Today’s Smith Commission report duly contained the much foreshadowed devolution of income tax powers to Scotland. But what, in any likely world, will it mean in cash terms for Scotland?

Assume, as has been widely mooted, that the SNP carries through its intention to raise the top rate of income tax to 50%. And assume, also, that Labour remains out of power following the next General Election so that the rate of income tax in rUK remains 45%. And assume (as seems broadly reasonable) that Scotland’s share of the population of the UK (8.3%) is roughly equivalent to the share of UK income tax paid by Scottish residents.

Now, remember that HMRC calculated the yield for the UK from raising the top rate of income tax at £100m (a £3.5bn tax cut producing, after ‘behavioural effects’ a yield of some 3% of that sum). On that rough and ready calculation, we might expect Scotland to yield ~£8.3m from raising the top rate to 50%.

But bear in mind that the behavioural effects modelled by HMRC included, in particular, those who emigrate. And bear in mind, also, that emigration has a particularly powerful effect because those who emigrate to avoid a 50% rate of tax take with them not just the additional 5% but the other 45% too.

And ask yourself this: is it easier to emigrate from Scotland to, say, England than from the UK to, say, Monaco? And further, what might be the consequences for the strength of that effect of Scottish wealth being clustered near the English border?

Even before you begin contemplate that which has left the tax community in stunned silence – how on earth could you put in place legislative machinery to enable two different rates of income tax within a single country? And before you contemplate, too, the enormous additional administrative costs attached to administering two separate income tax systems (additional costs which the Smith Commission report (see paragraph 79) makes clear would be borne by Scotland). Even before you face up to those challenges, you are staring a hugely negative yield square in the face.

Jolyon’s approach to what the profession would regard as aggressive tax avoidance has, I believe, moved the debate on quite significantly. There is still a considerable way to go, but the discussions on his blog on badging tax risk show that a consensus looks viable.

However, while there is considerable agreement on some of the aggressive schemes we might encounter, I am also concerned about the much greyer areas of tax advice that we, the tax profession, might find that the wider public take a very different view of.

In considering reliefs, Jolyon has written several times about pro-purposive use and anti-purposive use. One being an appropriate use of a relief, which Government intended, the opposite being tax avoidance as a minimum. However, there are other situations where a very attractive tax result might be achieved for a client in much simpler circumstances; situations which are not susceptible to the same analysis, and about which the public might take a different view.

An example

Let’s think about a sole trader with total profits for tax purposes of £40,000 and no other income. His total tax and national insurance contributions on that income this year will be £9,743, leaving him with net pay of £30,257. If we were to advise him to form a limited company, and from the same profits draw a salary of £7,956 (equal to the NIC entry point) and the balance of profits after corporation tax as a dividend, his tax bill (there is no NIC payable) will reduce to £6,409, and net pay increases by 11% to £33,591. I am not comparing these two situations with those of the “man on the Clapham Omnibus” who is salaried at £40,000 a year with a much lower take home pay, as our business man has uncertainty about his income, and other factors to take into account. However, whether he trades as a sole trader or a limited company, the profit outcome is likely to be broadly similar (subject to some administrative costs). Not only that, but our company director is in a far superior position regarding state pension, as he is credited with an earnings related element in addition to the basic state pension entitlement, despite having paid no NIC at all.

Bigger numbers – bigger difference

Why not scale this up? Another sole trader has profits of £100,000 a year. As a sole trader his current year tax and NIC liability would be £34,701, leaving net pay of £65,299. If he decides to trade through a limited company (which he might do for entirely non-tax reasons) and takes the same profit extraction route as described above, his overall tax liability falls to £29,177, a saving of £5,512. This overall saving at 8% is smaller in percentage terms than the example above. However, having taken advice he has given 50% of the shares to his wife, protected by the outcome in Jones v Garnett. The overall tax bill now falls further, to only £19,984, a total saving against a self employed position of £14,717, and an increase in overall net return of 22%.

I am not for one minute arguing that I believe that this is unacceptable behaviour – indeed I would probably be negligent for not suggesting it – but maybe some people think that it is. Is the mischief limited company status? I don’t think so, because if the director chose to take all of the profits by way of salary his tax bills would be significantly larger – indeed they would be higher by reason of employer’s NIC in addition to employee contributions.

So is the problem the method selected for extraction of profits? What if his needs are modest and the profits are almost all retained in the company, bearing tax of only 20%? If he retains, say £25,000 of profit in the company, his tax bill falls to £23,563 as a sole shareholder – a saving of £11,317 against his position as a sole trader, and to £18,409 as a joint shareholder, saving £16,292. Some will still argue that this is unacceptable, but the fact is that the valid choices made about how to structure a business and how the profits are extracted has a major impact on the tax charge.

Bad or not?

What does HMRC or Government think about these situations? They have been well known about since Jones v Garnett but after some initial suggestions to address that case we have heard nothing further. We now have the GAAR but given this sort of planning is well known about it looks like the GAAR is not in point. So it is all right then?

I do think this is an important area for this debate to consider. It would disturb the lay reader who might consider that professional tax advisers are at fault for suggesting it. And yet we are only doing what every other tax adviser would do – and should do if they are not to be held negligent. However at present HMRC has shown little or no to appetite to tackle this type of bread and butter planning.

What could or might be done? I promised Jolyon a blog about “how we got here” – meaning the way that we arrived at the current tax rules, but it proved difficult to establish an overall theme. What I did observe was that Governments of the last 50 years have had very differing agendas and the constantly moving tax rules to reflect those views. Taxing unearned income at a premium of 15% for some considerable time, as “bad” income. Taxing companies which distributed most of their profits at a greater rate for some time, and then in a complete volte face, imposing additional tax on company profits which were not distributed (many will remember close company apportionment calculations).

The first step would be to reach an agreement about whether we regard these wide variations in tax burden on essentially the same income as an acceptable outcome of choice, or an unfair advantage. Then we might think about what comes next.

For clarity of debate, I offer the below. It can be read together with my earlier posts today on the GAAR Penalties Regime which are here and here.

The GAAR catches transactions in (7). It doesn’t catch people transacting in (4), (5), (6) or (8).

Without a GAAR specific penalties regime, the GAAR does not always create an effective disincentive to transacting in (7). People can transact and take a punt on escaping a GAAR counteraction. For many there will be but modest downside to a counteraction – some hassle and professional fees but with a huge potential tax gain. The same is even more true for those transacting in (6).

With a GAAR specific penalties regime, no one will transact in (7). People will absolutely be put off transacting in (6). I think these are ‘pro’s. The potential ‘con’ is whether people would be put off transacting in (5). I think not because I think (6) creates ample clear water between (5) and (7).

CLASSES OF AVOIDANCE TRANSACTION

Introduction

1. There is, of course, already a tax-geared penalty regime which applies to the GAAR, namely, that in Schedule 24 of the Finance Act 2007 for under-declared liabilities to tax. However, the trigger for that regime is the existence of a degree of culpability on the part of the taxpayer for that under-declaration. There will, of course, be instances where the fact that the taxpayer’s return (showing, say, tax of 20) culpably fails to include a tax saving (of, say, 80) arising in consequence of abusive behaviour that is later counteracted by the operation of the GAAR. However, the circumstances where the taxpayer will be culpable for not showing the right tax (100) on his return may be limited given that (a) he will have been advised that the behaviour generates a tax saving (of 80) and is not abusive and (b) there is some scope for policy decisions by HMRC to affect whether the GAAR is in fact operated.

2. Where the GAAR operates it restores the taxpayer to the position he would have been in had he not engaged in the abusive tax conduct (in the example above, his tax liability is restored to 100). However, professional fees, any economic costs, and the remote possibility of Finance Act 2007 penalties aside, the effect of the GAAR will simply be to restore him to the position he would have been in had he not engaged in the abusive behaviour at all.

3. Discouraging abusive behaviour, therefore, requires that it carry a risk over and above the taxpayer being restored to the status quo ante (i.e. a tax liability of 100). The answer is a special penalties regime. An appropriately drawn regime will encourage taxpayers to interrogate their advisers as to whether there is a risk that proposed planning will be abusive. It will also encourage advisers to be more cautious about suggesting abusive planning. I am aware of no reason of principle why one should not discourage abusive planning through the use of penalties.

Policy Choices

4. A penalties regime will also likely have what one might describe as a modest penumbral effect. In other words, it will not merely discourage practices caught by the GAAR but it will discourage practices that might be caught. And the higher the penalty, the stronger the discouragement.

5. Whilst this is bound to have short term positive fiscal impacts, it must also be recognised that the penumbral effect could act as a discouragement to taxpayers to engage in acceptable or pro-purposive tax planning. (I assume this to be an undesirable consequence although others might disagree).

6. One might reasonably assess the penumbral effect to be modest given that the GAAR is tightly drawn. Moreover, one can certainly modulate the extent of the penumbral effect through the rate at which one sets the penalty. The other mechanism that one might adopt is arrangements whereby one mitigates the penalty according to whether the taxpayer had good reason to consider the arrangements not to be abusive. A similar mechanism has been adopted to mitigate, for example, the effects of Follower Notices.

7. Addressing these points in turn, I consider the GAAR (importantly, as presently drawn) to be tightly focused. An experienced adviser approaching the question ‘Is this planning abusive?’ with an appropriately open mind is, I consider, likely to be able to reach a reasonably accurate assessment of the answer. Putting the matter another way, I consider the quality of the GAAR in its present form is likely to have as its consequence that the introduction of penalties is likely to have a limited, and in some measure desirable, penumbral effect.

8. Where there is a penumbral effect, that effect will be strongest on arrangements which are abusive but are nevertheless not caught by the GAAR. As others have observed, the GAAR operates only when arrangements are (putting the matter somewhat crudely) clearly abusive. This is the consequence of a policy call having been taken by Parliament about where to strike the balance between maximising legal certainty and maximising the reach of the GAAR, a policy call articulated in the language used in, for example, section 207(2) Finance Act 2013. The penumbral effect will be strong where the arrangements are (again crudely) probably abusive but there is nevertheless some doubt about whether they are. This particular penumbral effect may be regarded as desirable.

9. As to the size of the penalty, plainly it must be tax-geared i.e. a function of the amount of tax the abusive practice purports to ‘save’ (80 in the example). Plainly also it must appropriately risk the abusive behaviour. Different people will reasonably arrive at differing assessments of what the right level of risk is. My personal view is that 100% is not unreasonable and it also has a symbolic attractiveness. The effect will be that the taxpayer with an initial liability of 100 who engages in abusive behaviour reducing his tax bill to 20 will, when counteracted and penalised, face a final liability of 180.

9. As to mitigation, there will always be cases where an application of a tax geared penalty will lead to genuine injustice. One will also want to encourage taxpayers engaging in behaviour that might be abusive to tell HMRC. And one will wish to incentivise taxpayers to come clean if they have engaged in abusive behaviour.

10. However, the scope of mitigation should be narrowly drawn.

11. I consider a discount of 50% should be given where the taxpayer discloses on his tax return that he has engaged in conduct that may be considered abusive (so the disclosing abusive taxpayer’s liability is 140).

12. I consider a discount of 25% should be given where the taxpayer who does not initially disclose later discloses (160). This discount is not high. However, it must be smaller than that for the person who discloses on his tax return otherwise one fails to incentivise the taxpayer not to make an initial disclosure – and to wait and see whether HMRC refers his transactions to the GAAR Panel.

13. As to injustice, one must recognise (a) that in certain circumstances the taxpayer may quite reasonably rely on his adviser (b) there are powerful commercial incentives for advisers to give over-optimistic advice about tax risk (professional fees are often a function of whether a taxpayer enters into arrangements rather than whether he seeks advice on them). One has regard to these competing considerations, it seems to me, by mitigating for injustice only where the taxpayer can demonstrate that he took a genuine interest, appropriate to the tax saving, in whether the arrangements in question were or were not abusive. Although this may be a matter of detail which is downstream of these brief thoughts, one may wish to stipulate particular factors that a tax tribunal will accept as demonstrating the presence of a genuine interest including whether the taxpayer took advice from a specialist unconnected to the promoter of the arrangements.

Postscript: I’d suggest readers might have a look at this Schematic which sums up what the GAAR does – and how a GAAR specific penalties regime might affect its operation.

In his speech yesterday at the University of London Ed Miliband promised a further crack-down on tax avoidance. Overnight the detail emerged on Ed Balls’ blog:

We have supported the introduction of a General Anti-Abuse Rule (GAAR). Those who set up abusive schemes should run the risk of being caught by such a rule.

But it is currently a GAAR without teeth. Those who are caught have to repay the tax they tried to avoid, but they do not face a penalty. There is still no disincentive to try and game the system. That is why Labour will bring in a tough penalty regime for the GAAR, with fines of up to 100 per cent of the value of the tax which was avoided. For the first time this will provide a tough and genuine deterrent to those who try to abuse the system and avoid paying their fair share of tax.

Way back in the year 2000 Accountancy Age, perspicaciously described the Hardman Lecture as an “agenda setting” annual event in the tax calendar. In my speech on Tuesday night at the ICAEW I observed as follows:

I’ve been calling for many months in this blog for the Labour Party to raise its game on tax. This is a real sign that they’re starting to form into workable, concrete and effective policy what might otherwise be mere rhetoric.

1. Introduction

The recent debate on tax in the UK has strayed into the murky area of questioning the relevance of morality. Chair of the Public Accounts Committee Margaret Hodge has stated that exploiting the complexity of tax law to reduce tax liability is “morally reprehensible”. David Cameron meanwhile recently voiced the opinion that there is a “moral duty” to cut taxes in order to allow people to spend more money on their families. What has perhaps been overlooked in relation to these assertions is that philosophers and jurisprudes for centuries have struggled to understand not only what influence morality has on the law, but also what influence it ought to have. As such, it appears unlikely that there will be a speedy resolution to the debate about tax law and morality.

Leaving aside the issue of what part morality ought to play vis-à-vis reducing tax bills; it is interesting to note that in certain circumstances there is no rigid figure as to the tax which must be collected by HMRC. Taxpayers may find their tax bills to be less than that which is strictly owed under the law, without resorting to the use of ‘gimmicks’ or abuse of reliefs. Accordingly, the tax which is raised from taxpayers is relative in the sense that it may legitimately be less than the amount Parliament has stipulated and this generally arises in two instances: first, where the law is fuzzy and second, where the law cannot practically be applied. The thesis of this post is that this relativeness is likely to play a more substantial role in the collection of tax than morality.

2. Theory of relativeness

To explain this relativeness, it is worth recalling that HMRC’s primary duty is to collect and manage taxes and credits (Commissioners for Revenue and Customs Act 2005, s. 5). Within this duty, however, there is a wide managerial discretion:

“In the exercise of these functions the board have a wide managerial discretion as to the best means of obtaining for the national exchequer from the taxes committed to their charge, the highest net return that is practicable having regard to the staff available to them and the cost of collection” (R v IRC, ex parte National Federation of Self-Employed and Small Businesses [1982] AC 617 (HL), at p. 637 (Lord Diplock))

This discretion however is limited to an extent:

“It does not justify construing the power so widely as to enable the commissioners to concede… an allowance which Parliament could have granted but did not grant” (R v HMRC, ex parte Wilkinson [2005] UKHL 30, para. 21 (Lord Hoffmann))

Taken to its logical conclusion, so long as the Revenue does not contradict the intention of Parliament, this discretion permits the use of cost-benefit analysis:

“In particular the [R]evenue is entitled to apply a cost-benefit analysis to its duty of management and in particular, against the return thereby likely to be foregone, to weigh the costs which it would be likely to save as a result of a concession which cuts away an area of complexity or likely dispute” (R (Davies and another) v Revenue and Customs Comrs; R (Gaines-Cooper) v Same [2011] UKSC 47, para 26 (Lord Wilson))

As a result of this discretion and legitimated use of cost-benefit analysis, HMRC is entitled to collect less tax than might be strictly due under the law. Thus, in the case of complex or fuzzy law where it is unclear as to the true amount of tax which is due, HMRC are empowered to arrive at a working interpretation which objectively satisfies the will of Parliament and in their opinion would raise the greatest amount of money in relation to that tax, over the course of all taxpayers. This same principle applies where the law itself is clear but would be impractical or unworkable in a certain set of circumstances. Where this arises, the Courts have found time and time again that it is proper for HMRC to forego the full collection of tax, so long as it is done with a view to raising the greatest amount of money for the exchequer overall. By focusing on morality in the tax system then, we ignore the other factors that in practice have a greater impact on how HMRC collect tax and how much tax they collect.

3. Application of relativeness

As this discretion is contained within the fundamental duty of HMRC, it pervades much of what they do. Three instances of the corresponding relative nature of tax appear especially pertinent to the differentiation between tax collection in practice and the normative collection of tax. The amount raised from settlements need not be the true figure which is prescribed as due under the law. Likewise, the decision to take or not take test cases rests solely with HMRC. This decision pivots on analysis of the benefit and likelihood of success rather than the desire to clarify law where it is unclear. HMRC may similarly spread their resources for the everyday collection of tax in a manner which would not collect all that is strictly payable. In each of these cases, what ought to happen is at conflict with what actually happens.

A) Settlements

One of the most controversial elements of tax collection in recent years has been the negotiation of settlements with large businesses. Sir Andrew Park, former High Court Judge and perhaps the most widely respected Tax Silk of his day, was commissioned to investigate HMRC’s conduct in relation to large settlements. Ultimately, the report concluded that the 5 settlements examined were ‘reasonable’ in terms of fair value for the Exchequer and public interest. As to the parameters of ‘reasonableness’, the report further provided as follows:

“[Reasonableness] included considering whether the settlement was as good as or better than the outcome that might be expected from litigation, considering the risks, uncertainties, costs and timescale of litigation” (Park Report, p. 5)

These cases concerned a complex smorgasbord of issues and must be held against the backdrop of resource constraints. It is for this reason that the question of reasonableness was resolved, not on the basis of what is due under the law, but on the basis of what might be gained from litigation. This is strictly what the exercise of managerial discretion requires (although the revised ‘Litigation and Settlement Strategy’ somewhat circumscribes HMRC’s power).

More generally, this report provides an insight as to the way HMRC may go about settling cases and litigation. Where the law is unclear and the litigation of the case would not be cost-beneficial, HMRC may arrive at a settlement for tax, below that which might be strictly due. The cost-benefit analysis is further engaged by the fact that, on their table, HMRC have a backlog of cases to get through. In other words, HMRC must look at the entire catalogue of disputed cases, given that the resources must be stretched across all, and will be entitled therein to settle for less than the true amount in any individual case, provided this is done so as to obtain what in their view is the highest net practicable return. Further depletion of resources or further increase in complexity will necessitate prudent decisions on HMRC’s part which will be strictly at odds with what the particular legislative provisions will require.

What HMRC have done in practice however, with the revised ‘Litigation and Settlement Strategy’ (‘LSS’), is further constrained this authority. The binary framework of the LSS, which facially proceeds on an all or nothing basis, delimits HMRC’s discretion and overlooks the relativeness of the tax due. As this was a managerial decision to put the LSS system in place, it would be interesting to see empirically whether or not it in fact raises a greater amount of tax than would occur in its absence.

B) Test Cases

As regards test cases, the managerial discretion ensures that much deference is given to HMRC as to what cases they choose or do not choose to pursue. Put another way, the decision to take test cases rests solely with HMRC. To this end, accusations that HMRC have ‘picked’ on certain taxpayers have fallen on deaf ears.

As with the jurisdiction in relation to settlements, HMRC is entitled when deciding which cases to pursue to take account of the legal advice as to the chance of success, which in turn is balanced against any likely return. The more unclear the law is, the greater the return must be from a successful outing in order to justify taking a test case forward. Further, test cases do not arise in a vacuum and HMRC must decide which ones to contest, given the lack of resources to take every case. Where they do not pursue taxpayers for amounts which might in fact be due under the law, liabilities to the law remain but are unenforced. This is a far cry from the normative world in which all tax liability is collected.

C) Collection

It is perhaps in the everyday collection of tax where managerial discretion is most engaged. HMRC must make decisions as to the allocation of scarce resources. To this end, the use of risk assessment is legitimated. Through this process, HMRC analyses various sources of information in order to obtain a view as to the risk of non-compliance. Less time and fewer resources are dedicated to low-risk taxpayers whilst more time and a greater amount of resources are expended on high-risk taxpayers. This categorisation diverges from the law in that it does not indicate whether any taxpayer has actually conflicted with the law but rather focuses on the statistical likelihood of non-compliance.

HMRC is also justified in putting systems in place to ensure future compliance with the law, which might result in less tax than due being collected. A notable example of this is the Fleet Street Casuals case, wherein the Revenue legally refrained from collecting all tax that was historically due (which was estimated to be in the range of £1mil per annum over a number of years) in return for the assurance of future compliance. What prevented the Revenue from opening investigations into the historical evasion was the combination of the unknown return to be obtained from expending resources and the threat of industrial action. The latter in particular would have compromised the possibility of future compliance. This case serves to highlight that HMRC are entitled to compromise on what the law might require so long as mechanisms are put in place to ensure future compliance. Bespoke sector specific agreements, such as Flat Rate Expense Allowances relating to Airline pilots, are justified on this basis.

Ultimately, HMRC is entitled to make decisions, which are pragmatic in their opinion, as to how to go about the everyday collection of taxes. The fact that many resources would be expended in seeking to ascertain and collect the full amount of tax due under the law in fact justifies compromising on the law:

“There will often have been… some “horse-trading” that has led, for good and practical reasons, to some departure from the strict requirements of the taxing statutes” (R (Bamber) v HMRC [2005] EWHC 3221, para. 48 (Lindsay J))

4. Conclusion

Whilst morality will continue to cause debate as to its proper relevance in relation to tax, the relative nature of tax itself provides an interesting problem which is often overlooked. We often ignore the factors that in practice are more likely to influence how HMRC operate. Settlements, everyday collection strategies and the (non) pursuit of test cases are but some of the pertinent ramifications of this relativeness. With the continuing reduction in resources and the increasing layering of complexity in tax law, this issue is set only to become more important. Should we not then be as, if not more, concerned with reality than morality?

Stephen Daly is a PhD candidate at the University of Oxford and blogs regularly at http://taxatlincolnox.wordpress.com/

Follow him on twitter at @SteveLincolnOx

If you work in tax you’ll know the routine. Chancellor stands up. Talks. And talks. But you just want him to sit down. You want him to sit down so that someone, somewhere will press the ‘publish’ button on the huge blog that is the gov.uk website. You can then join the rest of the profession in the first difficult task of the day: trying to figure out where HM Treasury have hidden the Budget documents this year. Once found, you print them out – and sit back briefly and imagine another world, a better world, in which a thoughtful colleague is just now hurrying towards you with a cooling towel for your forehead.

What you won’t have realised is that what is true for you is also true for the Opposition. They’ll engage a temp, hired for fast running, to rush the collection of Budget documents from the MP’s office nearest the House of Commons Chamber into the hands of the Leader of the Opposition. There’ll be a special phone available on which, hapless individual, he or she can be briefed (by text message) on what the measures really mean so as to have something, anything, intelligent to say by way of reply to the Chancellor. It surely is the toughest gig in politics.

And that’s kind of how life in Opposition is generally. When you’re in Government you have an army of civil servants to help. There is no clause in the tax code so obscure that a civil servant cannot be found who has spent her entire professional life pondering its meaning. She may even have worked up a theory! In Opposition, it’s just you. She’s not going to rush to your aid. Indeed, you’re an especially fortunate Opposition if you can afford to employ even one person to help you work up tax policy ideas – or scrutinise those of the Government du jour.

You get by, as a Shadow Exchequer Secretary, with a little help from your friends. And anyone else who happens to be passing through Parliament Square. Professional Institutes, Think Tanks, Business lobby groups, professional service firms. Even the odd blogger.  They all have axes to grind – and you know this. But you trust yourself – you have no alternative – to separate the good from the bad. And when you’re trying to work up policy you need even more. You need continuity, deep expertise, water carriers who can do the unglamorous business of drafting. And you need it right across the tax code.

And one of the places you get this from is the Big Four. They can afford to second staff to you for a decent period of time. You can have confidence that – supported as they are by the enormous resources of the firm – they will be technically adept and well informed. You know that they want influence – but then that’s true of everyone. And you’re just in Opposition so you’re reassured that if you get into Government you’ll be able to get civil servants to give your policy ideas the once over.

All of this is true of this Opposition. As it was true of the last.

I say this because of a distinctly adolescent piece yesterday on the Guardian’s website. It posed as straight reportage of the size of the cash value – now there’s a tendentious assertion – of the contribution made by professional services firms. It was, in reality, a complaint about the purported ‘capture’ of national interests by business (the Dark Side being played, today, by PWC and KPMG).  The fire was concentrated on Labour – despite the fact that exactly the same points could and should have been made about Oppositions generally. And as for actual evidence of ‘capture’? Nada – not even assertion.

Would I prefer a world in which the Opposition was better funded to perform the critically important task of scrutinising Government policy? I would. Indeed, I argued for it in Sir Hayden Phillips’ review . Did the Guardian call for that? It did not.

And can we all agree that scrutiny is important? We can. Who reading this blog trusts the Government du jour consistently to look after the broad public interest rather than the narrow political one? And is over 11?

‘Cui bono?’ I was asked on twitter last evening. ‘Who benefits from all of this?’

You do.

Postscript: David Gauke, the present Financial Secretary to the Treasury has, as is his wont, commented on this blog:

I am very pleased to have been invited to give tonight’s Hardman Lecture. I hope you’ll find it interesting and engaging. More engaging than what I said last time I was here. That was the Wyman Debate where I attempted to defend the Direct Recovery of Debts. If it prompts your memory, the evening finished with me being pelted with bread rolls. Engaging compared to that – that’s my baseline hope for this evening’s lecture.

What I’m going to set out tonight is some thoughts on where we go now with tackling marketed tax avoidance.

Were you Chancellor, you might well think about the business of keeping your departments fed as being a bit like watering your garden with a colander. Human nature being what it is, tax revenues are prone to a kind of gravitational effect. They want not to be collected; they want to fall out of the bottom. So, good gardener that you are, you plug up the holes in the bottom. But then you notice that all the holes further up the sides, from which the water previously only trickled, now it gushes.

You can’t approach the question of whether it’s game over for tax avoidance without thinking about what holes have been plugged by successive Treasury Ministers. And if you look at the big plugging exercises; the first is undoubtedly the DOTAS regime. Then we had the GAAR. Then we had Accelerated Payment Notices. Follower Notices too will do a little work – but less than previously expected. Now we have High Risk Promoters… and no doubt there will be some surprises in the Autumn Statement.

But can I start with a feature of the landscape that is, it seems, sometimes overlooked. There is not one solution because there is not one problem.

A good example of this is the reaction of promoters to APNs. Accelerated Payment Notices fundamentally alter the dynamics of tax avoidance. In the salad days of tax avoidance, you would, on the 5^th of April, dip into your overdraft for 20, borrow 80 in a funding loop, put 100 into the scheme du jour, claim 100 of loss relief, set that against your income of 100, enjoy a reduction in your tax liability of 40, spend 21 of that 40 repaying your overdraft and have 19 left over to spend on Bordeaux futures.

That’s a gross oversimplification, of course, but the attractiveness of the arrangements really did depend on them being no worse than cash-flow neutral. In other words, you had at least to be able to repay your 20 overdraft. Accelerated Payment Notices (for DOTASed schemes) remove that cash-flow advantage. So promoters have responded by searching high and low for schemes that don’t need to be disclosed under DOTAS. Or for people who will say that schemes don’t need to be disclosed under DOTAS. But I’ll come back to that.

As I said, the plugging of a hole slows down the leakage. But the gravitational effect survives. The tax still wants to escape the colander. (As Samuel Butler put it in Erewhon – “Even a potato in a dark cellar has a certain low cunning about him which serves him in excellent stead. He knows perfectly well what he wants and how to get it. He sees the light coming from the cellar window and sends his shoots crawling straight thereto.”) Tax has that same low cunning: it will look for the other holes in the colander, even if higher up, where the effect isn’t so strong.

And I think that’s where we are now. As I put it on my blog some months ago – when I wasn’t burdened with the need to sustain a metaphor – it seems to me the heavy lifting on personal tax avoidance is now done. That’s not to say we can or should relax. But it is to say that the losses should be smaller from now on. Albeit that the holes that are left might be tricky to plug.

What I’d like to do is look at the remaining problems through the eyes of the various participants in the tax market. I think it’s only in that way that we can think about their solution.

Let me start with taxpayers.

Of course, at the moment, taxpayers generally are put off tax planning by a hostile environment. But older heads than mine – there are so many people in this room whose eye I don’t want to catch at this point – will remember that we’ve had this before.

In the late 70s and early 80s there was a similar mood to today’s. That was also a time of low or negative economic growth – and enormous public concern about tax avoidance. But when the economy recovered so did the planning market. Judges who had been activist in giving voice to society’s concerns about avoidance became, once again, merely lawyers applying the law.

I don’t think there’s anyone at Treasury who is kidding themselves that the same won’t happen again as the economic recovery gathers pace. Indeed, what I hear quite clearly is a recognition that this is the golden moment when the stars are perfectly aligned for the introduction of measures to tackle avoidance.

So, taxpayers.

It’s clear that there are a number of people around who find themselves involved, quite unwittingly, in transactions with a higher risk profile than they would choose. I was speaking to a senior Inspector only a couple of days ago who said that he gets phone calls all the time from people who say, plaintively, ‘what else could I have done’? Often you think that what you’re buying is Vanilla ice-cream, and it’s only later you discover that you’ve bought, well, Rocky Road.

That’s a problem for all of us. It’s something our inner headmaster who wants to throw a blackboard duster at tax avoiders needs to confront. It’s a problem for the general body of taxpayers – represented by the Exchequer – that bears the costs associated with tax avoidance behaviour. And it’s certainly a problem for taxpayers who can be pushed into quite awful financial circumstances.

When you look to solve the problem you need to start by recognising that everyone likes a little honey poured into their ear. Or as Paul Simon put it – I know my audience – “a man hears what he wants to hear and disregards the rest”. We need to give people very good reason to have regard to the rest.

I’ll come back to this later on. But I do think that, even within the bounds of the law as it stands, there is room for HMRC to be more activist in encouraging people to engage with reality.

So, having flagged that point, my view is that we need to give taxpayers the tools to assess whether what they are being offered is an ‘investment opportunity’ or is really a piece of ‘counter-purposive tax planning.’ And not just with the benefit of hindsight.

Many members of the tax community have chipped in to a collective project called ‘Badges of Tax Risk’ which proposes a series of questions that a taxpayer might ask herself to distinguish good from bad tax planning. It’s, I think, a really valuable project and the signs are that one of the Big Four is going to throw its considerable weight behind the project. That would be a very welcome development. I don’t want to talk too much about it – you can read all about it here and here – but the broader the input the better the output. So I would encourage everyone in this room to have a look and comment.

Of course, once you give taxpayers the tools with which to assess their tax risk, you begin to feel a bit more comfortable about the idea that they can be required to exercise judgment about what they do.

Take a step back.

Typically a marketed avoidance scheme is put together by a House. It then sells that scheme to taxpayers via those taxpayers’ advisers. Those advisers may be IFAs, they may be accountants, banks, tax advisers, solicitors. The scheme is sold on the strength of an Opinion from, typically, leading Counsel who has said that it – or something similar to it – delivers a tax advantage of 100.

But who has Counsel said that to? The answer, almost invariably, is to the House. The House tells the adviser that it has Counsel’s advice that the scheme delivers an advantage of 100. The adviser tells the taxpayer that the House has been told that it delivers an advantage of 100. But no one tells the taxpayer that it delivers a tax advantage of 100. Indeed, typically the House is explicit that it is not giving tax advice to the taxpayer. And that the taxpayer cannot rely on what the House has been told.

Now, assume you’re the taxpayer in that situation and you self-assess on the basis that you have a tax advantage of 100. How careful have you been? I ask that question because, if you haven’t been careful, if you’ve been careless, you’re liable, on the law as it stands to a tax geared penalty.

The question whether any particular taxpayer is “careless” will depend on the facts – and I don’t want to get side-tracked into a lengthy discussion of this issue – but if you assume X has claimed £1m of sideways loss relief in his tax return without anyone actually telling him he’s entitled to then… well, he’s either brave or foolish.

So, it seems to me that there is already a very good mechanism through which taxpayers can be encouraged not to “disregard the rest”. The mechanism might be improved with a small tinker. But even today, it works. And it’s the consequences of HMRC availing itself of this mechanism that I think are really interesting.

Taxpayers are going to have very real skin in the game. At the moment there’s a perception that they don’t. You jeopardise your upfront cash – which might be 20 – but really that’s all the skin you have. If you’re going to get a penalty calculated by reference to that 100, that’s a whole different ball game. (If anyone’s playing mixed metaphor bingo, that was number two).

They only way in which they can avoid that risk is by being ‘careful’. So they will need someone to tell them that they get 100 of relief before they claim it on their tax return.

What are the consequences of the taxpayer needing that advice? Well, it will make it much less attractive to participate in the scheme: you’ll have to factor in the costs of getting advice. And this will be an upfront cost – you won’t know whether you’ll get a saving until you’ve spent the money. And as it’s a serious thing to tell someone liable to transact that a scheme works – dangerous and risky – so those costs will be high.

What will the House do?

Its response will be to arrange for the barrister who gave the initial advice to repeat it to potential clients. The barrister’s done the work so he just has to press ‘print’ and deliver his opinion. The costs can be kept manageable. But if the barrister gives that advice he will owe the client a meaningful duty. He will need to be careful – he will need to be careful – to ensure that that advice is correct.

And the Bar?

Now, it won’t have escaped your attention that the course I’m suggesting improves the accountability of the Bar by the mechanic of giving it more work. I want to acknowledge that. But it will improve accountability. If you are asked to sign off a ‘scheme’ you will anticipate that saying ‘yes’ will involve you giving that advice directly to prospective punters.

I don’t want to spend a disproportionate time on the Bar – but some of you will know that I have bemoaned the poor mechanisms for transmitting risk to the Bar – and so I did just want to touch upon the alternatives.

As to negligence proceedings, unless the barrister owes a duty of care to the taxpayer these are difficult. The House will sometimes have but a modest interest in whether the scheme works. But the taxpayer will be very interested. So you need to enable the taxpayer to bring proceedings against the barrister. The ‘solution’ I am recommending lies in the hands of HMRC. And it closes the circle.

You may well feel that if a barrister does misbehave, that’s a matter for the regulator. If Doctors can be struck off for incompetence, then why should Barristers not be? I agree – and I can tell you that so does the regulator. But the regulator has two difficulties. First, establishing that the barrister’s conduct falls below the regulatory standard. And, second, getting evidence of the barristers’ conduct at all.

As to the first, the tax bar is small – there might be 50 serious players. An adequate understanding of the technical material will be even more closely held. And not all of those practitioners would be prepared to prosecute, defend or hear regulatory matters.

The second problem is how the regulator gets hold of evidence of a breach of regulatory standards. I can’t just give the Bar Standards Board stuff that crosses my desk because I owe a duty of confidentiality to my client. Can I ask my client to waive that duty? I see this stuff because I have a litigation practice. I might be able to persuade them to give it to the BSB when the tax litigation is settled. But while it’s ongoing I can’t ask my client to say (in effect) this planning is so obviously wrong that the barrister’s conduct falls below a regulatory standard.

My sense is that the Bar Standards Board has got a real appetite for this fight. But it’s important not to underestimate the difficulties.

I said that I thought we needed to look at the problem of tax avoidance through the eyes of the various protagonists. So, the House.

Many have shut up shop. That’s, in part, testimony to the work that has been done in introducing the Disclosure of Tax Avoidance Scheme provisions, the General Anti Abuse Rule, Accelerated Payment Notices, Follower Notices and so on. And I can exclusively reveal to you this evening that I claim some personal credit too. The best reason for not avoiding your taxes is the realisation that you have failed to avoid your taxes. And the First-tier Tribunal has been a little unkind kind to me of late.

Now I didn’t say that for the punchline – I didn’t say that just for the punchline. We have to recognise that the creature we are now dealing with is not the creature we were once dealing with. If the main-stream players have already left the market, it’s those we have left that we must legislate for.

And we do have legislation: the High Risk Promoters regime. But I am concerned that it might be too gentle a piece of legislation. You have to be a promoter, you have to be a ‘problem’ promoter, the threshold for being a ‘problem’ promoter is quite high, you have to be given conditions with which you should comply, you have to fail to comply with those conditions and you have to be issued with a monitoring notice. You then become a monitored promoter – and then various quite tough consequences attach.

I’m encouraged that Treasury is thinking about these issues in the right way. It knows that tax wants not to be collected. It knows that, like Samuel Butler’s potato, tax has a low cunning. It recognises that you have to block all the holes in the colander – and that if you block up one, you catch a little more tax, but you also create overflows elsewhere. It’s not just being tougher on tax avoidance – it’s being tougher on the causes of tax avoidance.

But I am concerned that the High Risk Promoter’s regime requires multiple failures – and time – before you can become a monitored promoter. Before the regime bites, you have to have a monitored promoter. If you set up an SPV for each scheme will these provisions bite in practice?

They are capable of biting.  If we focus on the controlling mind of the House. If we know at the start that we are going to identify the individual or individuals at the heart of arrangements and concentrate our fire at them. If we don’t allow our point of attack to be diffused between different individuals and different corporate entities then, eventually, these measures can bite.

But, and this is no more than instinct, I think history will show this to be a somewhat gentlemanly solution for rogue operators. I think it will need to be toughened up.

The ICAEW has kindly offered me a platform to talk about measures to tackle tax avoidance. And I don’t want to abuse its hospitality to talk about anything else but I do want to open the conversation up a little wider. I want to make some observations on three associated points.

First, the GAAR.

Has it gone away? Well, it was introduced on 17 July 2013. Transactions prior to that date were grandfathered. So think about the self-assessment cycle. When would you expect a transaction post 17 July 2013 to be reported? How long would you expect HMRC to take to enquire into that transaction? How long would you expect HMRC to take before they launched their first ever test case for this brave new world?

So, it’s just much too early to call it a damp squib.

And it’s also too early, I think, to be asking the question whether the GAAR should be extended. At a conceptual level the debate is this: the advantage of a GAAR is that it might offer a broad spectrum antibiotic against tax avoidance. The disadvantage is that it erodes the legal certainty that people need to transact and invest. If you look through the GAAR provisions in detail – and I have had cause to do that – you can see time and again the draftsman choosing to prefer legal certainty over breadth of coverage. The GAAR is narrowly – and to my mind rather precisely – drawn.

I think that’s the right balance to strike: you take careful and measured steps if you wish not to scare off investment. If investors take fright it will be very difficult to tempt them back.

And I think you need clarity about what it is that you’ve already done before you do any more.

That having been said, I do think there is a good case for a GAAR specific penalties regime. Having fenced off a relatively small part of fiscal territory, I do think there is an argument for electrifying the fence by imposing a penalty on those who stray into that territory. Very often, the most artificial of transactions have very limited economic costs associated with them. Sometimes no more than professional fees. If you believe, as I do, that the GAAR territory is tolerably closely drawn, then you can easily get yourself comfortable with the idea of giving people reason to stay outside it.

The second point I wanted to touch on is the public discourse in the avoidance sphere.

I am pleased that we have, collectively, found a voice. I am pleased that Margaret Hodge has acted as the mouthpiece for that voice: she is a very effective one. And I find the notion that there is a moral element in taxation to be free of difficulty.

However, that moral voice must not be confused with the legal voice.

Heaven help us if first tier tax tribunal judges – I think there’s one or two in the audience and if you had bread rolls to hand I’d point them out – become arbiters of morality. Take it from me – they lack the qualifications. Indeed, some of us tax lawyers barely possess the life skills necessary to be let be out alone after dark. That’s why I’ve brought my wife – she’s here to take me home once I’ve finished lecturing you lot on tax law.

More seriously – but no less alarmingly – is the notion that the moral voice should become an arbiter of tax consequences. And there is a lot of that happening.

There are some Inspectors at HMRC who are refusing to do deals with taxpayers that they absolutely should do. And they are refusing to do those deals because they are afraid of those deals being hauled over the coals by the Public Accounts Committee. And I know this because they’ve told me. Explicitly.

And that’s not good at all. It’s bad for the administration of the tax system. It’s bad for investment. It blunts the effectiveness of tax reliefs as a tool for encouraging investment. And it’s critically bad for the country. I’d like to see greater leadership being shown on this issue by the senior people at HMRC.

I want to finish with the most important point I’ll make this evening.

We have collectively, all of us taxpayers in the room and all of those taxpayers out there, some £14bn of exposure to marketed artificial avoidance schemes. That’s a HM Treasury figure. It’s a huge number. It’s almost half the tax gap.

A huge chunk of it represents exposure to two issues: what is a “trade” and what does the phrase “incurred on” mean? The two leading cases on these issues are plodding their way through the appellate system. So far HMRC has won. But so far the cases have only come before the lower tribunals. And I think it’s far from certain HMRC will win on appeal.

That’s only my view. So let’s assume I’m wrong.

The quoted figure for HMRC succeeding in avoidance cases is 80%. And Treasury extrapolates all sorts of stuff from that 80% figure, including HMRC’s prospects of success going forward. But that’s a figure from a four year period (April 2010-March 2014) that has been a prolonged golden moment for winning avoidance cases. It’s like looking at the performance of the London property market over the last couple of years and concluding therefrom that the London property market will always rise by 20% per annum.

Moreover, there is a heavy bias in that period to cases before the junior tribunals. And it’s punchy to assume that superior courts will follow their lead – there are many examples where they haven’t. The obvious example is a case called Conde Nast where the taxpayer lost in every tribunal except the House of Lords (where I appeared for the first time – I do win occasionally). The Exchequer’s exposure to that case ran into many billions.

So if you dig into the evidence, you can see that there are very real reasons to think we might be seriously understating the risk that HMRC will lose one or even both of those issues on appeal. And, although I don’t have the breadth of perspective that HM Treasury does, from what I’ve seen I think it’s reasonable to assume a loss on one of those issues might represent a loss of £5bn of tax.

Now, the other element in the equation is this: at what price will the taxpayer settle? Here, too, we have a golden moment. Taxpayers today are desperate to settle. They are dispirited by a run of losses at first instance and in the Upper Tribunal. They will settle for less than – looked at dispassionately – they should.

So, if you’re Treasury, limited downside (low cost of settling) and big upside (no contingency risk).

A courageous Government would recognise these facts. It would act in the public interest and settle these cases at knock down prices. It would relinquish that contingent £14bn in return for a certain £11bn. It would be criticised for doing so – but it would be right.

Thank you.

Thanks for the tremendous response to Tuesday’s post.

Rather than continuing to debate in the comments section, I thought I would address (here) some of the recurrent themes that seem to me to have emerged.

1. The purpose of these badges is to help taxpayers decide for themselves whether to transact. If they are in the hands of ‘good’ advisers, they will not need to make this decision on their own. A good adviser should assess her client’s appetite for tax risk and act accordingly. But it seems to me that even a client of a good adviser should exercise some independent judgment; how else can a client really know whether an adviser (and advice) is ‘good’.
2. No single one of these badges will be decisive. It’s easy to spot instances where the badge will tell a taxpayer nothing at all about a particular transaction; it may even send a misleading signal. But the question we should have in our mind in drafting these badges is, will they likely send the right signal in the majority of the cases? And is there anything we can say in the explanatory sentences following the badge that will help a client with the question whether the badge is likely to be relevant?
3. What is true of transactions is also true of taxpayers. Some taxpayers will have difficulty with these badges – but the fact that we can’t help everyone should not be a reason to help no-one. Baby? Meet Bathwater. On the other hand, if we thought that these badges were so obscure as to be of assistance only to a tiny minority, the exercise will have failed. Clearly it is ambitious to attempt (as I do) to cover everyone from BigXCo to IndividualY with the same badges – but my experience is that everyone (even the most sophisticated) – can and do have difficulty with these assessments.
4. My own view is that there’s not an awful lot to be gained by trying to assess your adviser. Plausibility, in my experience, is very often inversely correlated with quality. Those who make the best salesmen are very often those most adept at telling taxpayers what they want to hear. I can’t judge for other professions – it’s not my expectation that others should be able to judge for mine. And if we recommend that taxpayers take confidence from membership of a particular profession we might be rendering them more (rather than less) susceptible of mis-selling (as both of the long time readers of this blog will know). I have, however, introduced a new badge (temporarily numbered 5A) which touches both on this point – and a further valuable point made in the comments section. What do you think?
5. These badges imply no judgment as to whether taxpayers ‘should’ be engaging in tax planning. Personally, I don’t think that’s a judgment for us: who (rashly) appointed tax advisers guardians of morality? Rather I think it’s a bit like how often taxpayers choose to wash behind their ears: a matter for them and their conscience. But there must be value in taxpayers being able to gain some sense of what tax risk they are taking on.
6. Building from 5, if these badges operate properly, they will often operate to give taxpayers the confidence to access reliefs. Some taxpayers are ‘scared off’ – by a hostile and not always well informed environment – from claiming tax reliefs. But reliefs serve an important economic function and we should work to protect against that functionality being blunted.

All of this having been said, I have also updated the badges – and included some draft introductory text.

Please do continue to comment and suggest. I can promise that I have read carefully and considered every single comment on Tuesday’s post. I have tried to explain my thinking in the comments section above. But if you still think I’m not getting it, please, please have another crack.

I’m particularly interested in where we go with these badges. What do you think? Would you be prepared to post them on your website for clients? Would you suggest to your professional body that it publishes them, or a version of them? Should we give them to our own clients to consider? Please do let me know.

Badges of tax risk

Before transacting you should discuss with your adviser your appetite for taking on tax risk. Transactions that deliver a good tax result if they ‘work’ typically also carry significant costs if they don’t work: financial and reputational. Make sure you understand those risks – and that your adviser understands your appetite for them too. It’s sensible to ensure you have a written record of your discussion with your adviser that records what you have said about your appetite for tax risk.

The purpose of these criteria – or badges – is to help you form a view about the tax risks attached to your transaction. They are not designed to tell you whether the transaction ‘works’ – although clearly the riskier the transaction the less likely it is to work. And they are not designed to tell you whether you should transact – different taxpayers can quite properly have different appetites for risk.

These badges are designed for you – and not for your adviser – to apply. You should discuss them with your adviser – but you should also try and form your own view.

No single one of these criteria will be decisive – you should weigh them all together and form the best view you can.

External criteria. There are a number of externally verifiable signals of tax risk. You should ask the following questions of the person putting the proposal to you (your “Adviser”).

1. Is there a DOTAS number that I will have to put on my tax return? DOTAS stands for Disclosure of Tax Avoidance Schemes and if there is a number that is a strong indicator of high tax risk.

2. Is there a promoter reference number for your transaction? Transactions with promoter reference numbers will have been devised by those identified by HMRC as more likely to be engaged in high risk behaviour.

3. Is there a page on HMRC’s website that deals with this transaction? HMRC publishes on its website very detailed Manuals for its Inspectors which set out the tax treatment of most transactions.If the Adviser cannot direct you to where the transaction is addressed in the Manuals it may indicate the transaction is higher tax risk.

4. What fee are you being asked to pay? If you are asked to pay a fee calculated by reference to tax saved, that can be an indicator of high tax risk. If your fee is calculated by reference to your adviser’s reasonable hourly rate, that can indicate a lower tax risk. If your adviser is happy to work on either basis, again, that can indicate a lower tax risk.

5. Are you asked to keep the details of the transaction confidential, or sign a Non-Disclosure Agreement? The confidentiality in your tax affairs is generally yours to keep – or waive – and not your advisor’s. If your advisor asks you to keep details of the transaction confidential that may well indicate that the transaction is being sold to others and is a strong indicator of high tax risk.

5A. If you have an existing tax adviser, is he or she putting the transaction together for you – or is your existing tax adviser working with someone new? If it’s the latter, and he or she is going to be paid a commission for your involvement, this creates a potential conflict of interest for your adviser. You should discuss with your adviser whether he or she would be prepared to rebate the commission to you and be paid on his or her normal charging basis. If your adviser is not prepared to do this, this may signal high tax risk.

The transaction itself. Why are you transacting – and why are you transacting in this way?

6. Does your transaction advance a non-tax (i.e. either a commercial or a personal) objective? If your only purpose in transacting is to achieve a tax benefit, this is a strong indicator of high tax risk.

7. Is the attractiveness of the transaction a consequence of the tax benefits it delivers? If you would transact without the tax benefits, that is a strong indicator of low tax risk. If you are transacting in part for the tax benefits you may wish to pay particular attention to badges 3 and 11.

8. If your transaction has a non-tax objective, does the manner in which you are carrying out that transaction seem like a natural or obvious way to achieve that objective? Most transactions structured in a natural or obvious way will attract the tax treatment Parliament intends. A transaction which seems overly complicated to achieve a particular non-tax objective, or a transaction which contains steps which do not serve an obvious purpose, indicates higher tax risk.

9. Does the shape of the transaction give you a better tax result than another economically equivalent transaction? What are the tax consequences of achieving your objective through a different route? A transaction that involves you paying less than the maximum amount of tax has some tax risk but a transaction that is tax maximising has none.

10. Does the shape of the transaction advance your pre-tax objectives? If both the transaction and its shape are dictated by your non-tax objectives that is a strong signal of low tax risk.

The tax effects of transacting. In tax, as with other things, there is rarely such a thing as a free lunch. The difference between ‘good’ and ‘risky’ tax planning is very often whether Parliament intended the tax result your transaction delivers. So, you should ask yourself:

11. Is it likely that Parliament intended this tax result? It is useful to ask this question alongside 3. above: if Parliament did intend it, it is very likely HMRC’s website will say so.

12. Are you being taxed on the economic or ‘real’ transaction that you entered into – or do the tax consequences attach to some other transaction? If you are being taxed on a transaction that differs from the ‘real’ transaction that is a strong signal of high tax risk.