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HMRC investigations into companies which used the “Clavis / Herald SPT” tax avoidance scheme

Around August 2016, HMRC made the decision to transfer responsibility for all enquiries into the use of the Special Purpose Trust (“SPT”) tax avoidance scheme promoted by Clavis Solutions Limited (“Clavis”) which was partly implemented by a Jersey fiduciary company, Herald Trust Company Limited (“Herald”) to the Offshore Team within its Fraud Investigation Service (“FIS”).

Following the transfer to FIS, each company which was already under enquiry by the Counter-Avoidance Unit has been advised that the investigation into their use of the scheme will be conducted under, either, Code of practice 8 (“COP 8”) where “carelessness” is suspected or Code of Practice 9 (“COP 9”) where there is evidence or suspicion of fraud. It is not entirely clear on what basis FIS is allocating cases to COP 8 and COP 9 respectively, but a common thread running through all of the COP 8 and COP 9 SPT investigations we are dealing with is a general mistrust by FIS inspectors as to the authenticity of documentation in relation to certain transactions in implementing the scheme. In particular, HMRC are challenging the dates on which certain events happened and/or whether they happened at all. Another point commonly taken by HMRC is whether the taxpayer was careless because they relied on the tax advice of the scheme promoter.

In our view, such mistrust is, in most part, a direct consequence of the separate criminal investigation which we understand FIS are conducting into the scheme promoter, Clavis, and also the cessation of Herald, in 2014, in conducting its trust company business in Jersey, following an investigation into its conduct by the Jersey Financial Services Commission.

In the cases which we have seen, HMRC are seeking to include a penalty in the settlement with the minimum penalty being sought by HMRC being 15% of the underpaid tax where “deliberate error” is absent but up to 100% in cases where there this is present. The fact that the Clavis Herald SPT transactions typically occurred between 6 and 10 years ago means that, in principle, the evidential burden of proof to demonstrate careless or deliberate error lies with HMRC. This can have a fundamental effect on HMRC’s ability to make late tax assessments at all and, if late assessments are possible, the ability of HMRC to charge penalties and if so, the level of penalty that can e charged.

As a firm, we have over 100 years of combined experience within our team in dealing with COP 8 and COP 9 investigations and, as such, we are ideally placed to give the best possible advice to clients who are under enquiry by FIS. Trident Tax has an enviable breadth of experience and practical expertise on both the technical and negotiating aspects of settling complex HMRC investigations, and our clients can take comfort in knowing that we will never allow them to settle with HMRC for a penny more than the full amount that is due and recoverable by HMRC.

If you would like to know more about how we can help with COP 8 and COP 9 investigations please contact us.