Don’t look a gift horse…
People come up with all kinds of ways of trying to avoid tax on income. HMRC will usually challenge anything they see as unreasonable tax avoidance or, worse still, tax evasion. A classic example of this has been heard by the Tax Tribunals recently, involving a lawyer working for the Ecclestone family of Formula 1 fame.
The main facts were:
- The appellant in the case received payments totalling almost £40 million, from 1999 to 2013.
- Payments of £2.25m were made to induce him to resign as a partner in a law firm so that he could work for the Ecclestone family.
- Three further payments totalling £36m were then made to Mr Mullens by Mrs Ecclestone.
- He did not declare these as income on his tax returns for the relevant years, instead asserting that they were gifts because of his close relationship with the family.
HMRC issued assessments and assessed penalties, some of which were under the provisions allowing them to go back 20 years where there has been fraudulent or deliberate conduct.
The Upper Tax Tribunal upheld the decision of the lower tribunal, finding that all the assessments were properly issued and that the penalties were valid. This was because all the payments in question in the appeal were clearly income derived from his work for the family. The appellant knew that they should have been disclosed on his tax returns for the tax years in question, but he made a conscious and deliberate decision not to disclose them.
If someone suggests to you a simple way of avoiding tax on income completely, it is probably too good to be true. Please get a second opinion from us, to make sure that you don’t in fact have a lot of penalties as well as tax to pay.