Knight Wolffe slated over ‘misleading’ tax avoidance scheme ad

HMRC has had a complaint upheld by the Advertising Standards Authority (ASA) over misleading income trust advertising by tax and wealth advisers Knight Wolffe, including the use of HMRC's logo, which it says sets a precedent for other tax avoidance scheme advertisers

The complaint centred on advertising of a disguised remuneration tax avoidance scheme known as the Knight Wolffe income trust. This aims to divert income from a business into a trust. The trust then loans it back to the business owners, their families, or both, claiming that no income tax or National Insurance Contributions (NICs) arise.

Knight Wolffe made a number of claims about the scheme on its website. These included the phrases ‘known and accepted by HMRC since 1994’; ‘approved by the House of Lords in 2005’; and ‘involves no tax avoidance’.

The firm also made the claim that the scheme ‘remains effective in a number of ways’, alongside HMRC’s logo.

The ASA has ruled that all of these claims and use of HMRC’s logo are misleading and must be withdrawn.

The ASA has also ruled that the website ‘misleads by omission’, by failing to mention the various government tools and policies aimed at the avoidance promoted by Knight Wolffe. This includes the general anti-abuse rule (GAAR) and the new charge on disguised remuneration outstanding on 5 April 2019 (the loan charge).

In its submission to the ASA Knight Wolffe said they did not consider that the use of a government body logo inferred endorsement of the structure used and they made great efforts to ensure that each prospective client was aware that there was no such endorsement from HMRC.

The firm referred to Macdonald (Inspector of Taxes) v Dextra (2005 (HL)) regarding the claim ‘approved by the House of Lords in 2005’, although the ASA did not find that this case supported the claims.

Additionally, Knight Wolffe said that the term ‘no tax avoidance’ was not misleading as they advised clients that the structure used was always declared to HMRC within their tax return. They said that as the relevant case law and statutes they had relied on as the basis for the scheme did not fall under the Disclosure of Tax Avoidance Schemes (DOTAS), there was no tax avoidance with the scheme.

HMRC says the ruling sets a precedent so other avoidance sellers must not make the same claims about similar schemes.

Knight Wolffe and other sellers of similar planning arrangement must now remove these claims from their advertising, or face sanctions from the ASA which include removal of advertising.

HMRC’s understanding of the income trust scheme is that the business establishes a trust for the benefit of its suppliers and pays money into the trust. The money paid in is claimed as a tax deductible business expense, while the claimed purpose of the trust is to provide an incentive to suppliers.

The tax authority said that, in reality, the suppliers are not aware they have become beneficiaries of the trust. The trust funds are then loaned, usually to the business owner, their family, or both. The terms of the loan mean the funds are unlikely to be repaid.

Eventually the loans are claimed to reduce the scheme user’s estate value for inheritance tax purposes. As a result, the scheme user has full use of the money, which appears to be tax-free.

The ASA ruling is here.

HMRC guidance Disguised remuneration: schemes claiming to avoid the new loan charge (Spotlight 36) is here.

Report by Pat Sweet

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