How private are your tax affairs?

How private are your tax affairs?

A quick Google search of the phrase “celebrity tax scandals UK” will bring up over half a million hits almost instantly, including the familiar recent press headlines – “Hundreds of tax dodging celebrities facing financial ruin” (The Sun, 19 November 2016), “Super-rich and celebrities caught up in HSBC tax avoidance storm” (Daily Mail, 9 February 2015), “Gary Barlow tax evasion: Other celebrity tax dodgers named and shamed” (The Mirror, 12 May 2014) and so on.

While this makes for good tabloid soundbites, it does beg the question of just how private are your own tax affairs? And where is the line between acceptable and unacceptable tax planning?

As readers will be aware, there is a huge difference in law between tax evasion and tax avoidance: evasion is a criminal offence punishable by a jail sentence; avoidance is perfectly legal. It is a cornerstone of our legal and tax systems that a person is entitled to arrange his affairs, within the law, to minimise the amount of tax paid.

This does not account, however, for the concept of trial by (social) media. These days, simply being within the law is not enough to avoid scrutiny across online platforms and the print media. The so-called Panama Papers provided a goldmine for journalists wanting to expose taxpayers who had interests in offshore structures. At no point have such structures been illegal; and indeed with new rules coming into force in April 2017 information about these structures will be readily available to HMRC. That did not stop the media frenzy about all manner of high profile taxpayers, ranging from the (then) Prime Minister to sports people.

But sheltering income from taxation is not unusual. Many readers will have investments or cash in ISAs. Why? The returns are no better than from a similar investment or cash held elsewhere. But the returns are “tax-free”. And there are other investments which can help reduce tax – Enterprise Investment Schemes, Venture Capital Trusts, AIM shares and so on.

No-one would expect their name to be splashed across the papers for holding an ISA, so why has it been any different for the celebrities named in the headlines? First, certain “celebrity tax schemes” are seen as particularly aggressive. They take advantage of loopholes in, or a favourable interpretation of, tax legislation. The schemes do not involve tax evasion but are seen by HMRC as a step too far in tax avoidance.

If successfully challenged by HMRC, the tax, penalties and interest which become payable, can be substantial. Second, there appears to have been a shift in public perception of these schemes. A collective sense of moral outrage, fuelled no doubt by the speed with which such stories traverse the internet, means that it is now socially acceptable to enquire into another’s tax affairs – and to publish the findings.

Which brings me back to my opening question. Just how private are your own tax affairs? HMRC has a Personal Information Charter which confirms that all information provided to HMRC is subject to its duty of confidentiality. It states “we will not give your information to anyone” – although this is tempered by the phrase “unless we have lawful authority to do so”.

So, if HMRC will not disclose your tax information, then who else might do so? Some of the information obtained by journalists for the stories referenced above was freely available because certain schemes had been the subject of (public) court cases. Most, however, was made available by whistleblowers: the HSBC tax scandal resulted from documents stolen by a computer expert working for the bank in Geneva in 2007. The Panama Papers were given to a German journalist by a whistleblower who claimed he released them as a result of the “income inequality” he had seen while working at the firm Mossack Fonseca.

There are lessons to be learned for all of us from this. Aggressive tax avoidance schemes are increasingly likely to come under scrutiny. They are high risk, and those who use such schemes need to be aware of the potential for the scheme to collapse in future. Less aggressive tax avoidance is inevitably less risky; but with whistleblowers ready to leak information, and journalists looking for the next big scoop, the risks of being “named and shamed” online and elsewhere are greater than they have ever been. As always, you should proceed with caution and make sure you are supported by good advice.

On a related note, many of the recent headlines from Spain relate to the use of image rights by footballers and managers to minimise tax. If you would like to know more about image rights, please read this.

Mills & Reeve specialises in advising wealthy UK and international individuals and their families on their tax, trusts and estates. This involves advice on, amongst other things, inheritance and capital gains tax planning and also helping to protect family assets and to place them in suitable structures for future generations. Our clients include internationally-renowned sports people, owners of substantial businesses, landowners, trusts and charities.

If you require any advice in relation to any of the above, please contact Chris Belcher.

CAS decision: ACF Fiorentina v Mohamed Salah & Chelsea FC

CAS decision: ACF Fiorentina v Mohamed Salah & Chelsea FC

Mills & Reeve sports seminar review - Part 1 (Brand engagement in a digital era)

Mills & Reeve sports seminar review - Part 1 (Brand engagement in a digital era)