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In this update we provide news of recent developments in HMRCs approach to their investigations into the Clavis Trust/Herald Employment & Recruitment Services Ltd ('HERS') Employee Benefit Trusts, and what this means for clients. If you have clients who implemented these arrangements, please read this update.
Those with clients who implemented this planning will recall that in the summer of 2016 HMRC announced their intention to review these arrangements on the basis of their belief that they were 'fraudulent'.
A number of clients received Code of Practice 9 as a result of this decision. The majority of clients were simply notified of this change of approach and that their arrangements were now the responsibility of HMRCs Fraud Investigation Service (as opposed to their Anti-Avoidance teams).
We've been working with a number of clients subject to both approaches and until recently it seemed that there was little prospect of making much progress. A number of our clients, concerned with the thought of any allegation of fraudulent behaviour, simply wanted to settle their arrangements with HMRC. However, HMRCs position was that matters were being reviewed and they would be in touch 'in due course'.
Our recent discussions with HMRC confirms that this 'review' has been completed and that cases are now being allocated from the HMRC central team to various Specialist Investigations teams throughout the UK. Your clients are therefore likely to receive contact from one of these teams in the near future.
It is important to note that HMRC continues to believe that clients acted fraudulently or deliberately when implementing these arrangements. This is likely to apply to those clients who received Code of Practice 9 as well as those who did not. In order to test this position, it's likely that any contact from HMRC will contain a further detailed request for information (some of our clients have already received these) and, in appropriate cases, a subsequent request for a meeting with your clients. The inspector's objective in requesting detailed information and meetings is to try to find evidence to support the belief that clients acted fraudulently.
Given these developments we think it's important that in anticipation of HMRCs impending contact the implementation of the structure is reviewed and the full facts established concerning your client's knowledge and understanding of the arrangements. Their motivations and objectives should also be explored and documented. We've found that by taking this approach clients are in a better position to effectively respond to HMRC. Our clients who received Code of Practice 9 have as a result of taking this approach, been informed that their investigations will be proceeding on a civil (as opposed to criminal) basis.
Care should also be taken in responding to HMRC requests for information given the objective of trying to support an argument that the arrangements are fraudulent. Certainly, any 'pro form' type responses should be tested to ensure that they reflect the facts of your clients' specific circumstances.
Having reviewed a number of these structures on behalf of our clients and tested the potential culpable position, we at Pannu Tax find it hard to understand the basis of HMRCs belief, given that most clients were simply following the advice they received and clearly had no intention of doing anything deliberate or fraudulent.
If you would like to discuss these issues in more detail, please get in touch. We have a detailed knowledge of these arrangements and the experience and expertise to support you and your clients.