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HMRC reviews criminal proceedings against some EBT users

HMRC reviews criminal proceedings against some EBT users

HMRC has written to individuals who participated in EBT arrangements promoted by Clavis Herald Trust to notify them that ongoing enquiries will be taken over by its Fraud Investigation Service.

HMRC is in the process of contacting individuals who participated in EBT arrangements promoted by Clavis Herald Trust. The letters explain that responsibility for any open enquiries has been transferred from its Anti-Avoidance unit to its Fraud Investigation Service (FIS). The FIS team in HMRC are responsible for investigating cases of serious fraud. It does not prosecute individuals for criminal cases but will refer suitable cases on to the Revenue and Customs Prosecution Service where appropriate.

At present the team at FIS are collecting information and will advise callers that it will be a number of months before they will be in touch to explain what will happen next. HMRC has explained that they are carrying out criminal enquiries into the organisers of the scheme and are proceeding on the basis that the people who have used it have deliberately filed incorrect tax returns.

FIS conducts many of its cases under Code of Practice 9 (COP9) which is also known as the Contractual Disclosure Facility (CDF); cases of suspected tax fraud. Under COP9, HMRC offer an individual the opportunity to make a disclosure of all tax irregularities and settle the outstanding tax with late paid interest and tax geared penalties. The taxpayer will be expected to explain any and all aspects of their tax affairs that have not been reported correctly for tax purposes. The financial penalties can be significant. In return, HMRC guarantee the individual immunity from prosecution for the original offences but reserve the right to prosecute for any false reports submitted to them that do not adequately account for all aspects of the individual’s undisclosed tax problems.

It isn’t clear whether FIS will issue COP9 to the EBT users but why would HMRC even consider taking this significant step for an EBT arrangement? HMRC has opened enquiries into many thousands of EBT structures without any suggestion of criminal proceedings being considered. The answer will be found in the specific steps undertaken in the Clavis Herald Trust arrangements that were employed in that planning.

HMRC will look to test whether the planned steps in the arrangement actually took place or if the commercial rationale for a step was so unrealistic as to make it a fiction. If successful, HMRC will argue that tax returns that include the arrangement are incorrect and more importantly, the clients who bought the planning must have known their tax returns were incorrect when they were filed. HMRC will challenge the individuals who purchased the planning to show that they acted properly, that all the documents signed were bona fide and to test whether what was reported matched up to the economic reality of what took place.

An enquiry under COP 9 is a serious process that must be managed carefully. The subject of the enquiry will be expected to address all of their tax affairs for the last 20 years; the enquiry will not be limited to the EBT planning. The individual cannot risk failing to fully disclose and settle with HMRC; the consequences could involve a criminal prosecution. The experience itself can be daunting and a significant worry if there isn’t an experienced advisor to help them through the process.

We would be happy to discuss any HMRC enquiries or other issues linked to EBT and similar tax planning arrangements.