Tax Avenger Says Shame Them

Margaret Hodge, chair of the Public Accounts Committee (PAC) and recently crowned 'Tax Prat of the Year' by Taxation magazine, believes promoters and users of tax avoidance schemes should be “named and shamed”.

Hodge was speaking after the publication of the PAC's report, 'Tax avoidance: tackling marketed avoidance schemes', which recorded that the government's coffers were deprived of £5 billion through tax avoidance in 2010/11, with approximately £10.2 billion currently at risk.

The PAC chair said, “Promoters of ‘boutique’ tax avoidance schemes like the one brought to our attention by the case of Jimmy Carr, are running rings around HMRC.”

“They create schemes which exploit loopholes in legislation or abuse available tax reliefs ……then sign up as many clients as possible, knowing that it will take time for HMRC to change the law and shut the scheme down.”

"Their clients can then take advantage of this window of opportunity to make a lot of money at the expense of the taxpayer, while the promoter simply moves on to a new a scheme and repeats the process. It is a game of cat and mouse and HMRC is losing.”

HMRC were criticised for allowing a “system to evolve where the die are loaded in favour of the promoters of tax avoidance schemes” and that the department needed to get a stronger grip on the volume of avoidance cases it is investigating and seek to reduce them. Quicker investigation of cases would act as a deterrent to those contemplating using tax avoidance schemes and reduce the advantage to those who participate in them. Hodge also believes that HMRC should “publicly name and shame those who sell or use tax avoidance schemes in order to discourage such activity”, in an attempt to stir up public opinion thereby making avoidance schemes less appealing to corporate users and promoters.

Many promoters have escaped fines for not disclosing their schemes by claiming that their QC's opinion provides them with a 'reasonable excuse' for not doing so.

Few tax avoidance schemes are covered by mis-selling regulations and the PAC welcomed HMRC's consultation on applying the model of financial mis-selling to these schemes.

Lessons could also be learned from across the globe according to the PAC. In Australia, for instance, promoters must get clearance before they can introduce a scheme and there are powers to fine those promoters where it could not reasonably be expected that a scheme would work or comply with the advance ruling system.

There is a need to combat aggressive tax avoidance schemes, not just to prevent tax from haemorrhaging but also to protect innocent taxpayers. A number of contractors have recently been presented with large tax bills going back several years for their part in now defunct offshore EBT schemes. They were told and believed that the scheme was tax compliant but their involvement has now come back to haunt them and the promoters have long since disappeared.

It is however for the government to ensure that tax legislation is watertight and gives no room for manoeuvre to those who would dream up contrived tax avoidance schemes.

Perhaps Madam Hodge would like 'offenders' to be publicly flogged, then led up the Thames and through Traitors Gate to send out a real warning to us all!