The UK tax system is notoriously complex and has snared all sorts of people from naive celebrities to mistaken experts to outright fraudsters.
Even simple definitions such as tax avoidance, which is legal, and tax evasion, which is illegal, are often confused by people unfamiliar with tax planning. The former is perfectly legitimate for both individuals and businesses wishing to maintain a degree of tax efficiency but an overly aggressive approach can be deemed abusive avoidance or even evasion in the worst cases, with serious consequences.
It is always worth seeking advice from a qualified tax expert such as a trusted accountant or lawyer when arranging your tax affairs. At the same time, if you are offered a tax scheme that sounds too good to be true, seek independent advice before committing to avoid the fate of DJ Chris Moyles.
Chris Moyles - DJ and ‘Car Dealer’
BBC Radio 1 DJ Chris Moyles joined a tax avoidance scheme known as Working Wheels in which he claimed for tax purposes that he had ‘engaged in self-employment as a used car trader’. The scheme had been set up by a firm known as NT Advisers to help its members reduce their tax bills. It was promoted and sold to over 450 fund managers, celebrities and other wealthy individuals between 2006 and 2008.
Through the Working Wheels scheme members purported to be engaged in selling used cars. As part of the scheme they incurred huge fees for the complex arrangement of small loans made through a number of different parties. These fees could then be used against their income to reduce their tax for the relevant year. In 2007-08 financial year Chris Moyles used the scheme to offset losses of around £1m against his income.
Avoid ‘Highly Artificial Tax Avoidance Schemes’
HMRC challenged the legitimacy of the Working Wheels scheme on a number of grounds; primarily that it was a highly artificial tax avoidance scheme. The First Tier Tribunal found for HMRC on all of its arguments and dismissed the scheme outright.
In his ruling tribunal judge, Colin Bishopp, said the facts showed that the scheme’s aim was to make it appear, “as though by magic”, that members had incurred large fees to borrow small amounts of money unnecessarily to invest in a trade they were not interested in.
He commented, "None of the appellants took any interest whatever in the details of the purchases and sales; they were indifferent to whether a profit or loss was made," and, "From their perspective, this was not a trade but a means of securing tax relief."
Simply put, it was clear that the scheme was an artificial construct designed purely to avoid tax. This type of scheme should always be avoided as taxpayers waste money on fees while still having to pay all the tax, interest and penalties that are due.
Following the ruling Chris Moyles stated, "Upon advice, I signed up to a scheme which I was assured was legal. Despite this, my knowledge of the dealings of the scheme were naive. I'm not a tax expert and acted on advice I was given. This was a mistake and I accept the ruling without reservation."
Comment
The Working Wheels scheme is typical of the type of structure that HMRC has the power to challenge. Artificiality and lack of any other purpose than to avoid tax should raise alarm bells for anyone these schemes are promoted to.
For specialist advice contact Peter Gourri today by email PGourri@rollingsons.co.uk or telephone 0207 611 4848.
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