Don’t Look a Gift Horse in the Mouth…

People are remarkably inventive when it comes to trying to avoid paying tax on their income.
While there is nothing wrong with legitimate tax planning, HMRC is quick to challenge any arrangement that strays into unreasonable avoidance or — worse — deliberate evasion.

A recent case before the Tax Tribunals has served as a stark reminder that when something seems too good to be true, it almost certainly is.

A Case in Point – The Ecclestone Family Lawyer

The case concerned a lawyer who worked for the Ecclestone family of Formula 1 fame.
Between 1999 and 2013, he received payments totalling almost £40 million, which he failed to declare as taxable income.

Key Facts

• The appellant received £2.25 million to induce him to resign from his law firm partnership so that he could take up a role working for the Ecclestone family.
• Over the following years, three further payments totalling £36 million were made to him by Mrs Ecclestone personally.
• He did not declare any of these payments on his tax returns, claiming instead that they were personal gifts, reflecting his close relationship with the family.

HMRC disagreed — and the courts firmly backed their position.

The Tribunal’s Decision

HMRC raised tax assessments and penalties, including extended assessments under the rules that allow the department to go back 20 years in cases of fraudulent or deliberate conduct.

Both the First-tier Tribunal and the Upper Tribunal found in HMRC’s favour, confirming that:

• The payments were clearly income arising from the appellant’s work for the Ecclestone family, not personal gifts.
• The appellant knew the payments were taxable but made a deliberate and conscious decision not to disclose them on his tax returns.
• The penalties imposed by HMRC were therefore fully valid and enforceable.

The Tribunals concluded that his behaviour represented deliberate concealment — not misunderstanding or error.

The Lesson

This case highlights a simple truth:
If someone offers you a way to completely avoid tax on income that is clearly related to your work or services, it is almost certainly too good to be true.

HMRC takes an increasingly hard line on any arrangement that appears to reclassify income as gifts or other non-taxable receipts, especially where the individual has a personal or professional connection to the payer.

The penalties for getting it wrong can be severe, including:

• Backdated tax assessments reaching up to 20 years;
• Interest on unpaid tax; and
• Substantial penalties for deliberate or concealed errors.

Our Advice

Before entering into any tax arrangement that promises unusually low or zero tax on income, always seek professional advice.
What may be described as “a gift,” “a consultancy payment,” or “a friendly favour” could, in HMRC’s eyes, be taxable remuneration.

At Merranti Accounting, we can review any proposed structure or payment arrangement to ensure that it is legitimate, defensible, and compliant with HMRC rules — protecting you from costly disputes and penalties later on.

The complete Spring Newsletter can be found here