Tackling tax avoidance

Hartley Foster, Tax Partner, Olswang

In June 2010, “Tax policy making: a new approach” was published by HMRC and the Treasury. This consultation paper set out the Government’s approach to maximising the prevention of avoidance. Following on from that paper, the Government has proposed a number of measures, and provided further explanation of the four categories of work that it has described as “legislative defences” to avoidance. These are:

  • a new proposal to reduce the cash flow benefits that it considers taxpayers can gain from using high risk avoidance schemes;
  • a rolling programme of reviews on high risk areas;
  • evaluating whether a General Anti-Avoidance Rule (a “GAAR”) should be introduced; and
  • the introduction of specific anti-avoidance measures.

A study group (led by Graham Aaronson QC) to advise on whether a GAAR should be introduced was set up in December 2010. It has been indicated that the group will report its conclusions by 31 October 2011, and that, in the event that the Government decides that a GAAR should be introduced, there will be further formal consultation. As the introduction of a GAAR is an issue that divides the tax profession (and, indeed, HMRC), it is anticipated that this would lead to significant debate. This is, of course, by no means the first time that the introduction of a GAAR  in the UK has been considered. In 1997, the Tax Law Review Committee, in their report on Tax Avoidance, recommended a GAAR. Since then, the tax system has become significantly more complex, the Disclosure of Tax Avoidance Schemes rules have been introduced and expanded, and there has been much specific anti-avoidance legislation introduced. Watch this space …

The Government considers that a minority of tax avoiders exploit the cash flow advantage of retaining tax during a dispute over liability; and it considers that this bestows a systemic advantage on ‘tax avoiders’. The way in which the Government intends to reduce this behaviour is by “encouraging” users of schemes that it has listed to pay the disputed tax earlier than is currently required or face an additional charge for late payment of the tax when it is found to be due. A consultation document will be published in May 2011 with the aim of introducing legislation in Finance Bill 2012. It is considered that the number of businesses and individuals who behave in this way must be small. Assuming that the dispute is allocated to the complex track, a taxpayer who loses his appeal before the First-tier Tribunal has to pay HMRC’s costs (and their own professional and legal costs), the tax at stake and interest. Also, taxpayers have to engage in the litigation process. In my view, few taxpayers deliberately take hopeless cases to the tribunal purely as a delaying mechanism against paying the tax when it fell due.

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