,000 if we did:
We believe a first year law student would be able to identify why this is ineffective. Our response to Morr & Co, Baxendale-Walker’s solicitors, summarised the position as follows:
Our complete response to Morr & Co is available here as a PDF, or clickable thumbnails below:
Morr & Co didn’t reply themselves – they sent this covering email
In his attached letter, Baxendale-Walker denies that he was previously denying his suspension and striking-off (although it seems clear that he was). He claims that holding various entities as nominee meant that he was not lying when he said he didn’t own them, and says that the bankruptcy trustee accepted he held as nominee. We don’t know if this is true, and it begs the question as to who the ultimate owner was. His response is available here as a PDF, or clickable thumbnails below. We have again redacted parts of the correspondence relating to matters we will be covering at a later date:
Baxendale-Walker’s tactic throughout all the many disputes he’s been involved in has been to obfuscate, and we expect that’s what he’s doing here.
The wider failure to stop promoters
Baxendale-Walker is an extreme case, but by far from the only one. HMRC has consistently failed to penalise promoters of tax avoidance schemes; that is all the more unfortunate when, at the same time, it aggressively pursues the clients of their failed schemes.
We believe the law needs to change so that promoters become personally, and potentially criminally, liable for the failure of their schemes. But that isn’t enough – HMRC itself needs to change. There’s no point having a wide array of powers if they’re not used competently and effectively.
Many thanks to K and I for their insight and research on this report, and to L, J and M for further technical input.
(We rely on an informal team of experts across the legal and tax profession; accountants, solicitors, ICs and retired HMRC officials. Most have to remain anonymous for professional reasons; but Tax Policy Associates would not exist without them.)
Baxendale-Walker denied this to us, and claims his advice was not followed. He told Channel 4 News that he hadn’t advised Rangers at all; “somebody” had advised Rangers, using his book. But the Supreme Court itself said that Baxendale-Walker devised and operated the Rangers scheme. ↩︎
The fact that the loans would never be repaid is often denied by scheme promoters, and PBW has denied it to us. But it is in fact inevitable. The loans were clearly a substitute for employee wages – instead of receiving £100,000 of taxed income, the employee would receive a £100,000 supposedly untaxed loan. Great. But if the employee repays the loan, they have nothing. The trust that received the loan repayment would typically be prohibited from returning any money to the employee. This was never an outcome that people would want or accept. We have reviewed dozens of loan schemes and hundreds of loans, and spoken to hundreds of scheme users – none ever saw a loan repaid, and (before the schemes collapsed) none thought that was a realistic outcome. ↩︎
PBW has denied to us that he owned Loaded – he says he never owned Loaded Media Limited or Blue Publishing Limited. But Companies House filings show him as the sole shareholder of both companies, and of the related production company Bluebird Productions Limited. PBW’s acquisition of Loaded and his involvement with Bluebird Productions Limited was widely reported at the time in the legal and generalpress. When we put this to PBW, he says he was merely a nominee. PBW was registered as the person with significant control of Bluebird Productions Limited up until the point it dissolved in 2019 (which suggests he was not a nominee). Blue Publishing Limited remains in existence, with PBW the sole director and company secretary; no PSC has been registered, which appears to be a breach of company law by PBW (whether or not he was a nominee). Loaded Media Limited was dissolved in December 2016; a PSC should have been registered from April 2016 but there again appears to have been a breach of company law by PBW. ↩︎
Lawyers and other tax advisers usually charge by the hour, or sometimes with a fixed fee. Tax avoidance scheme promoters often charge by reference to the value of the tax benefit (explicitly or implicitly). A fee equal to 10% of the value of the property – not the benefit, but the property – is astonishingly high. ↩︎
Even before more aggressive anti-avoidance rules were introduced in 2010, we believe the loan schemes all failed. In some cases they were shams. Even when they weren’t, there were two very serious problems with the structure. First, the “loans” were not really loans, as there was no intention to repay them. HMRC and the courts sadly took a long time to understand this. Second, most of the loan scheme trusts excluded all the intended beneficiaries (to avoid a tax charge) but the trustees nevertheless made interest free “loans” to these people, despite the fact that this was clearly a benefit. Their argument was that an interest free loan was not a benefit – we would say that is plainly incorrect, and we therefore agree with those who say the trustees must have acted in breach of trust. Anyone who disagrees is welcome to make a large interest free loan with no repayment date to Tax Policy Associates Ltd. ↩︎
We have heard from several sources that PBW never put any of his advice in writing, relying on his ability to “persuade” clients that the attractiveness of his loan trust suggestion spoke for itself. Most of the tax avoidance scheme promoters we’ve written about took a similar approach. ↩︎
The avoidance schemes weren’t limited to tax; Baxendale-Walker was also involved in a scheme that purported to enable people to access their pensions before retirement (a so-called “pension liberation scheme“). The Pension Regulator’s position was that the scheme constituted misuse or misappropriation of the pension assets, and in 2014 they applied for an injunction against him and others involved. Baxendale-Walker appeared at the court hearing on the first day representing himself. He announced that there were “many more remunerative things” he could do with his time than attend the court, and declined to attend subsequent days. This worked about as well as one would expect, with the court ruling that Baxendale-Walker’s interpretations of the law were incorrect; he and the other defendants then agreed to discontinue the schemes. ↩︎
PBW at first appeared to deny this; he said “Looks like DN is being fed information by another of which PBW’s solicitors are aware, and who has been warned about purveying falsehoods: when PBW’s solicitors can provde (sic) they are false.”. But the case we cite is a matter of public record. ↩︎
The Law Society/SRA’s interest in Baxendale-Walker appears to have started when the SFO began to investigate the arrangement. In the course of the investigation, Baxendale-Walker was fined £1,000 for contempt of court). The SFO then prosecuted Baxendale-Walker; this prosecution failed after a civil judgment relating to the same matter determined that he had not acted dishonestly. The Law Society then began a lengthy investigation. Baxendale-Walker was cleared of some of the Law Society’s allegations. ↩︎
There were other grounds for the application to strike-off PBW, some of which were not upheld. The Law Society’s investigation included commissioning a report into the efficacy of PBW’s tax avoidance schemes, which reached the conclusion that they were ineffective and involved a breach of trust. This was not in the end upheld as a reason for disciplinary action. However we note in passing that PBW obtained an opinion from Robert Venables QC (as was) that the conclusions of the report commissioned by the Law Society were wrong, based on what appear to have been very one-sided instructions. We have previously reported on Mr Venables’ reputation for issuing opinions which turn out to be incorrect, and that was the case here. ↩︎
PBW says the Law Society was required to pay £200,000 of his costs, and that a costs order was made in interlocutory proceedings before the Master of the Rolls. We do not know if that is true. It is a matter of public record that an initial costs order by the SDT in favour of PBW was overruled by the Court of Appeal in Paul Baxendale Walker v Law Society [2007] EWCA Civ 233. The effect of the Court of Appeal judgment was that the Law Society paid none of PBW’s costs, and PBW was required to pay 60% of the Law Society’s costs. The case has since been widely cited as establishing that there are only very limited circumstances in which the SRA has to pay costs for a failed prosecution. ↩︎
PBW said to us “PBW never sued the Law Society or SRA in England & Wales”. But Paul Baxendale-Walker v Middleton & Ors [2011] EWHC 998 is a reported case where PBW sued the Law Society in the English High Court. ↩︎
PBW says an extended civil restraint order was made against him because he objected to a statutory demand from the Law Society. We do not have a copy of the order, but Judge Briggs in Iain Paul Barker v Paul Baxendale-Walker [2018] EWHC 2518 said “Mr Baxendale-Walker litigated to such an extent that a civil restraint order was made against him.”. And that is the legal position: such an order can only be made when a person has persistently issued claims or made applications which are “totally without merit”. ↩︎
In both the California and Virginia cases, Baxendale-Walker’s co-claimant was Shahrokh Mireskandari, who had been struck-off by the SRA for acting dishonestly by lying about his qualifications and hiding his criminal convictions in the US for 15 counts of telemarketing fraud. Mireskandari was required to pay costs of £1.4m; his actions had very unfortunate consequences for some of his clients. ↩︎
Baxendale-Walker denied to us that he had sued in Virginia, but the Virgina court docket is a matter of public record. ↩︎
We have no first hand knowledge of the fraud trial, and cannot exclude the theoretical possibility that it was misreported, the US court was misled (although the judge says he has seen the conviction certificate) and PBW was not in fact convicted. However that would be quite extraordinary, and (given his proclivity for litigation) PBW’s failure to pursue the media outlets reporting on his conviction would be very hard to understand. If this was the only denial we had received from PBW, we would have taken it more seriously; however the large number of false denials he sent us means that we do not have much difficulty in dismissing it. ↩︎
Baxendale-Walker attempted (and failed) to assign rights to sue another law firm to a BVI company he controlled. He attempted (and failed) to stop his bankruptcy trustees from obtaining documentation from third parties (with which he was associated). ↩︎
PBW plays with words here, he says he “was released from bankruptcy after the standard 1 year period”. This is correct, but the restrictions period was extended by ten years because of his failure to make full and frank disclosure, and lapses in 2030. This is a matter of public record and confirmed by a public statement by the Official Receiver. PBW says “the bankruptcy trustees [were] satisfied that they had established all of PBW assets, income and sources of income”. But the Official Receiver said he failed to make a full and frank disclosure of his affairs, failed to disclose interests in property, and under-declared his income. This is a matter of public record.↩︎
PBW’s response to the bankruptcy was such that PBW’s bankruptcy trustee applied for a limited civil restraint order. This was refused, but the judge said there was “material which is well capable of forming a basis” for a general civil restraint order to be granted by the High Court. We do not know if such an application was made. ↩︎
Baxendale-Walker’s evidence to the Court in one of those cases was: “She was never anything more than a TV stripper and glamour model, who provided sex and occasional companionship in exchange for a comfortable and conditional standard of living which I procured for her. … She is only one of more than a dozen girls for whom I procure the provision [of] housing, cars and other benefits. The provision is always conditional on my satisfaction with the relationship. As soon as I am no longer satisfied, the use benefits are withdrawn.” ↩︎
PBW told a US court in 2015 he was too disabled to be able to participate in the proceedings; the judge disagreed. ↩︎
This textbook, 2012 edition, is still available for £150. We’d be interested to know how many sales it makes. PBW also wrote a book on “purpose trusts”, sadly out of print, in which he argued that English law should recognise private non-charitable purpose trusts. In our view there is obvious potential for abuse of such entities, were they permitted. ↩︎
It’s possible there was activity in the late 2010s – an appeal was filed by Baxendale-Walker in 2019 against HMRC and the Official Receiver; but we don’t know what it concerned, and it doesn’t appear to have progressed. We would guess (and it’s only a guess) that PBW tried to sue HMRC and the Official Receiver, failed (in an unreported case) and this is the appeal he made, which he didn’t progress. ↩︎
The content of this section comes from the US court papers. The IRS’s initial application is here. The response from Baxendale-Walker’s associate is here (it misunderstands the bankruptcy point we mentioned in the previous footnote; it also makes the very odd claim that it’s hearsay for the IRS to cite HMRC’s reasons for their request). The court judgment is here – the judge found in favour of the IRS, and disposed of the LLC’s arguments in not much more than a sentence. An order was made requiring production of the documents. ↩︎
Of course there could have been earlier investigations of which we are unaware. ↩︎
The effect of bankruptcy is (very broadly) to eliminate historic debt. A well-advised bankrupt therefore ensures that all of his or her affairs are in order with HMRC before becoming bankrupt: not necessarily paying all the tax that’s due, but making sure all the tax that’s due has been legally assessed by HMRC (so it is then wiped out by the bankruptcy). It looks like Baxendale-Walker didn’t do this. If HMRC assesses 2007-2018 tax today, then that becomes a liability today, and isn’t affected by his previous bankruptcy. ↩︎
We are surprised by this number. The loan charge was said by HMRC to collect £3bn. There were many other promoters pushing these schemes; it would be astonishing if PBW is responsible for one third of that. There are several possible explanations. One is that HMRC are simply wrong. Another is that the amount includes avoidance that the loan charge can’t counter for some reason. Another is that the figure includes avoidance entirely unrelated to loan schemes. We asked PBW about this; his response was to deny any knowledge of the tax avoided by schemes on which he advised. ↩︎
Baxendale-Walker denies this. He told us “These facts do not properly lend themselves to a bizarre allegation that PBW is a multi-millionaire Machiavelli, operating a vast empire of tax avoidance businesses. The allegation is manifestly a fantasy. It is one which HMRC themselves no longer ascribe to, according to Court documents filed in 2024 in another case which does not involve PBW. PBW’s solicitor has possession of those documents, which are confidential and will not be disclosed to Dan Neidle.” But we have no evidence that these documents exist. The fees received by entities connected to PBW are a matter of public record; and PBW’s denial is contradicted by his own claim for £230m from the Law Society. ↩︎
PBW replied to this saying that the IRS withdrew its case in Federal Court. We have no evidence of that; but even if it did, PBW’s claim that HMRC never alleged he hadn’t paid tax is false, and we expect he made it because he didn’t realise we had access to the US court documents ↩︎
There is another potential avenue for HMRC. We understand PBW believes that Baxendale Walker LLP’s accounting profits were “rectified” (which is to say, reduced) following a 2015 judgment of the Belize Supreme Court that it actually held substantial amounts as fiduciary for Minerva. We have not located that judgment – it may or not be connected with this 2017 Belize Court of Appeal judgment. We do not know if the accounts were retrospectively “rectified” in this manner. However, we would ordinarily expect HMRC to challenge a retrospective contention that a large amount received by a UK LLP with UK members, and booked in its accounts, was actually received as fiduciary for an offshore entity. We do not know if they did. ↩︎
We infer this because an information notice seeking information from a taxpayer about the same taxpayer can be issued straightforwardly by an HMRC official – it doesn’t require a tribunal to be involved. However the penalty provisions used by HMRC only relate to tax of the subject of the information notice. Hence it is our belief (based on experience and the legislation) that the information notice both related to Baxendale-Walker himself and third parties. ↩︎
Baxendale-Walker claimed to us that the information notice was invalid because he did not have the information. That is an elementary legal mistake on his part; an information notice is valid regardless of whether the subject holds the information; but an information notice only requires a person to produce a document if it’s within their “possession or power“. Hence the proper response to an information notice, if you don’t possess the document, is to formally respond to HMRC and explain that you don’t have it. If, alternatively, PBW really believed the information notice was invalid, it is hard to explain why he didn’t make that point at the time, rather than seeking a series of extensions. ↩︎
Possibly PBW had appealed the penalties and the amounts involved were too small for HMRC to want to bother with? ↩︎
Mark Baldwin, a very experienced and respected tax partner at law firm Macfarlanes ↩︎
Thus avoiding any arguments about the status of the original notice ↩︎
That officer being the individual whom HMRC wishes to protect by redacting their name from the judgment. ↩︎
All of this is set out in the judgment in Paul Baxendale-Walker v Middleton & Ors. PBW originally claimed he wasn’t the controlling influence of FSL or the beneficial owner of it. The SDT found that he did have control over FSL, and received substantial sums from it. When PBW appealed against that decision, he asked his “effective ownership” of FSL to be “taken as correct” by the court, but said it didn’t amount to a conflict of interest (see paragraph 50). PBW subsequently withdrew his appeal. ↩︎
PBW’s letter to us talks about a “Minerva community” as if it is independent from him. The facts do not bear this out. ↩︎
(which appears to have no internet presence; the various other Buckingham Wealth companies found by a Google search have no connection to Baxendale-Walker) ↩︎
The judgment in Northwood v HMRC [2023] UKFTT 351 (TC) includes the text of an engagement letter between Baxendale Walker LLP and a client, which includes an appendix saying that “MINERVA” is a separate business of Baxendale-Walker LLP, which sells and markets strategies devised by Baxendale-Walker LLP. MINERVA’s fees were 10% for every contribution to the trust. PBW therefore most certainly knew what fees Minerva was making and, on the basis of the text from his own engagement letter, he benefited from those fees. ↩︎
The judgment in Dukeries Healthcare Limited [2021] EWHC 2086 (Ch) describes “Minerva” as an “associated company” of Baxendale-Walker LLP. Again, the Baxendale-Walker LLP engagement letter provided for a fee equal to 10% of each trust contribution to be paid to Minerva. ↩︎
As part of US litigation unrelated to the matters discussed in this report, a deed was disclosed under which Baxendale-Walker LLP says it holds sums as bare trustee for Minerva Services Limited ↩︎
The judgment in Iain Paul Barker v Paul Baxendale-Walker notes that “As to [PBW’s] claim about lack of resources the Court was struck by three companies willing to financially assist Mr Baxendale-Walker, including his own remuneration trust, EW LLP, Minerva Ltd, Hawk, Brunswick Wealth and Burleigh House PTC Ltd.” ↩︎
The judgment in Paul Baxendale-Walker v APL Management Limited [2018] EWHC 543 states that, in May 2015, Baxendale Walker issued a claim “in respect of various fees that he alleged were owed to his companies (Baxendale Walker LLP and Minerva Services Ltd)” (my emphasis). That same case reports Minerva Services Limited (BVI), Minerva Services Limited (Belize) and Buckingham Wealth Ltd acting on behalf of PBW. ↩︎
There has been other litigation involving Minerva, the background to which is not clear to us, involving a Pankim Kumar Patel suing Minerva Services (Delaware) Inc, PBW himself and one other individual. The judgment is here. A witness statement is here, giving more of the background and with much criticism of PBW (although of course, as a witness statement, it must be taken with a pinch of salt). ↩︎
We keep talking about marginal rates, but rarely stop to explain exactly what they are, and why they matter. Here’s a short explainer, to accompany our interactive marginal rate charts.
The marginal rate is the percentage of tax you’ll pay on your next £1 of income. It therefore affects your incentive to earn that £1.1.
If you doubt that, imagine that you pay tax at 20% on your income, but the next £1 you earn, or indeed the next £10,000 you earn, will all be taxed at a marginal rate of 100%. Would you work extra hours for zero after-tax pay? I think most people would not.
That seems a silly example (although we can find worse ones in our own tax system – see below). But a marginal rate below 100% will also change your incentives.
Perhaps you are only just managing to afford childcare, and every hour you earn increases your childcare costs. A marginal rate of 70% might mean your take-home pay is less than the childcare cost.
Or it may just be that you value your own time so that, if your take-home pay from working additional hours drops below a certain point, it’s not worth it to you.
We should look at some examples.
Marginal rates – a boring example
In the current, 2024/25 tax year, combined income tax and national insurance rates for an employee look like this:2
No tax on incomes below the £12,570 personal allowance.
£12,570 to £50,270 – a combined income tax and employee national insurance rate of 28%
It’s important to realise that the different tax brackets only apply to income in that bracket. If you earn £50,271 you’re in the higher tax bracket, but you only pay 42% tax on £1. You still pay 28% tax on everything you earned before above the personal allowance. This is unfortunately not very well understood.
Imagine Bob is an employee earning £12,570. None of his income is taxed. Bob has the opportunity4 to earn an additional £1,000, putting him in the 28% tax bracket.5
There are three ways we could describe Bob’s position after earning that £1,000.
The applicable headline rate. Bob is a basic rate 28% taxpayer.
The overall effective tax rate. This is the total tax paid divided by Bob’s income. Total tax paid = £1,000 x 28% = £280. Income = £13,570. So effective tax rate is 280/13570 = about 2%.
The marginal rate – the percentage tax you’re paying on that new £1,000. This is 280/1000 = 28%.
Each of these has their uses.
The first figure is simple.
The second is useful for assessing how much tax Bob pays overall. If a political party proposed a sweeping set of tax reforms, Bob would be very interested in the impact on his effective rate.
But the third – the marginal rate – is important, because it affects Bob’s incentive to earn the additional pound. Right now it’s the same as the headline rate – but that’s not always the case…
Marginal rates – a less boring example
Jane is earning £60k and claiming child benefit for three children. That’s worth £3,094.
She’s now in the 42% tax band.6 Jane still pays basic rate tax for her income between £12,570 and £50,270, but now pays 42% tax for everything over that. So her total tax bill is (50270 – 12570) * 28% + (60000-50270) * 42% = £14,643 and Jane takes home £45,357.
Jane is thinking of working a few more hours to earn another £1,000. She’s still in the higher tax band – so in a sane world she’d expect another £420 of tax, and a marginal rate of 42%.
But that is not the result. Once Jane’s income hits £60,200, the “High Income Child Benefit Charge” starts to apply to claw back her child benefit – 1% for every £200 of earnings.
So that £1,000 of additional earnings costs Jane HICBC of £154.70, on top of the £420 of “normal” tax. A total of £565.
So how do we describe Jane’s position after earning that £1,000?
The applicable headline rate. Jane is a higher rate 42% taxpayer.
The overall effective tax rate – the total tax paid divided by Jane’s income. That’s 15207/61000 = about 25%.
The marginal rate – the tax Jane is paying on that new £1,000. This is 56.5% – and we will have the same result for all incomes between £60k and £80k. 7
As I mentioned at the start, there can be practical reasons for people to turn down work if the marginal tax rate gets too high – but there are also psychological factors. For many people, 50% feels like a high rate.
Oh, and if Jane’s a student repaying her student debt, then the marginal rate goes up by 9% to 66%.
We can chart Jane’s marginal rate for each income she could earn. Incomes along the bottom, marginal rate along the top:
You can see the HICBC as the “tower” between £60k and £80k, which should be a smooth 42% plateau. Instead it hits 57%. (I’m hiding what happens after £100k)
The HICBC is a gimmick which enabled George Osborne to somewhat-surreptitiously raise tax on people on high incomes without raising the tax rate itself.
It’s a really bad policy:
It means that Jane pays a higher marginal rate rate than someone earning £90k, or indeed £900k. Where’s the logic in that?
The way in which HICBC works creates a nasty trap for the unwary, with thousands of people accidentally incurring HMRC penalties.
The politics are nice and intuitive – surely it’s not right for people on high incomes to receive child benefit? But the reality is that this logic inexorably leads to a high marginal rate, and a cumbersome and sometimes unjust collection mechanism.
Can it get worse?
Very much worse.
George Osborne’s HICBC was copying a trick invented by Gordon Brown to clawback the personal allowance for people earning £100k.
Again, the politics are nice, but the consequences are a mess.
If Jane starts earning between £100k and £125k then she faces a marginal tax rate of 62%. It then drops to 47% from £125k. Her marginal rate chart looks like this:
62% is a very high rate. And if she has a student loan, that will add on 9% to the marginal rate, taking her total marginal rate, between £100k and £125k, to 71%.
We’ve received many reports saying that high marginal rates affecting senior doctors/consultants are an important factor in the NHS’s current staffing problems – exacerbated by the fact that the starting salary for a full time consultant is just under £100,000. But it’s important not to just focus on the impact on jobs that we think are of particular societal importance. It’s also problematic if an accountant, estate agent or telephone sanitiser turns away work because of high marginal rates – it represents lost economic growth and lost tax revenue.9 Sometimes people take the work, but use salary sacrifice or additional pension contributions so their taxable income doesn’t hit the threshold. But that doesn’t work for everyone; sometimes they’ve hit the pensions allowance; sometimes it doesn’t always make sense to work harder now, for money that they can’t touch for years.
The Conservative Party election manifesto pledges to move the HICBC from £60-80k to £120-160k. That helped Jane on £60k but now creates a nasty problem. When she’s earning £120k, and almost out of the personal allowance clawback, she gets the full effect of both the child benefit clawback and the personal allowance clawback:
(Purple is how things are now; blue is the Conservative manifesto proposal)
That’s a marginal rate of 70%. And then, when she hits £125k, she’ll have a marginal rate of 55% all the way to £160k.
It’s a mystery to me why the Conservative manifesto didn’t set the new HICBC at £125k – you’d still have a 55% marginal rate beyond that, but at least you’d avoid 70%. The most plausible reason is that they were defeated by the complexity of the system.
And worse?
There are other similar features I’m skating over. The £1,000 personal savings allowance drops to £500 once you hit the higher rate band, and to zero once you hit the additional rate band. That can create high marginal rates at these points.10 The marriage allowance lets a non-working spouse transfer £1,260 of their unused personal allowance to their partner, if they’re earning less than the £50,270 higher rate threshold. So it’s worth £252 – and it disappears once the higher rate band is hit.
And worse?
The Government keeps creating generous childcare schemes that are removed suddenly when your wage hits £100,000. That creates a marginal rate that can only be described as “insane”.
This year, the Government created a new childcare support scheme for parents with children under 3. This could be worth £10,000 per child for parents living in London. And it vanishes completely once one parent’s earnings hit £100k. Here’s what that does to the marginal tax rate:11
The 20,000% spike at £100,000 is absolutely not a joke – someone earning £99,999.99 with two children under three in London will lose an immediate £20k if they earn a penny more.12 And the negative spike at £8,668 is because it’s at that point you qualify for the scheme – you have a huge negative marginal tax rate (which has the potential to create obvious distortions of its own).
The practical effect is clearer if we plot gross vs net income:
After-tax income drops calamitously at £100k, and doesn’t recover to where it was until the gross salary hits £145k.
This is ignoring the pre-existing tax-free childcare scheme, which also vanishes at £100k. The amounts are less (usually under c£7k/child) so the curve would look less dramatic. However, as the scheme applies to children under 11, taxpayers feel these effects for many more years.
But don’t worry
If Jane started earning beyond £145k, all of these problems go away, and she has a nice straightforward marginal rate of 47% forever.13
What kind of tax system creates complexities and high marginal rates for people earning £50-125k, and simplicity and lower marginal rates for peopel earning more than £125k?
What’s the solution?
But these problems are going to get worse over time, as more and more people get dragged into the thresholds that trigger these high marginal rates. When the HICBC was initially set at £50k, that was a fairly high salary. By 2025/26, around 21% of taxpayers will earn £50k – and that’s likely what motivated Jeremy Hunt to raise it to £60k. But in these inflationary times, £60k will be the new £50k relatively soon.
In theory it’s easy: don’t add tricks and gimmicks into the tax system. If you want to raise more money from people on high incomes, raise rates or lower thresholds so you raise more money from people on high incomes.
In practice it’s hard. Scrapping these rules and making child benefit, the personal allowance, and childcare subsidies universal, would be expensive (somewhere between £5-10bn, depending on your assumptions). And the obvious way of funding that – increasing income tax on high earners, appears to have been ruled out by all main parties.
Let’s hope whoever is the next Chancellor can see these problems clearly, doesn’t make them worse, and – ideally – looks for smart solutions.
Everything interesting happens at the margin. For more on why that is, and some international context, there’s a fascinating paper by the Tax Foundation here↩︎
Ignoring Scotland for the moment. I’m sorry, Scotland – you are included on the charts, but I can’t lie to you… it’s not pretty ↩︎
That’s the headline rate – the actual rate is different… for which see further below. ↩︎
Perhaps he is self-employed and chooses which clients/work he takes on. Perhaps he is employed, and can choose how much overtime to work, or whether to accept a promotion. Perhaps he is going back to work after time spent looking after young children. Many people have the ability to work additional hours if they wish. ↩︎
Strictly that doesn’t exist – you’re paying basic rate tax plus Class 1 employee national insurance contributions. But realistically this amounts to 28% tax. I’m going to count income tax and national insurance as if they’re one tax throughout this article. ↩︎
Strictly that doesn’t exist – she’s paying 40% higher rate tax plus 2% Class 1 employee national insurance contributions. Realistically this is 42% tax. ↩︎
Note that the marginal rate will vary depending on how we calculate it, and the size of the “perturbation” we calculate the marginal rate over. Most textbooks define the marginal rate as the % tax on the next pound/dollar of income. Say that we looked at the tax Jane paid on £60,199 of income – that would be £14,726. A £1 pay rise takes her to £60,200, and tips her into the HICBC – she now pays £0.42 more higher rate tax, plus an additional HICBC charge of 1% of your child benefit – £30.94 (assuming you have three kids). So the marginal rate is 100 * (£31.63/£1) = 3,163%. This is not very meaningful, as nobody’s incentives are going to be affected by the consequence of a £1 pay rise. It also creates the silly result that the marginal rate on her next £1 pay rise will be 42%, because the HICBC won’t increase until she gets to £60,400. So it’s better to use a more realistic figure like £1,000. The practical consequence is that the 56.5% figure isn’t *the* correct answer, but it’s a sensible and useful one, and it’s important to check that weird marginal rates aren’t just an artifact of the chosen perturbation. Our charts use a £100 marginal rate for convenience, but then “smooths” the HICBC formula so the marginal rate doesn’t leap up and down. ↩︎
I think this is an unfortunate consequence of the Green Party having a policy to forgive all student loans, and another policy to increase national insurance by 6% for everyone earning £50k+. That would be a net win for someone paying off a student loan. However at some point during the manifesto process, they relegated student loan forgiveness to a “long term objective”, but didn’t change their national insurance plan. ↩︎
Particularly when the economy is running at very little spare capacity; it would be different if there was high unemployment/plenty of spare capacity, because the work that was turned away would (at least in theory, in the long term) be undertaken by others ↩︎
The £5,000 starting rate for savings is also phased out, but very slowly, and the phasing-out seems unlikely to be relevant to many people. ↩︎
The chart is for a single earner, but if they have a partner, the partner would also need to be earning at least £8,668 (the national minimum wage for 16 hours a week) ↩︎
The 20,000% figure is a consequence of the code that produces the chart incrementing the gross salary by £100 in each step. It would be a mere 2,000% if we used the same £1,000 perturbation as above. ↩︎
![27. This attempt to constrain my actions is wholly without merit; indeed it is childish game-playing.
28. I said in the prior email that I intended to publish any response; if PBW did not wish his words
to be published, he should not have replied to me.
29. Needless to say, PBW’s “offer” is not accepted. Whilst a contract can be accepted by conduct,
that is only if the conduct in question is intended to constitute acceptance. Here it is not (see
Reveille Independent LLC v Anotech International (UK) Ltd [2016] EWCA Civ 443)
30. In any event, the purported contract would fail for lack of consideration: I was free to read the
document and publish it as soon as I received it. I did not need PBW’s consent to do so.
31. I expect you agree with me on this. If not, please take this letter as a unilateral offer that you can
reply to this letter for a fee of £1bn, and you will accept that offer by conduct if you reply.](https://taxpolicy.org.uk/wp-content/uploads/2024/06/image-100.png)
