Beware of Incorrect Tax Advice

Two recent examples highlight the need for tax payers to be very careful when selecting tax advisers as some advisers will be promoting tax evasion (which is illegal).
The first example is in connection with ‘nudge letters’ issued by HMRC to care home providers. The letters warn the care home providers that HMRC views the likelihood of care homes undertaking Research and Development (R&D) expenditure as very low. Hence, HMRC are likely to undertake enquiries where claims for R&D tax relief are made by care homes.
The nudge letter will have been prompted as a result of care homes making claims for R&D tax relief. Such claims are quite often provoked by tax agents contacting the care home businesses to advise that R&D claims can be made. Once the R&D claim has been submitted to HMRC, the agent will be paid a fee by the care home, which will then end the agent’s involvement in the R&D Tax claim. HMRC will then undertake and enquiry, which may well result in a repayment of the full amount of the R&D tax relief given together with interest and penalties. By this stage the tax adviser will be long gone.
The second example is in connection with the use of umbrella companies, which promote schemes whereby individuals who undertake work, often via their own limited company, are paid without suffering tax on the income they receive. The umbrella companies take a sizeable percentage of the gross pay as a fee. Again, once HMRC investigate the tax evasion, the tax advisers will be long gone, leaving the tax payer to pay the correct amount of tax, plus interest and penalties.
Interestingly in both cases, for whatever reason, HMRC appears to take no significant action against the promoters of such schemes. HMRC have identified at least 60 different companies promoting tax evasion by using umbrella companies, but it appears that no action has been taken against those business, or the directors and shareholders of those businesses.