HMRC have published Tax Avoidance Spotlight 65: 'General Data Protection Regulation (GDPR) provision used to reduce tax liability'.
The spotlight focuses on businesses that have claimed Corporation Tax relief by using incorrect provisions linked to potential General Data Protection Regulation (GDPR) fines or civil claims.
Claims for GDPR provisions
The GDPR provision claims being addressed are designed to reduce business profits by recognising a provision and corresponding expense, resulting in a lower Corporation Tax liability or repayment of Corporation Tax.
- HMRC believe these and similar claims are not following the law.
- Provisions and related expenses should only be recognised under relevant Generally Accepted Accounting Practice (GAAP).
HMRC state they will challenge anyone:
- Making such claims.
- Encouraging or facilitating businesses to make such claims.
Where invalid claims have been made, HMRC may seek to recover the associated tax, interest and Penalties.
The spotlight includes HMRC's guidance on what, in their view, a taxpayer should do if they have made an invalid claim.
Typical schemes
HMRC states that typical schemes involve a business being approached by a tax agent offering advice on reducing Corporation Tax liability by claiming a deduction for a GDPR provision in the company’s tax return.
The tax agent may:
- Inform the business of the risk level for non-compliance with the GDPR rules.
- Suggest a monetary amount to be set aside as a provision for a potential breach of the GDPR rules.
- Ask the business to include this provision in their accounts for the latest tax return or to amend their previous year’s tax return.
- Charge a fee, sometimes exceeding 30% of any tax saving or repayment.
Some agents may try to link the GDPR claim to the process for claiming Research & Development (R&D) tax credits to inflate the size of the R&D credit.
- HMRC state that if this happens, the GDPR element will be incorrect.
HMRC's powers
The spotlight notes that HMRC has a range of civil and criminal powers to disrupt or investigate those that cause harm to the tax system.
Tax agents that encourage or facilitate taxpayers making false claims for expenses, rebates, or tax credits may face:
- Penalties.
- Suspension of their ability to make claims on behalf of clients.
- Refusal by HMRC to deal with them.
- Prosecution.
HMRC have an Online facility to report schemes, tax fraud, and tax avoidance arrangements.
Useful guides on this topic
Named tax avoidance schemes, promoters, enablers
HMRC publishes a list of named tax avoidance schemes, promoters, enablers and suppliers. It is not recommended that taxpayers use any of these schemes, as HMRC does not consider that they work and you may end up with a significant tax liability if you engage with the scheme suppliers.
Penalties: Enablers of Tax Avoidance (subscriber version)
What penalties apply to Enablers of Tax Avoidance? When do they apply? Who is an enabler?
Penalties: Accountants, Advisers & Agents
What tax-related penalties can apply to accountants, advisers and agents?
Making a tax disclosure (Digital Disclosure Service)
How to disclose errors or mistakes in direct taxes and notify HMRC of an under-assessment. A practical guide to making a tax disclosure using HMRC's online system.
HMRC Tax Settlement Facilities 2024-25
HMRC provides special tax settlement facilities and opportunities to allow taxpayers to notify undeclared income or gains over a range of different taxes. Facilities are provided via special links to enable taxpayers to settle unpaid taxes.
Anti-avoidance: HMRC's spotlights
What are HMRC's Spotlights and where can you find them?
External links
HMRC: General Data Protection Regulation (GDPR) provision used to reduce tax liability (Spotlight 65)
