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The Times v. the Tax Avoiders - Round II

20th Jun 2012
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The big question at the moment is what effect the revelations in The Times newspaper about potentially abusive schemes will have on the tax avoidance industry and HM Revenue and Customs.

The first point to emphasise is that at the moment, we are relying on a series of newspaper articles and the case against those promoting schemes that apparently did not need to be reported to HMRC and are perfectly legitimate is not proven.

However, at the very least there would appear to be a case or two of tax avoidance that on the surface looks as if they might be abusive and could arguably, depending on the facts, constitute evasion.

The amazing thing is that Alexi Mostrous, a latter-day Robin Hood with no tax training working for News Corporation has apparently identified more underpaid tax than half a dozen HMRC-sponsored tax amnesties for plumbers, barristers, eBay traders etc.

Mr Mostrous is to be heartily congratulated by every honest taxpayer for a really tremendous combination of tenacity, nous and writing ability. More importantly, he may also eventually trigger the recovery of billions of pounds of unpaid taxes that might conceivably have been withheld under false pretences.

If the explanations in The Times are accurate, it appears that the first scheme currently being promoted which involves loans to employees and an Employer Funded Retirement Benefit Scheme (EFRBS). This has been countered by the disguised remuneration legislation, if it ever worked in the first place.

Today’s article refers to a partnership to invest in the music industry and may also be taking loopholes a step too far.                                                                                                               

In the commercial world, there is no question that organisations such as News Corporation or Apple would capitalise on such a consumer coup to boost profits and please shareholders.

It will be nice to feel complete certainty that having been handed what might be as much as £½ Billion on a plate, the taxman would follow the fine example of a single, high quality investigative journalist and launch a major investigation not only into the organisation alleged to have created tax avoidance schemes that are abusive but also all of their rivals who are doing similar things.

With the financial constraints on staffing, leading to 13,000 (close to 20%) more employees disappearing in the current redundancy programme, mostly at the senior end, there has to be a fear that HMRC will not do anything at all. That would not be so much a crying shame as gross negligence. It does however seem from today’s paper and the comments of Treasury Ministers David Gauke and Danny Alexander as if this might actually be the case.

In passing, it is pleasing to see David Aaronovitch in The Times today addressing the question raised on AccountingWEB yesterday as to whether tax avoidance is moral and coming to the same conclusions. His conclusion is that “I would like to see a Scandinavian-style public declaration of tax returns – they should be shamed and ridiculed by the rest of us”. Again we got there first but it would be much better to have everyone paying the right amount of tax in the first place.

It would be great to see Dave Hartnett making a final stand before retirement and launching a major project to investigate this industry, clean up any wrongdoing and bring in those billions that the country so desperately needs in the teeth of recession.

Who knows, if all goes well, George Osborne might find himself in a position to reduce (increase for those tax avoiders) the top rate of income tax to 40% rather than 45% next April, at the same time as he raises the personal allowance to £15,000. Realistically, many of these cases are likely to go to court so it could take a little longer to achieve this dual Nirvana.

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By Paul Soper
21st Jun 2012 08:33

Disguised remuneration?

It is surprising tin press comments on the so-called K2 scheme, used by Jimmy Carr and others, that no mention has been made of the disguised remuneration rules which would seem to counteract this scheme, in fact may well have been designed to catch this scheme specifically.  One feature of the K2 is resigning from a previously held position, and disguised remuneration is aimed at employees PAST, present and future, a third party, the new offshore employer takes a relevant step, the loan to the employee, which is paid in connection with a tax avoidance scheme or arrangement, it is clearly intended to be a non-recourse arrangement and it is reasonable to suppose (the wording of the legislation) that the sums are intended to represent remuneration.

I'd have thought HMRC would have been saying "GOTCHA" in large letters rather than allowing journalists, broadcasters and members of the public to complain that they have taken no action to clamp down on avoiders.  Naturally the proposed new GAAR, the general anti-abuse rule, should catch this sort of arrangement in the future.

Have the promoters of K2 spotted a genuine loophole in the disguised remuneration rules?  If so shouldn't prompt action be taken to close it?  Given the failure of many artificial film schemes recently I'd not be surprised if today's revelations (which I haven't read yet, are similarly already caught...

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