HM Revenue & Customs (HMRC) is offering a settlement opportunity to participants of tax avoidance schemes.

The offer is part of HMRC's Litigation and Settlement strategy and is designed to save both sides time and legal fees. It follows the settlement opportunity for EBTs which wound up last year.

  • There is a huge backlog of cases under enquiry and clearly something needs to be done to "clean up".
  • The government is devoting more funds to tackling avoidance but any participant taking up the offer should not expect a discount from HMRC.
  • The incentive to take up HMRC's offer is that early settlement avoids stress and years of litigation and uncertainty.
  • Those who are unsuccessful in litigation may face the prospect of double tax: no tax relief on fees paid to the scheme promoters and no tax deduction.

HMRC's offer is limited to schemes which have tried to use GAAP, partnership losses and film relief. Broadly the schemes where there is an attempt to claim relief for a much higher amount than the cash physically invested. 

There is no current settlement opportunity for participants in the following schemes:

  • Film partnership sale and lease back schemes
  • Interest relief schemes that result in a claim to interest relief under S353(1) ICTA 88 which is used as a deduction against general income.

Partners may settle with HMRC as individuals even though the partnership wishes to continue with litigation.

HMRC will settle for the amount of actual investment, but there is no relief if given for fees paid to the scheme promoter.

HMRC has had some success in recent years in litigating tax avoidance schemes, it highlights the following cases:

HMRC v Tower MCashback LLP 1,  Eclipse Film Partners No 35 LLP v HMRC, Icebreaker 1 LLP v HMRC, Samarkand Film Partnership No 3 v HMR, and Alchemist (Devil's Gate) Film Partnership v HMRC.

More information, see HMRC: Settlement opportunity for participants in tax avoidance schemes