Avoidance and court decisions

Graham Chase, Tax Partner, CMS

Tucked away under the heading “Tax Administration” is a proposal to consult on how court decisions in favour of HMRC are followed up. The proposal looks to be quite straightforward – a taxpayer who has used an avoidance scheme and filed returns on that basis will be required to consider the impact of another party’s litigation (in other words a win for HMRC) and where appropriate amend their return and pay tax, or confirm that they stand by the return as submitted. In other words such taxpayers will have ongoing filing obligations, essentially to have regard to case law developments where another party has used that avoidance scheme. A failure to amend will attract a tax geared penalty, if the taxpayer fails to take reasonable care.

I see the merits of HMRC’s position, if taxpayers engage in avoidance schemes then why not impose a continuing self-assessment obligation backed with a suitable stick to encourage settlement? If the proposal is implemented then it certainly increases the pressure on avoidance scheme users, as well as their cost of participation.

But I also see some real difficulties for taxpayers. Presumably they will have to assess the merits of their avoidance scheme, having regard to its particular facts and circumstances, which may not be known in any detail by the taxpayer, in the light of case law developments relating to other taxpayers. A review of recent avoidance cases highlights the importance of the facts – as found by the Tribunal, the evidence for which may depend upon the performance of relevant witnesses on the day.

It will I think be difficult to strike a suitable balance.

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