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Avoidance: Unfair Advantage

Institute of Taxation responds to tax avoidance consultation

Last week the Chartered Institute of Taxation (CIOT) published their response to HMRC’s consultation document, ‘Tackling marketed tax avoidance’, which sparked much debate amongst the readership of Contractor Weekly when reported on recently.

The consultation proposes to require individuals to pay tax in dispute during an enquiry or appeal relating to tax avoidance and the CIOT were disappointed that HMRC only provided a month to respond to such an important consultation when Cabinet Office guidelines recommend a 12 week or longer period for a ‘new and continuous’ policy.

Follower Notice

In cases where there has been a final judicial decision in another case on the same or similar arrangements, HMRC want to issue a ‘Follower Notice’ in order to get their hands on the tax earlier. The notice will require a person to amend their tax return or agree to settle on the basis that the likelihood of the taxpayer’s scheme succeeding is remote.

Whilst the CIOT supports this idea in principle they cannot accept this should be achieved by removing a taxpayer’s normal safeguards and rights of appeal. Handing HMRC almost unparalleled executive powers to decide who falls foul of these provisions is not conducive with a “sensible balance of rights” between taxpayers and the Revenue.

If legislation is passed in its proposed form then the CIOT believe that:

  • HMRC should issue comprehensive guidance at the same time the Finance Bill is published to indicate what situations are to be challenged by these new rules; and
  • there should exist an expiry clause after say 3 years as the exceptional circumstances that are currently in existence will be dealt with in that time.

DOTAS

Consternation exists within the CIOT that those schemes reported under the Disclosure Of Tax Avoidance Schemes (DOTAS) are to be included in the accelerated payment proposals as this amounts to retrospective legislation. That a scheme has been disclosed to the Revenue indicates an intention to be open and transparent with HMRC. Such a huge extension of HMRC’s powers without safeguards to those taxpayers who have been open with the Revenue is unjustified. It would be much fairer therefore to have these provisions apply to arrangements put into place after the Finance Bill receives Royal Assent.

Where HMRC receive the tax up front then what incentive is there for them to progress unresolved cases? HMRC should therefore commit to improving the management of open avoidance cases, so these can be resolved through the normal judicial process as quickly as possible.

Payment Notices

This will be issued alongside the ‘follower notice’. The ‘follower notice’ has a 90 day response time, after which the accelerated payment of tax would become due.

If a person agrees to settle the dispute then the Payment Notice will be discharged once the settlement has been concluded and the tax paid. Otherwise, the Payment Notice will become due for payment and pursued by HMRC.

It is questionable as to whether new legislation is needed here as the Institute believe HMRC already have sufficient powers to deal with this situation.

A Payment Notice will be issued to the best of an HMRC officer’s information and belief with very limited right of appeal by the taxpayers. In these circumstances, why should a taxpayer be required to pay an estimated amount of tax when the Revenue can’t be bothered to quantify the correct amount? HMRC should therefore work with taxpayers to calculate the payment amount before issuing the Payment Notice.

Overpayments

Where a taxpayer has made an accelerated payment of tax that is subsequently found not to be due and therefore repaid, the CIOT believes HMRC should consider paying an enhanced rate of interest on the repaid tax.

It won’t be long before we find out if HMRC is prepared to listen to reason.

By Andy Vessey

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1 thought on “Avoidance: Unfair Advantage”

  1. Chilli

    Instead of spending money on expensive investigations and disputes why doesn’t HMRC counteract the scheme sales and marketing by educating people and providing guidance. Most people want to operate within the rules but unfortunately don’t do enough research. They rely on what the scheme promoters aka “tax experts” tell them.

    Furthermore, instead of discouraging use up-front HMRC helps to promote it. Users are enrolled by HMRC and provided with registration numbers; Scheme marketers use this to “prove” the legitimacy of their schemes, for their users required to fully declare and register use of the scheme with HMRC. The reality is that the taxpayer and HMRC are registered and on course for a dispute, while scheme promoters continue on their merry way, with no recourse or accountability.

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