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HMRC’s ‘not so secret’ secret FIC unit disbanded

A special HMRC team set up to review the use of Family Investment Companies was a complete waste of time and diverted resources.

A special HMRC team set up to review the use of Family Investment Companies was a complete waste of time and diverted resources from the investigation of aggressive tax avoidance and evasion, says Nimesh Shah.

HM Revenue & Customs (HMRC) have now shut down this unit which distracted valuable technical resource for more than two years from an area which didn’t merit such attention in the first place.

HMRC set up the unit because they were concerned by the increasing use of Family Investment Companies (FICs) for tax avoidance purposes, and a specialist unit was set up in April 2019 to review their purpose and operation. There was a concern that HMRC would force a legislative change to the tax rules for investment companies, which could have had a broad impact and damaged the UK corporate regime for international investment.

Companies have become popular vehicles for holding investments, such as property, shares, and bonds. The lower rate of Corporation Tax, currently 19%, and the ability to transfer shares in the company between family members provided a flexible environment, when compared to a traditional family trust.

It would seem HMRC have reached the obvious conclusion that any perceived tax avoidance was questionable in the first place. The company pays Corporation Tax on its profits, and in fact, the Corporate Tax rate is increasing by 6% to 25% from 1 April 2023. The timing of the conclusion of HMRC’s review may be predicated by the Corporate Tax increase in 18 months.

HMRC has wasted huge amounts of time and money on an area which didn’t merit such attention. The review could have been shortened had HMRC engaged early with stakeholders, and then focused their efforts on the continued fight against aggressive tax avoidance schemes and evasion.

It is an example of where a fairly benign use of companies has come under more scrutiny than needed. HMRC needs to do better in the future on working collaboratively with professional bodies and firms to resolve any perceived concerns.

The good news is that the investment company rules remain as they are, which is important for the UK’s corporate competitiveness in the international market, especially in the context of Brexit. The review is closed, and companies will now be looked at by HMRC as ‘business as usual’.

Would you like to know more?

If you would like to discuss the above or how it may affect you, please get in touch with your usual Blick Rothenberg contact or Nimesh Shah.

For any press queries, please contact David Barzilay.