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In a recent newsletter we described HMRC’s written invitation sent to certain users of Clavis Herald planning arrangements to settle liabilities on particular terms.

One of the key points in the invitation was that where users offered to pay by way of ‘voluntary restitution’ (because HMRC had no valid tax assessments in place and are now out of time to make any), then HMRC would not pursue so-called ‘secondary liabilities’ where the individual does not reimburse the PAYE paid by the employer (akin to benefit-in-kind charges on the PAYE being settled). The invitation also included a condition that users had to accept they had been guilty of ‘careless behaviour’, with the threat that HMRC could pursue an allegation of ‘deliberate behaviour’ if the invitation was not taken up.

We are dealing with a number of Clavis Herald cases with common features which bring into sharp relief the importance of some key aspects of HMRC’s approach. These issues apply to all users of Clavis Herald planning (not just those in receipt of the invitation) and, we understand, any other EBT type arrangements:

  • In a number of cases we are dealing with, HMRC made a Regulation 80 PAYE assessment on the employer on, or very near to, the last possible day before the expiry of the six-year time limit for assessing tax lost due to careless behaviour e.g. an assessment bearing the date 5 April 2016 for the income tax year 2009/10. This might suggest that HMRC made many such assessments.
  • If HMRC has made an assessment which could only be valid in the event of careless behaviour the financial effect of accepting culpability for the purposes of reaching a settlement could be very significant. For example, it would eliminate the possibility that amounts were being paid by way of ‘voluntary restitution’ and would therefore increase the required settlement amount by including interest on late paid tax, penalties for careless behaviour and a ‘secondary charge’ liability if the individual did not reimburse the employer for the tax paid on their behalf. Broadly, this could increase the settlement amount by 80% or more for the years in question.
  • HMRC would need to make the case for culpability in litigation and should expect to have to do so in any active dispute. A case could only be made in this context based on the particular facts and circumstances of each user following an objective assessment of all the relevant evidence (including testimony from the participants). Assuming the Clavis Herald planning arrangements fail to achieve their intended effect, it follows that the tax lost in each case may have been brought about despite taking reasonable care; because of a failure to take reasonable care; or because of deliberate conduct. Whilst some users may decide to accept or admit culpability, this should only be done with ‘eyes wide open’ i.e. a conscious decision to do so based either on expediency or based on the evidence and arguments put forward (in general, firstly by HMRC).

The key message emerging from this is as follows: before agreeing to settlement terms, even if they may appear favourable compared to HMRC’s suggested alternatives, careful thought needs to be given to the question of conceding culpability – it can have very significant and sometimes unintended consequences; especially where HMRC would otherwise be out of time to make a valid assessment.

Trident Tax acts for a number of Clavis Herald scheme users and if you would like to discuss your options, please contact us.