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HMRC try to redefine Tax Avoidance

I know it's an old chestnut but really ...

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The last official word I can find on 'avoidance vs evasion' was by the House of Lords Economic Affairs Committee in their 2013 report on the Government’s proposals for a ‘General Anti-Abuse Rule’ – or GAAR.  The Committee cited Mr Gauke’s distinction between avoidance and evasion:

"The Government have not published a definition of avoidance.  However it is widely understood to entail taking a view of the tax treatment of a transaction that is tenable but has tax consequences that were not intended by the legislature.  This does not prevent taxpayers organising their affairs in an efficient manner, consistent with the intentions of the legislation.  Tackling tax avoidance is essential and we make every effort to do so.  The Government consider the economic efficiency of tax measures as part of the tax policy-making process."

And the Committee went on to quote the evidence of Ms Judith Knott (then HMRC Director, Corporation Tax International Anti-Avoidance) in her appearance before the Committee:

"What we mean by legitimate tax planning is tax planning that is very much in line with Parliament’s intentions when it passed the rules.  A good example would be putting cash into an ISA account.  That is legitimate and what Parliament intended to happen.  Avoidance, on the other hand, is behaviour that seeks to bend the tax rules in a way that Parliament did not intend.  It is often accompanied by artificial transactions—trying to seek a result that was not intended."

Why am I re-hashing this old topic?  Because, leaving aside the lack of practical definition provided in those responses from the Treasury and HMRC, the latest issue of HMRC's Agent Update contains the following brief article:

"Tax avoidance:
Anyone employed through agencies and umbrella companies should be careful they’re not getting drawn into tax avoidance.  Many umbrella companies are compliant with the tax rules but some use tax avoidance schemes.
Tax avoidance schemes do not work, including those that may claim to be tax efficient or offer to increase your take-home pay.  They sometimes carry high, non-refundable fees and are often provided by, or through, offshore promoters."

So HMRC appear now to have moved from a fuzzy delineation that they invented (between two 'types' of tax evasion - those in line with and those not in line with Parliament's intentions) ... to a categoric statement that "Tax avoidance schemes do not work", which is demonstrably not true (even if HMRC wish it were so).

Why does this matter?  Because in the same way that the stock-market is driven by and dependent on confidence, the operations of tax reporting & collection are dependent on a degree of mutual trust between all the relevant parties.  The level of trust in HMRC by taxpayers is already worringly low, and I dread to think what would be the score if you surveyed accountants & agents (even before the advent of MTD for ITSA), so public pronouncements that are (intentionally) wrong will exacerbate the situation ... NOT lead to people going "Oh so that's what HMRC mean, I'd better not use any available avoidance facilities"!

Replies (18)

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By David Ex
15th Oct 2021 12:30

I was always amused and appalled when reference was made to “tax consequences that were not intended by the legislature”.

How’s about we get ourselves a legislature capable of correctly enacting their intentions. As with MTD for IT, the problem begins and ends with people making lawns who have zero real world experience. “Why would anyone want to pay less tax?”, they cry!!

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Replying to David Ex:
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By Hugo Fair
15th Oct 2021 12:56

Thanks for the (unintended) reminder to go and re-make my lawn (it needs it)!
But exactly ... since when are civil servants (HMRC employees) allowed to determine what the legislature intended - but failed to state in the legislation)?

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Replying to Hugo Fair:
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By David Ex
15th Oct 2021 13:01

Hugo Fair wrote:

Thanks for the (unintended) reminder to go and re-make my lawn (it needs it)!

Still been growing with the recent mild weather!!

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Replying to Hugo Fair:
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By More unearned luck
15th Oct 2021 13:45

The intention of Parliament is to be gleaned from the words they use in an Act or SI (otherwise what would be the point of of an Act or SI if the law was really contained in Hansard, ministerial statements, Gov.uk, HMRC manuals etc), subject to the rule in Pepper v Hart.

The rot set in when tax statutes started to be interpreted purposely, which usually means purposely when it suits HMRC and literally when it doesn't.

In another thread a case called Reeves has been mentioned. The tax at stake was £33m due or not based solely on the interpretation of the law. This can't be avoidance simply because HMRC lost.

HMRC shouldn't be allowed to have their cake and to eat it. They insist taxpayer A has to be pay a plainly unfair tax charge because the law says so, while taxpayer B shouldn't get relief that the says is due because they think the relief is unfair.

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Replying to More unearned luck:
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By Hugo Fair
15th Oct 2021 16:24

The voice of balanced reason, which is sadly missing from HMRC's approach.

FWIW my extracted quotes in OP were taken from "Briefing Paper number 7948, 13 April 2021 - Tax avoidance and tax evasion" as lodged in HoC Library.
For those with an unquenchable thirst to know more (it's 152 pages), there are some interesting points made ... https://researchbriefings.files.parliament.uk/documents/CBP-7948/CBP-794...

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By Paul Crowley
15th Oct 2021 12:52

If only HMRC would state the truth
Tax avoidance is legal until the rules change
Everyone avoids tax when paying for a pension
Tax avoidance is clearly compulsory.

Who the F do HMRC think they are.
Parliment decides the rules

It is not for HMRC to decide which avoidance they approve of and which they do not

If they do not like a scheme then tell Boris to change the rules

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Replying to Paul Crowley:
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By Hugo Fair
15th Oct 2021 12:58

Exactamente (or whatever the Latin equivalent is) as Boris would say!

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Replying to Hugo Fair:
By SteveHa
15th Oct 2021 13:18

Boris wouldn't say anything about the issue. He'd answer a question about something completely unrelated that wasn't asked.

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Replying to Hugo Fair:
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By spilly
15th Oct 2021 13:20

It’s exactus. Simples.

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Replying to spilly:
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By Hugo Fair
15th Oct 2021 13:29

Well ... it's actually one of those delightful words in Latin which has many (over 20 I believe) different meanings - including (rather sublimely in the case of Boris) 'exacted' or 'driven out'!

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Replying to Paul Crowley:
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By I'msorryIhaven'taclue
15th Oct 2021 13:19

Paul Crowley wrote:

Who the F do HMRC think they are.
Parliament decides the rules

It is not for HMRC to decide which avoidance they approve of and which they do not

It's a bit of a hijack of the Literal v Golden v Mischief rule interpretations of statute. I blame Cameron for encouraging such after-the-event skewed interpretation of avoidance during his tenure.

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By SXGuy
15th Oct 2021 14:22

So parliament dictates what is or isn't an OK avoidance of undue tax? Right OK.

When are we going to call it what it is, and what it is, is paying the right amount of tax based on the law you operate under?

If that means I pay less tax than my twin who does the same work and earns the same money, well that's his or hers problem not mine. And it certainly doesn't mean I should pay more to make them feel better.

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Replying to SXGuy:
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By Paul Crowley
15th Oct 2021 15:02

Correct
But then you probably paid fees to get it sorted
You got BR tax relief or possibly no tax relief and the seller paid tax at the highest rate, but only if a UK seller

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RLI
By lionofludesch
15th Oct 2021 14:58

"Widely understood" by whom ?

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Replying to lionofludesch:
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By Paul Crowley
15th Oct 2021 15:06

Not HMRC underlings, that is for sure

A bit like MTD
So far only one client knew it existed, but probably because I mentioned it last year.

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Replying to lionofludesch:
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By Hugo Fair
15th Oct 2021 16:13

One of those phrases beloved equally by the lazy and those without any facts to support their point of view ... along with "It is reported that" and "I am told that" - each of which also fail to say by whom!
And of course all the other types of unquantified window-dressing, like "Research shows that" and "There is a common consensus that" ... I could go on, but then it would look like I'd attended one of those courses for Politicians. :-)

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Replying to lionofludesch:
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By More unearned luck
18th Oct 2021 18:51

You're in danger of appearing to not to know the contents of the PCRT.

I'd take it back an order - "it is widely understood that HMRC and the authors of the PCRT define tax avoidance to entail...". What is genuinely widely understood is that the boundaries between my planning, your avoidance and their unacceptable avoidance depends upon where you are standing. When it comes to SDLT planning which of us would not advise our client to buy shares from the shareholders rather than the property from the company? Yet the media hints that the Blairs did something unacceptable when they did exactly that.

The BBC widely reported the Blairs' 'property' purchase because it thinks they did something wrong (as surely it wouldn't report merely out of prurience). Yet as is apparent from various IR35 cases it encouraged presenters to set up PSCs to save, at least in some of the cases, the BBC secondary class 1 NIC on the presenters' pay.

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By adam.arca
16th Oct 2021 08:14

We, nominally, live in a free society and one of the hallmarks of that is that the legal system allows you to do what you want unless it says you can’t (very simplistically). The Revenue are trying to turn this on its head and state that you can’t do anything unless they, or someone they approve of, has said that you can.

Regardless of your view on the tax avoidance industry (my view is that they are parasites), what the Revenue are aiming for is one of the traits of a totalitarian regime and we as a society risk throwing the baby out with the bath water if their wishes are given any truck by HMG. Unfortunately, as I commented on one of the MTD threads recently, HMG have made a deal with the devil as regards HMRC: endless new powers available simply when asked for is the price we all pay for the downsizing and skill reduction suffered by that benighted organisation.

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