Many hedge fund managers may have been involved in tax planning of one sort or another and for many the introduction will have begun during their time as employees of the investment banks.

Presently, many managers are likely to be feeling a sense of frustration at HMRC’s frequent requests for information. Others may have heard little or nothing: should they be concerned that this is the calm before the storm? This article explores the change of approach adopted by HMRC and what managers should do about it and how it should influence their future behaviour.

At the start of the new millennium, the tax world was a very different place. The risk involved in tax planning was relatively low. Frequently, it was not challenged and if it was, the well advised taxpayer was typically able to achieve a favourable financial settlement. However, following the merger of the Inland Revenue with Customs & Excise in 2004 to form Her Majesty’s Customs & Revenue (HMRC) the environment changed dramatically. The changes have been on three fronts: legislation; strategic approach; and working methods.

Changes to legislation
2004 saw the introduction of tax disclosure rules, which compelled advisers to disclose certain tax planning arrangements to HMRC as soon as they were made available to a client. This has enabled HMRC to counter schemes with new legislation much more quickly than before and has facilitated more intensive and better coordinated enquiries through central oversight.