HMRC 'Spotlights' - What are they?

Peninsula Team

November 25 2011

Many accountants and tax advisors will know very little about HMRC “Spotlights” although they are have been around for some time. The following gives a brief summary of what they are about!

Spotlights are all about tax avoidance. According to HMRC this is their way of helping taxpayers avoid unwittingly entering into arrangements that HMRC are likely to see as tax avoidance. 

Spotlights identify the types of arrangements which HMRC are likely to challenge and they aim to do this by helping taxpayers to understand how they distinguish between artificial avoidance schemes and ordinary sensible tax planning. However, there is no explanation by HMRC as to what they mean by “ordinary” tax planning.

Spotlights will do the following:

• Provide some advice on tax planning to be wary of, listing some indicators that HMRC see as suggesting that a scheme may involve tax avoidance and which it is likely to investigate.

• Identify specific schemes which, in HMRC’s view, are not likely to deliver the tax savings advertised. HMRC will potentially challenge such schemes.

• The following are a few of HMRC’s list of the indicators to be aware of. The more features that are present, the more likely it is that HMRC will see the arrangement as tax avoidance:

-It sounds too good to be true.
-Artificial or contrived arrangements are involved.
-It seems very complex given what you want to do.
-There are guaranteed returns with apparently no risk.
-There are secrecy or confidentiality agreements.
-It involves money going in a circle back to where it started.
-There is a requirement to take out insurance against the failure of the tax planning to deliver the tax benefits.

There are other indicators that HMRC publish that are relevant but the above gives a snap shot of what HMRC are looking for. 

The 1936 Duke of Westminster case affirmed the right of taxpayers to arrange their affairs to minimise tax. However, the boundary between what is acceptable tax mitigation and unacceptable tax avoidance can often be not merely a thin grey line but a murky abyss. 

It does advise taxpayers on the sorts of planning they should be wary of, pointing out that just because one factor is present doesn't make it tax avoidance. HMRC also advises the taxpayer to be wary of planning where taxation of income is delayed or tax deductions accelerated — but surely these concepts are at the heart of many instances of “sensible tax planning”?

Just because HMRC doesn't think that the planning works doesn't necessarily mean it is right, but in issuing its Spotlights HMRC is trying to influence the behaviours of the taxpaying population from the start.

To date there have been 12 Spotlights issued ranging from issues in connection with goodwill to EBT’s to Stamp Duty Land Tax and are available on HMRC’s website.

HMRC’s Spotlights page now provides contact details and an online form for anyone wanting to tell HMRC about suspected tax avoidance.

'Tax agents can provide us with information about people or companies who may be promoting the type of arrangements covered by Spotlights.’

Many agents and taxpayers of course would consider that tax avoidance is the last thing they would become involved with however an awareness of the areas targeted by HMRC is always a good thing. Prevention is better than cure! 

If you have any queries regarding the above please contact the tax helpline on 01455 852555 or email

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