Advisers lead rearguard fight against avoidance rules

An alliance of tax advisers is urging accountants and business people to join their campaign against Draconian measures set out in last month’s Tackling marketed tax avoidance consultation document.

The campaigners argue that the profession is in danger of sleepwalking into a significant loss of tax rights by not challenging proposals that are being fast-tracked into the 2014 Finance Bill.

The consultation document published on 24 January undermined fundamental principles of British justice, argued Douglas Aitken, tax director at specialist consultancy Peak Performance.

“It’s far more fundamental than tackling nasty tax avoiders,” he told the audience at the 2020 spring conference in Coventry on Thursday.

“I urge you to read it. It’s like police stopping a blue car for speeding and deciding that every blue car has been speeding. Then saying, ‘Let’s go back for the last 10 years and assume every blue car was speeding and retrospectively apply a fine to them.’

“And there’s no right of appeal. That’s what’s coming in with that consultation document...

Continued...

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John Stokdyk's picture

They are not alone    1 thanks

John Stokdyk | | Permalink

Just after I had completed this article, I got an email from the UK200Group of independent accountancy and law firms setting out its opposition to the measures. The statement argued that the Treasury is proposing to clear a backlog of 65,000 tax avoidance cases dating back to 2004 by making people pay disputed bills upfront.

Here is a shortened version of the diatribe against the consultation document from Cormac Marum, a former inspector of tax and now head of tax advisory at UK200Group member firm Harwood Hutton:

“These proposals are completely and utterly unacceptable and highlight just how far the Treasury has ‘lost the plot’ on tax policy. Treasury ministers are not being told the truth by officials and, in consequence, they are in danger of misleading Parliament if they proceed on this basis.

“The tax authorities never have been, are not, and never should be the sole arbiters of the tax law in this country. It is the independent tribunals and courts instead who are the arbiters of tax law in this country. That is a principle which has long stood the test of time. It is a ‘golden rule’ and should never be broken.

“These proposals are directed against taxpayers who have followed the letter of the existing law based on professional advice. It is wholly unacceptable for HMRC to blame taxpayers and their advisers for delays in tax investigations when all of the delay is down to HMRC officials. To claim otherwise is a deliberate falsehood.  HMRC then want the power to decide arbitrarily that a particular taxpayer’s case has to be decided, not by the facts of the particular case, but on the facts which HMRC officials deem to be similar. HMRC offers no independent appeal against this arbitrary decision. It is indeed demanding to be investigator, judge and jury on the matter.

“HMRC may have won more than 80 per cent of the avoidance cases it has litigated.  This is based on 32 wins in 40 cases heard. Most of those wins have been on questions of implementation, not on matters of principle. HMRC effectively chooses which cases go to court and, quite reasonably, it chooses those cases where it thinks it has the best chance of winning. There are, however, 65,000 cases under enquiry according to HMRC. Why has HMRC not taken the majority of these to court? The answer is because it knows that it won’t win the overwhelming majority of them.

“HMRC has existing powers regarding ‘postponement applications’ which it can use in cases of disputed tax, but it refuses to use them. Perhaps that’s because those rules provide for independent judicial oversight, which HMRC currently finds unwelcome...

“The last time we had forced loans taken from taxpayers was with Ship Money under Charles I and that led to the English Civil War. These proposals are nothing short of the modern day equivalent.”

While the campaigners all make salient points about retrospection and the right of appeal, do you think they will get a sympathetic hearging beyond the professional sphere?

robertlovell's picture

Berwin Leighton Paisner view

robertlovell | | Permalink

Kate Ison and Aude Delechat of international law firm Berwin Leighton Paisner have also written for AccountingWEB on this topic.

On what needs to chage, they said: 

"These powers go too far. Let us hope that the conflicting comments about taxpayers getting their money back more accurately reflect the underlying policy and the legislation that we see in the Finance Bill is significantly improved."

Read the full article.

Rule of Law!

anthony.tax | | Permalink

It is a fact that for the UK tax system to operate efficiently and effectively there must be mutual trust between taxpayers, the tax profession and the fiscal authority. There must also be confidence that the law is applied equally to all and not in an oppressive manner. The rule of law is the foundation of everything we do in tax and these proposals are at risk of damaging the crucial trust that should exist between citizen and state. The two Lord Bingham principles which should not be ignored are:1) Ministers and public officers at all levels must exercise the powers conferred upon them in good faith, fairly, for the purposes for which the powers were conferred without exceeding the limit of such powers and not unreasonably. 2) Questions of legal right and liability should ordinarily be resolved by the application of the law and not by the exercise of some discretion of some official. The truth of the matter is HMRC is so under resourced that it is incapable of doing the job without recourse to provisions which are dressed up as temporary measures.  We all know these will likely have wider application within a short time scale as staff numbers further reduce, Such sweeping HMRC Powers are fundamentally wrong without essential checks and balances being in place and capable of challenge. What is really needed is a well staffed Revenue authority and not some easy legislative cop out for inadequate under funding. 

ShirleyM's picture

I'm not saying this is the best method    9 thanks

ShirleyM | | Permalink

Marketed tax avoidance schemes that are aggressive and rely on artificial methods to avoid  tax, do need to be tackled, and fast.

I can understand that the promoters, and introducers, are going to complain loud and long whenever there are measures introduced to clamp down on artificial tax avoidance, because they are getting extremely rich at the expense of the country, and the people who do pay tax.

There has to be a damn good deterrent, which we do not have currently. Even when a fully artificial scheme fails, there isn't much more to pay than the tax that would have been due anyway. That isn't much of a deterrent at all!

Even when a scheme fails, it costs the country a vast amount of money in HMRC costs, legal costs & court costs. The country needs this money for more beneficial purposes.

We need an effective deterrent. Instead of complaining about the proposals, why don't they think of ,and  recommend, a solution? Or would they prefer to allow unfettered avoidance?

johnjenkins's picture

I'm with you    3 thanks

johnjenkins | | Permalink

all the way ShirleyM, However, (there had to be one) it is not right that HMRC can side step legal processes. Rather than side step, perhaps a special tribunal made up of Tax advisors, HMRC officials and people like us (who can tell the difference between real and artificial) to deal with the backlog initially, with the hope that these schemes will become a distant murmer.

ShirleyM's picture

Good idea John    2 thanks

ShirleyM | | Permalink

Persuade them to set one up, and I'll volunteer. Can I set the penalties, too?  :)

Joking apart, do you think they propose such ridiculous ideas knowing it won't get approved, and then they can say 'they tried'. I often wonder if it is all spin to make themselves look 'proactive', but in reality they don't want to upset the people/business that use aggressive avoidance. When they close a scheme down the members just get a tiny slap on the hand, rather than a good kicking. It isn't good enough.

So symptopmatic of Britain today    1 thanks

Roland St Clere... | | Permalink

Where freedom and democracy are being eroded by the transfer of power from the people to unaccountable opaque organisations such as  HMR & C, the police and security services.

These organisations demand more and more power preying  either on people's fear of terrorism and crime or stoking up anger at tax evasion and avoidance.

We should be far more concerned about the police, security services and HMR & C than ever we should about terrorism and tax evasion.

 

 

Scams    3 thanks

steve kerby | | Permalink

The tax promoters have said that they will fight each and every case even where they have lost.These schemes border on "shams" and every other tax payer including myself is paying additional tax .This is tying up the system so that genuine tax payers who have a case are waiting to sort out their tax affaires

If the Promoters are are so convinced that there schemes work what is wrong with them paying the tax up front-at the end of the day if they win they will get interest on the overpayment.It is more likely that tax payers will correctly shy away from such schemes if they have to pay tax upfront and then wait several years to possibly recover this tax.The Promoters might also respond more quickly and honestly to HMRC letters if they want the situation resolved quickly!

I have never understood how HMRC can be expected to believe that shareholders are putting large amounts of monies into say an EBT for the benefit of their employees and then strangely funds never go to the employees but were lent back to the shareholder.The only people crying about these proposals are the Promoters.The genuine honest accountants are cheering.

 

I would really like to sit on a committee but sadly would not happen and even then would need to be referred elsewhere. 

 

Fraud    2 thanks

kssco | | Permalink

I've read quite a lot, including some of the judgments, about schemes that have recently come before the tribunals and courts.  It seems to me that the promoters and their clients of the more far-fetched schemes, such as the second-hand motor cars, could be accused of conspiracy to defraud the public revenue.  I would have no hesitation in seeing this as criminal activity.

Comerciality    2 thanks

KungFuKipper | | Permalink

The problem with this kind of law is that it will impact upon commercial decisions taken by companies and so goes too far. HMRC are poor arbiters of good commercial sense - they exist by propagating themselves and are driven by maximising revenues at the point of collection only and not by maximising revenue by the promotion of a good and sustainable commercial environment. Squeezing until the pips squeek, does not grow a good orange.

From a tax perspective the rules (as I read them) go too far.

From a commercial perspective this could be very damaging.  Businesses need certainty and a freedom to act - if HMRC can change their mind whenever they want, any decision a business makes can be wrong and their isnt anything you can do about it.  If you cannot strive to organise your business as efficiently as possible in this country - businesses may go elsewhere, I know I would!

Last November, the implementation of rules requiring offshore trustees in the Crown Dependencies to report all transactions to UK Taxpayers to HMRC overturned the principal of confidentiality that has survived hundreds of years under common law. This goes further - if it was a 'right to roam' the ramblers would be up in arms, why are we not?

Less protection under law than terrorists, murderers etc    3 thanks

cranditz | | Permalink

These proposals would mean that those who (in many cases) entered into entirely robust and legal schemes would be completely hammered and their lives ruined without any robust basis under law or right of appeal.  Even terrorist, murder and paedophile suspects are  considered "innocent until proven guilty", have a right of appeal and have basic protection under the law.  To treat tax avoiders in the manner proposed in this consultation is deeply sinister and should be considered only the "thin end of the wedge" - they must therefore be fought vigorously at every possible level.  Such proposals would not be out of place in George Orwell's 1984.... 

Or they could just drop the rates of income tax.....

shoshana | | Permalink

Instead of tackling the effects, the Government could quite easily tackle the cause and reduce the income tax rate to a flat 20% for all, just like they have done for companies.

Of course, Labour would seize on this as making the well-off better off, but in reality it would increase the tax take (reducing national debt) and reduce the motivation to implement tax avoidance schemes.

If only politicians had cojones, instead of only worrying about being re-elected next time and therefore spouting populist drivel.

Malcolm

Banks    1 thanks

kssco | | Permalink

Another thought is the banks in CI or IOM who play a pivotal part in many of these schemes by making "loans" to clients they don't know, at the behest of dodgy promoters and where is is manifest that there is no bona fide commercial purpose.  Which is to say that the bank's only commercial purpose is to make a fat fee for not doing very much.  The Treasury might find that they are susceptible to a modest amount of pressure to keep away from this sort of thing.

ShirleyM's picture

So ...    1 thanks

ShirleyM | | Permalink

shoshana wrote:

Instead of tackling the effects, the Government could quite easily tackle the cause and reduce the income tax rate to a flat 20% for all, just like they have done for companies.

Of course, Labour would seize on this as making the well-off better off, but in reality it would increase the tax take (reducing national debt) and reduce the motivation to implement tax avoidance schemes.

If only politicians had cojones, instead of only worrying about being re-elected next time and therefore spouting populist drivel.

Malcolm

Do you mean that companies don't (or won't) 'dodge' tax any longer now it's reduced to 20% for all? Your theory is a myth. The companies & individuals with no social conscience will always look to pay zero tax, but they would probably find it more difficult to find a scheme promoter as it will be less profitable for them.

oh dear that

justsotax | | Permalink

old chestnut...or theory...well myth.  Perhaps with that in mind we can reduce the BR rate down to 5%....that way all of the tradesman who currently take cash for various jobs will stop and in future declare the money.  Of course not, as ShirleyM suggests those who wish to pay no/low tax will continue to do so in whatever way they can, if I were J Carr would I be happier paying 1% or 20%, now that's a tough one!

ShirleyM's picture

The sad part is ....    1 thanks

ShirleyM | | Permalink

If so many tax payers didn't doge tax, then the tax rate could be much lower for all, but that's just a pipedream, too!

Banks    1 thanks

KungFuKipper | | Permalink

kssco wrote:

Another thought is the banks in CI or IOM who play a pivotal part in many of these schemes by making "loans" to clients they don't know, at the behest of dodgy promoters and where is is manifest that there is no bona fide commercial purpose.  Which is to say that the bank's only commercial purpose is to make a fat fee for not doing very much.  The Treasury might find that they are susceptible to a modest amount of pressure to keep away from this sort of thing.

 

The Crown Dep banks have been withdrawing facilities for fear of upsetting HMRC for some time - since when should we proceed in fear of HMRC? Comply with what we tell you is unacceptable and NOT what the law states is so, and all is well.  That flies in the face of everything I have ever been taught.  The rules are written down, if there is an argument about those rules you argue it out in court, if you still don't agree you appeal. Anything less is guilty from the start without right to appeal = police state (it might only be financial police, but police state none the less). I for one value my freedom.

Not wanting to get too melodramatic but our forefathers fought for our rights to freedom without the state interfering in our affairs so long as we were just and honest people.  We surrender these freedoms at our peril - and for the first time in years, I genuinely believe an attack on our freedom is being launched - if I was American, I would be retreating to the woods, buying some guns and waiting for the feds to arrive. 

Everything from buying wine in France to choosing a Ferry to go there to avoid airport duty to filling up with fuel the night before a rise in duty is avoidance - what next? What they really want to stop is marketed schemes - sorry, if you cant do this within the framework of the law that is the law's fault and the best solution to that is to simplify.  Will they ever do that though ? No it keeps to many cumbersome government departments in business.

Anyone own any woods they want to sell (sure there is a tax scheme in that somewhere?)

Rearguard action    3 thanks

barneswedge | | Permalink

Totally disagree, it is about time these people that spend their entire time think up artificial ways to avoid paying their fair share of tax were shut out. The ordinary guy on £25k a year has no choice he just pays what HMRC tell him must through PAYE, judge jury and executioner.

Government deficit financing??

taxguru | | Permalink

Upfront payment:

It's a smart move - in one single stroke HMRC seem to have solved the cash-flow problem for the government 65000 x £££ = £££££££££...!

 

Follower notice:

HMRC are assuming judiciary powers which would be setting a dangerous precedent?

20% is not enough    2 thanks

jholmes | | Permalink

I used to be one of these accountants that sell tax avoidance (though never an EBT!), and the last time i checked, i thought it was our job to ensure that our clients paid the least amount of tax that was legally allowed. Any person who pays into a pension scheme is avoiding tax, but, we are lead to believe that is some how ok because it is mainstream and socially acceptable (btw i am not suggesting that using a scheme purely to avoid tax is the same as using a pension fund).

I agree with shosana, the only way to really stop the tax avoidance is to make the tax system simpler and more effective. Though 20% is, IMO too low. If it were up to me I would increase the pa and the bring back the old CT band to £15k and then scrap NI and make any income over that £15k liable to a 33% tax. That would give those on low incomes enough and then anything else (be it salary, profit, whatever) would face the same tax. Then there would be no benefit in trying to structure things differently, and the tax take would increase. Don't get me wrong, i do not believe this will ever happen (and i also don't think this would be a perfect system either).

Hysteria    2 thanks

AndyC555 | | Permalink

It says much about the hysteria whipped up over tax that it is now accepted as 'fact' that rich people and large companies pay no tax because they are somehow cheating, this despite the fact that the wealthiest 1% in the UK (in income terms) earn 13.7% of all income but pay 29.8% of all income tax (this up from 11% and 21.3% a decade ago). That wealthiest 1% pay tax/NI which accounts for 7.5% of ALL tax of ALL kinds paid in the UK.  If the rich are really employing all these clever accountants so they pay no tax, it doesn't seem to be working all that well.

Meantime screeching voices complain about companies based abroad who sell to the UK but pay no tax here, seeming to have forgotten that there are plenty of UK companies who sell abroad but pay tax here in the UK and not abroad.  It's not tax avoidance, it's how it's supposed to work. The idea of having to file tax returns under different tax rules in every country you sell to would cripple international trade for small companies*.

Virtually every argument you read on changing this or that tax law or withdrawing this or that tax relief seems to rely on there being no change to people's behaviour and no flip-side to the change. Recent hysteria over the Substantial Shareholding Exemption being a case in point ignoring that we brought the rule in because other countries already had it and in any case just as gains aren't taxed so losses aren't allowed so you can't look at one transaction, extrapolate it wildly and then say that if you changed that rule it would bring it £X billion and we'd all live happily ever after.

 

 

*and before someone suggests a turnover test, yes, great all you now have to do is prove your turnover under different accounting rules in every country you want to sell in every year you want to do it