Ian Spectre came up with this idea while he was going through his old record collection. Back in the day he bore a striking resemblance to David Essex (as he repeatedly tells his colleagues and anyone else he corners), his fav track to air-guitar out to was always ‘Gonna Make You A Star’. That’s why he was so supportive of the HMRC’s STAR acronym.
What is a STAR?
STAR stands for Serial Tax Avoidance Regime. It applies broadly to any tax scheme that HMRC defeat after 5 April 2017. Here’s Ian Spectre to explain STAR in his own words;
“It’s the equivalent of the school ‘dunce’ hat from back in my day. It worked perfectly well then and it’ll work perfectly well now.
Basically HMRC are out to punish/fine/name-and-shame (take your pick) anyone who may have entered into a tax avoidance scheme.
Whether they have been misled or not, HMRC couldn’t give a monkey’s. They’re playing it pretty fast and loose with their own rules, but that’s OK – you can break rules as long as you’re not the little guy. Hahaha!
Plus it’s great fun to scare people, isn’t it?”
If Spectre and his HMRC pals make you a STAR you’re name is held in a warning registry for a 5 year period. During the warning period you have to give HMRC detailed information about any tax avoidance scheme that you use. Sanctions apply to STAR’s. If you use a defeated scheme during a warning period HMRC may:
- charge you a penalty
- publish your details to identify you as a serial tax avoider
- restrict your direct tax reliefs
And in terms of tax relief restrictions, the following can be affected:
- Annual Tax on Enveloped Dwellings
- Apprenticeship Levy
- Capital Gains Tax
- Corporation Tax
- Diverted Profits Tax
- Income Tax
- Inheritance Tax
- National Insurance contributions
- Petroleum Revenue Tax
- Stamp Duty Land Tax
Here at Warr & Co we never encourage our clients to join tax avoidance schemes, but we do take on clients who have been the victims of tax avoidance schemes, those who have fallen prey to organisations usually in the Isle of Man who have offered tempting returns but who, in reality, were more often that not lining their own pockets. We then try to help them get their affairs up to date and in order.
Take ‘Steve’, for example
One such client is Steve (not his real name). Steve had joined a scheme in 2001 and left it in 2005. His participation in the one and only avoidance scheme he’s ever been part of was filed with HMRC, who didn’t have a problem with it at that time. After three years in the scheme, Steve received a letter from HMRC who challenged the tax avoidance scheme.
The period he was in this scheme, by the way, pre-dates the introduction of DOTAS (disclosure of tax avoidance schemes). Furthermore, HMRC have only recently defeated this particular scheme by the means of retrospective legislation enacted three years after Steve had left the scheme.
So Steve is being retroactively punished for a scheme that was deemed perfectly legal at the time he was involved in it. Seems more than a little unfair, doesn’t it? You can be operating perfectly legally one day, then the next (or 5 or 6 years later…) HMRC can change their minds and take action against you!
Also, being reasonable people of at least average intelligence, one would hope the meaning of the word “serial” would suggest some kind of repeated action, but Steve was only ever in one scheme.
Hmm, do you think they have a better grasp of the word ‘contradiction’ more than they do the word ‘serial’? *Screenshot taken directly from HMRC website (link here).
Steve has not yet settled with HMRC, but only because the promoter of that particular scheme insists that HMRC are wrong and that the scheme is effective. The promoters have already forced HMRC to withdraw Accelerated Payment Notices with Follower Notices.
Despite all of this, HMRC wrote an intimidating letter to Steve threatening to make him a STAR.
Could you become a STAR?
If you’ve never entered into any such scheme you’ll be fine. If you have or you’re not sure, give us a call and we’ll talk it through. It’s better to know this now and approach HMRC before they start sending angry letters to you!
If you’ve received a similar letter, let us know and we’ll do all we can to help you handle the situation as soon as possible.
Finally an apology
We’re REALLY sorry if you’ve now got that irritating David Essex song stuck in your head all day, you can blame Ian Spectre.
NB: The story presented in this blog is based on a real case involving a client of Warr & Co.