Beware the TikTok tax avoidance schemes

A man in a smart tweed blazer stands in front of a flipchart. On the flipchart are various diagrams and shapes connected by arrows, depicting a complex structure with companies and trusts. The man approaches the camera and explains that he has an ingenious solution to completely avoid millions of pounds in inheritance tax. He adds further arrows to the diagrams on the flipchart. You might think this sounds like a lecture for students or professionals on the intricacies of tax planning, but you’d be wrong. This is a TikTok video designed to sell potentially dubious tax avoidance schemes to unsuspecting and financially naive individuals.

Social media has, until recently, been the wild west in terms of regulation. Social media stars and influencers wilfully ignore advertising rules to sell everything from washing up liquid to counterfeit designer clothes. And now, TikTok and Instagram are host to the latest trend in influencer advertising, tax avoidance schemes.

HMRC has spent decades battling artificial tax avoidance schemes, with legislation frequently enacted to close the loopholes exploited by an increasingly reduced pool of unscrupulous advisers, who exploit their clients and extract extortionate fees in the process. The war on avoidance is not yet won but significant progress has been made. The ‘tax gap’, which represents the difference between what should theoretically be paid in tax and what HMRC actually collects, is currently estimated to be £35.8bn in total. The tax gap relating to avoidance of income tax, National Insurance contributions and capital gains tax has fallen over time to £0.5bn, less than 1.5% of the total tax gap.

Most tax advisers do not engage in providing artificial tax avoidance schemes, and members of professional bodies such as the Chartered Institute of Taxation are bound by a code of conduct which specifically prohibits the promotion of highly artificial or contrived arrangements. However, providing tax advice is not formally regulated and anyone can present themselves as a tax adviser. It’s perhaps unsurprising then that there are still a minority of individuals who are happy to persuade ordinary individuals to engage in risky tax planning, for a fee.

Those promoting what appear to be complex tax avoidance schemes on TikTok or elsewhere will often highlight that their advice is backed by a barrister’s opinion, a long-standing tactic designed to provide comfort when caution may be the more appropriate response. It is often good practice to take the opinion of a barrister where the tax analysis of a taxpayer’s affairs is uncertain. However, heavily promoted tax planning which emphasises the support of a barrister’s opinion can represent a red flag.

Legislation to target the promoters of tax avoidance schemes has strengthened in recent years to include a criminal offence for certain activities associated with promoting such schemes and which has recently been extended to include promoters that fail to comply with notices to stop promoting specified schemes, with those convicted potentially liable to an unlimited fine in England and Wales or a prison sentence of up to two years. But this doesn’t yet seem to have deterred this new breed of TikTok tax avoidance promoters, who appear to believe the provision of advice over the less well-regulated social media channels leaves them untouchable.

Anyone who buys ‘advice’ from these individuals or firms could also find themselves in very hot water with HMRC. By the time they discover that the schemes do not work, they could be slapped with heavy penalties or in extreme circumstances, criminal proceedings. Meanwhile, the individual or firm promoting the scheme, together with its ‘advisers’, will often be long gone. Be very wary of anything that seems too good to be true, and be especially wary of anything of a complex financial nature sold via social media. It is possible to organise your affairs in a tax efficient manner, but if support is needed, taxpayers should seek out the support of a reputable adviser, giving tailored advice that is both within the letter and the spirit of the law.