Background
Summary of Council decision:
Three issues were investigated, all of which were Upheld.
Ad description
A website, www.williamsgordon.co.uk, for Williams Gordon, which offered financial advice to contractors, was seen on 27 July 2017.
Headline claims on the home page stated, “Take home up to 92% of your pay. Your legally robust solution”. Under the heading “Compliance” towards the bottom of the home page, text stated “We are fully compliant with the necessary HMRC legislation and with all current IR35 policies. We also ensure that you remain tax compliant for the duration of the Contract”. Under the heading “Our Experts”, text stated, “We will recommend the most suitable programme for your own individual needs. The most robust solution. Not only providing the highest return, but doing so in a legal, robust, documented and defendable way”.
The heading “Corporation Tax” linked to text on the Corporation Tax web page which stated “Tax strategies for business owners. In conjunction with our Finance Company partner, we can now offer Corporation Tax planning to Limited Company Owners. We can help if you have an overdrawn Directors loan account and want to negate the tax liability on this. We can also help if your current year’s Profits will be liable to Corporation Tax and you want to reduce/not incur the tax. Our product combines Corporation Tax Relief, with non-taxable personal payment ...".
On the “Features” web page, text under the heading “Monthly pay” stated “You receive a monthly market rate gross salary equivalent payment, that will be subject to tax and NI deductions”.
Issue
HMRC challenged whether:
1. the claims “Take home up to 92% of your pay” and “You receive a monthly market rate gross salary equivalent payment, that will be subject to tax and NI deductions” were misleading, because they believed Williams Gordon’s arrangement did not comply with standard income tax and national insurance payments and could therefore be challenged by HMRC;
2. the claims “We are fully compliant with the necessary HMRC legislation and all current IR35 policies. We also ensure that you remain tax compliant for the duration of the Contract” and “Not only providing the highest return, but doing so in a legal, robust, documented and defendable way”, were misleading, and that the ad misled by omission, because it failed to make reference to relevant schemes or charges which might apply if HMRC challenged the arrangement; and
3. the claims “In conjunction with our Finance Company partner, we can now offer Corporation Tax planning to Limited Company Owners. We can help if you have an overdrawn Directors loan account and want to negate the tax liability on this. We can also help if your current year’s Profits will be liable to Corporation Tax and you want to reduce/not incur the tax. Our product combines Corporation Tax Relief, with non-taxable personal payment” were misleading because the ad did not make clear that was a scheme of avoidance and that users would be challenged by HMRC to establish that the “non-taxable personal payment” was taxable.
Response
1. Williams Gordon Ltd maintained that HMRC had knowingly based their complaint on a number of assumptions and did not consider that HMRC’s understanding was correct. Williams Gordon stated that loans that were repaid, exactly one year after being issued, and were not connected with employment or a trade/profession, were not taxable and that this was borne out by various judgements. They added that HMRC already had specific powers under UK tax legislation in how to deal with such matters, both at a company and personal tax level.
2. Williams Gordon stated they would amend their website to read “compliant with all UK tax legislation” which they maintained they were. They stated they were not aware of any charges arising from HMRC enquiries and did not believe they had any obligation to discuss the disguised remuneration scheme, which did not apply in the absence of employment; or the loan charge which applied to loans outstanding as at April 2019 connected with employment or trade/profession, as it was not applicable to their product. They understood that the details of the exact legislation to be passed by Parliament was not yet known or enacted and queried how to ensure compliance given those circumstances. They also stated that HMRC had powers under UK legislation to make formal enquires in the proper manner. They added that they would welcome HMRC enquiries as they were compliant with UK legislation.
3. Williams Gordon stated that they did not meet the Disclosure of Tax Avoidance Schemes (DOTAS) hallmarks. They provided documentation which they stated was confirmation from HMRC that the required level of hallmarks did not apply to an arrangement which was identical to theirs in respect of DOTAS issues. They added that the claims referred to a defunct product and as such would be removed from their website. They nonetheless pointed out that HMRC had a formal channel under UK legislation in how it dealt with Corporation Tax enquiries.
Assessment
1. Upheld
The ASA noted that the home page for Williams Gordon directly addressed IT contractors and limited companies and considered that the ad’s claims were targeted at traders and businesses including small business owners and the self-employed, such as freelancers and contractors.
We considered that traders would understand from the ad that the arrangement would legally enable to them to “Take home up to 92% of your pay” and that the “monthly market rate gross salary equivalent payment, that will be subject to tax and NI deductions”, to which the ad also referred, would be in line with the tax and national insurance contributions required by HMRC.
We acknowledged HMRC’s understanding of Williams Gordon’s advertised scheme, namely that a contractor was engaged to work for a company, commonly known as an umbrella company and, in this case, the umbrella company invoiced the person or business the contractor was working for, retained its 10% (or relevant amount) and paid the contractor a salary below the Income Tax threshold and National Insurance lower earnings limit, so that no tax or National Insurance contributions (NICs) were payable by the umbrella company to HMRC, with the balance being paid to the contractor in the form of a loan on such terms that HMRC understood it was unlikely ever to be repaid.
We understood that an arrangement which led to a result out of line with normal tax and NICs rates was not accepted by HMRC, who believed that the schemes did not work and that tax was due at the time the schemes were entered into. We understood, for example, because it had been highlighted in HMRC’s guidance “Contractor tax: loan schemes can cost you more” (Spotlight 33), and their complaint to the ASA, that HMRC was investigating and challenging the use of such schemes. Also, HMRC were concerned it might result in those who had used the scheme facing a larger than expected tax bill, because they would be obliged not only to pay the tax, but the interest accumulated on it, as well as potential penalties.
We also understood that the Williams Gordon “tax calculator”, which was found on the website, allowed users to obtain an example of tax payable and take-home income under Williams Gordon’s arrangement, and noted HMRC believed that also led to a result that was out of line with normal tax and NIC rates.
We acknowledged that Williams Gordon did not believe that HMRC’s understanding of their system was correct. However, we considered they had not provided sufficient information to explain the nature of their arrangement, how the arrangement complied with standard income tax and national insurance payments, and would not leave users at risk of a challenge from HMRC. Although Williams Gordon maintained that there were judgements which supported their position, we noted they had not named or provided the judgements, nor explained their relevance to their own scheme or their advertising claims. In addition, we had not seen any further substantiation in support of their claims.
Because we did not consider that we had seen sufficient evidence showing that the scheme promoted by Williams Gordon system complied with the appropriate tax requirements, and would not be challenged by HMRC, we concluded that the claims were misleading and had not been substantiated.
On that point, the ad breached CAP Code (Edition 12) rules
3.1
3.1
Marketing communications must not materially mislead or be likely to do so.
3.3
3.3
Marketing communications must not mislead the consumer by omitting material information. They must not mislead by hiding material information or presenting it in an unclear, unintelligible, ambiguous or untimely manner.
Material information is information that the consumer needs to make informed decisions in relation to a product. Whether the omission or presentation of material information is likely to mislead the consumer depends on the context, the medium and, if the medium of the marketing communication is constrained by time or space, the measures that the marketer takes to make that information available to the consumer by other means.
(Misleading advertising) and
3.7
3.7
Before distributing or submitting a marketing communication for publication, marketers must hold documentary evidence to prove claims that consumers are likely to regard as objective and that are capable of objective substantiation. The ASA may regard claims as misleading in the absence of adequate substantiation.
(Substantiation).
2. Upheld
We considered that traders and businesses, including small business owners, sole traders and the self-employed, would understand that the ads were providing an overview of Williams Gordon’s advertised scheme. From this information traders and businesses could determine whether or not the arrangement might be relevant to their financial and tax arrangements and decide whether to seek further information by contacting the firm. Whilst we accepted that businesses would expect the ads to present the benefits of a scheme, we considered they would also expect Williams Gordon to provide relevant information about the tax implications and risks of entering into the scheme.
We understood that HMRC believed that the advertised scheme fell into a type of tax avoidance scheme referred to as a disguised remuneration (DR) scheme used by employers, employees and the self-employed. We understood further information about DR had been highlighted in HMRC’s guidance “Disguised remuneration: schemes claiming to avoid the new loan charge” (Spotlight 36). HMRC also stated that, at the time the ad appeared, a proposed loan charge would have applied to outstanding DR loan balances from April 2019, although scheme users could prevent the loan charge by repaying the loans or agreeing a settlement with HMRC before the charge took effect. We noted that the loan charge proposal was included in the Finance Bill 2017, but was subsequently removed from the Bill, following the UK General Election in June 2017, although HMRC maintained that there had been a clear message that the proposal would be enacted. HMRC also stated that the Financial Secretary to the Treasury had confirmed, in a written statement to Parliament, that a further Finance Bill would be introduced later in the year, which would legislate for policies dropped from the earlier Bill. HMRC therefore expected it to become law in due course.
We also understood that HMRC could consider whether the General Anti Abuse Rule (GAAR) would apply, which could also involve a penalty or charge.
We acknowledged that Williams Gordon maintained that the DR scheme did not apply in the absence of employment and that the loan charge was not applicable to their product. However, we considered that Williams Gordon had not provided sufficient detail about the way in which the scheme worked or provided any evidence to support the position that omitting information about the DR scheme, the loan charge and/or GAAR would not mislead traders and businesses. Although we noted that Williams Gordon had stated they would amend their website to read “compliant with all UK tax legislation”, which they maintained they were, we did not consider that change would provide sufficient information to traders and businesses to clarify or support Williams Gordon’s advertising claims.
Because, in the absence of supporting evidence, we considered that relevant information about the implications or risks of entering into Williams Gordon’s arrangement should have been set out in the ads, but noted that information about the DR scheme, the proposed loan charge and/or GAAR had been omitted, we concluded that the ads were misleading.
On that point, the ad breached CAP Code (Edition 12) rules
3.1
3.1
Marketing communications must not materially mislead or be likely to do so.
3.3
3.3
Marketing communications must not mislead the consumer by omitting material information. They must not mislead by hiding material information or presenting it in an unclear, unintelligible, ambiguous or untimely manner.
Material information is information that the consumer needs to make informed decisions in relation to a product. Whether the omission or presentation of material information is likely to mislead the consumer depends on the context, the medium and, if the medium of the marketing communication is constrained by time or space, the measures that the marketer takes to make that information available to the consumer by other means.
(Misleading advertising) and
3.7
3.7
Before distributing or submitting a marketing communication for publication, marketers must hold documentary evidence to prove claims that consumers are likely to regard as objective and that are capable of objective substantiation. The ASA may regard claims as misleading in the absence of adequate substantiation.
(Substantiation).
3. Upheld
We noted that the official guidance from the government and HMRC defined tax avoidance as follows: “Tax avoidance involves bending the rules of the tax system to gain a tax advantage that Parliament never intended. It often involves contrived, artificial transactions that serve little or no purpose other than to produce this advantage. It involves operating within the letter, but not the spirit, of the law. Most tax avoidance schemes simply do not work, and those who engage in them can find they pay more than the tax they attempted to save, once HM Revenue and Customs (HMRC) has successfully challenged them”.
We considered that definition was in line with the way businesses, including small business owners, sole traders and the self-employed would understand the meaning of tax avoidance. We considered that traders and businesses would be reassured by the ad’s claims that “… we can now offer Corporation Tax planning to Limited Company Owners. We can help if you have an overdrawn Directors loan account and want to negate the tax liability on this. We can also help if your current year’s Profits will be liable to Corporation Tax and you want to reduce/not incur the tax” and would infer that the arrangement was not a system of avoidance which would be challenged by HMRC.
We acknowledged that Williams Gordon believed that their scheme did not fall under the Disclosure of Tax Avoidance Schemes (DOTAS) and was now a defunct product. However, we also understood that HMRC considered that the arrangements provided by Williams Gordon were likely to meet any reasonable definition of tax avoidance and understood that HMRC could still make enquiries into whether a defunct scheme should have been disclosed under DOTAS. We therefore considered that Williams Gordon should provide documentation to show that the arrangement did not involve tax avoidance.
We noted that Williams Gordon had provided a letter from HMRC to a named business, headed “Disclosure of Tax Avoidance Schemes - Arrangements using a foreign currency loan”, but had not provided any further detail or documentation reflecting the wider context and relevance of the letter, such as the nature of the arrangement referred to in the letter, how it resembled their own scheme, the connection between the named business and Williams Gordon and/or the relevance to their advertising claims. We considered, however, that we had not seen sufficient evidence to show that their advertised scheme did not involve tax avoidance.
Because, we had not seen sufficient evidence to show that Williams Gordon’s arrangement did not fall under DOTAS or any other relevant evidence sufficient to show that the arrangement was not a scheme of avoidance, we concluded that the claims were misleading.
On that point, the ad breached CAP Code (Edition 12) rules
3.1
3.1
Marketing communications must not materially mislead or be likely to do so.
3.3
3.3
Marketing communications must not mislead the consumer by omitting material information. They must not mislead by hiding material information or presenting it in an unclear, unintelligible, ambiguous or untimely manner.
Material information is information that the consumer needs to make informed decisions in relation to a product. Whether the omission or presentation of material information is likely to mislead the consumer depends on the context, the medium and, if the medium of the marketing communication is constrained by time or space, the measures that the marketer takes to make that information available to the consumer by other means.
(Misleading advertising) and
3.7
3.7
Before distributing or submitting a marketing communication for publication, marketers must hold documentary evidence to prove claims that consumers are likely to regard as objective and that are capable of objective substantiation. The ASA may regard claims as misleading in the absence of adequate substantiation.
(Substantiation).
Action
The ad must not appear again in its current form. We told Williams Gordon Ltd to ensure they held sufficient evidence for their claims and to disclose any relevant information in their advertising, such as the implications or risks of entering into a financial arrangement, including a challenge to a user’s tax arrangements by HMRC and the charges which might apply.
