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View Full Version : Strengthening Sanctions for Tax Avoidance - HMRC proposal



davieloco
2nd February 2015, 10:55
Just noticed this worth a read

https://www.gov.uk/government/news/hmrc-puts-forward-new-measures-to-tackle-persistent-tax-avoiders

DL

Waldorf
2nd February 2015, 11:21
Seems fair enough to me, I pay my taxes as expected by HMRC and the general public so why not everyone else?

jbryce
2nd February 2015, 11:56
Seems fair enough to me, I pay my taxes as expected by HMRC and the general public so why not everyone else?

I'm a contractor who utilises a limited company to limit my NICs and pay myself dividends. Most of the permies, in fact most people on the street, would consider this some form of tax/NIC avoidance. Not sure HMRC are fantastic fans of it either.

webberg
2nd February 2015, 12:14
I'm a contractor who utilises a limited company to limit my NICs and pay myself dividends. Most of the permies, in fact most people on the street, would consider this some form of tax/NIC avoidance. Not sure HMRC are fantastic fans of it either.

This is the first (of many) examples of mission creep from HMRC in respect of GAAR.

The rules were introduced in 2014 and the clue's in the name, it is for "Abusive" schemes.

They now want to look at schemes that existed BEFORE the GAAR was even thought of and say that if you did a scheme in more than one year or a number of different schemes, then you should pay a special penalty.

This is real retrospection and UNACCEPTABLE.

We are making comments on the consultation and I'd encourage others to do so. Just don't hold any hopes that they will make any difference as I suspect that the legislation introducing a penalty designed to change future behavior but based on admitted errors of the past, is already prepared and nothing anybody says will make a difference.

TykeMerc
2nd February 2015, 12:18
I'm a contractor who utilises a limited company to limit my NICs and pay myself dividends. Most of the permies, in fact most people on the street, would consider this some form of tax/NIC avoidance. Not sure HMRC are fantastic fans of it either.

True enough, but to tackle that they need to reconstruct the way Ltd companies work or force one man band Ltd's into an alternative format. It seems that the second concept is live in the proposals for Freelance Limited Companies (FLC's) which that august contractor stalwart body (I'm being sarcastic here) appears to support.

The document linked appears to me to just be a continuation of the crackdown on schemes and ornate, artificial income structures which I think the majority of us can safely say we saw coming ages ago. Anyone naive enough to join or to have continued to have used a scheme without putting aside a very large contingency pot for when the HMRC hammer falls is quite frankly deserving of the treatment they get.
The writing was clearly on the wall for schemes some years ago.

jbryce
2nd February 2015, 12:38
True enough, but to tackle that they need to reconstruct the way Ltd companies work or force one man band Ltd's into an alternative format. It seems that the second concept is live in the proposals for Freelance Limited Companies (FLC's) which that august contractor stalwart body (I'm being sarcastic here) appears to support.

The document linked appears to me to just be a continuation of the crackdown on schemes and ornate, artificial income structures which I think the majority of us can safely say we saw coming ages ago. Anyone naive enough to join or to have continued to have used a scheme without putting aside a very large contingency pot for when the HMRC hammer falls is quite frankly deserving of the treatment they get.
The writing was clearly on the wall for schemes some years ago.

Yup, it is going to be very, very painful. Maybe. Some of the schemes may have been effective avoidance - I'm sure judges will work that out at some point.

I'm still rather shocked that people continue to use these schemes/arrangements/whatever.

jbryce
2nd February 2015, 12:47
The GAAR applies to schemes post 17 July 2013 (see below). Others need to be chased through the courts.
Honestly, the providers of the arrangements, that have hit us so hard, are, in the majority, total w4nk3rs, the fools that are still using them are total w4nk3rs and I'm a total w4nk3r for having got involved.
Anything that makes it harder for people to get caught up in these schemes is to be welcomed. Retrospection is not to be welcomed....


C10 Commencement of the GAAR legislation
C10.1 In respect of those taxes listed at B9.1 the GAAR applies to all tax arrangements
entered into on or after 17 July 2013 and from 13 March 2014 in respect of National
Insurance contributions.
C10.2 It does not apply to any tax arrangements entered into before this date.

webberg
2nd February 2015, 14:01
For background, XXXXX’ clients have all invested in structures and schemes promoted over the period from 1997 to date as being genuine commercial and business opportunities. Some of those schemes were advertised as having “HMRC approval” or the promotional material was styled in such a way as to imply such approval. Many of our clients were further exploited by advisers they thought they could trust but who have subsequently been held to have mis-sold unsuitable, inappropriate and potentially fraudulent investments. In the majority of cases, it is many years after the initial investment and in the light of an arguably revisionist analysis from HMRC, that the schemes have been labelled as “tax avoidance”. This is particularly true in schemes involving film investment where unfortunately HMRC has seen fit to not only withdraw its own published guidance, extant at the time the structures were initially undertaken, but to also apply concepts of avoidance that only appeared in the court rooms many years later.

To a large degree our clients feel that they have been exploited by promoters, intermediaries and HMRC. To feel the effects of yet more arguably retrospective legislation will add to their problems at a time when they realise that their past behaviour, as judged today, was unacceptable.

Q1. What should be the starting point for identifying those who should be the subject of new legislative measures?

Given that the context here is GAAR, a simple measure would be the number of DOTAS disclosed schemes invested in after January 2014, that have been ultimately found to be ineffective. Arguably more than say 2 schemes or a tax value of say £100,000 should be enough, provided that they relate to post January 2014 schemes.

Q2. To what extent would a surcharge be a deterrent to taxpayers who repeatedly use tax avoidance schemes that are shown not to work?

The presumption that a tax return is inaccurate where a tax avoidance scheme fails is untenable. At the time of self assessment a taxpayer may have included in his return all of the information required by DOTAS rules. He and/or the promoter may have supplied supporting information and could even be engaged in discussions with HMRC. Should a Tribunal find many years later that the scheme does not achieve the result the taxpayer expected (but is not illegal) why should a surcharge apply at all? GAAR is meant to apply ONLY to the most abusive schemes. Consequently a surcharge should be applied ONLY where GAAR is found to apply AND a taxpayer uses such a scheme AFTER that decision is published.

Applying a surcharge based on a retrospective view of schemes that have been disclosed and properly returned risks allegation of retrospection and creates massive uncertainty in tax treatment for individuals and businesses.

Q5. Could subjecting a serial avoider to special measures such as additional reporting requirements, conduct notice or restricting access to reliefs be an effective and proportionate approach to encouraging less risky behaviour?

This section of the Consultation makes the presumption that registration of a scheme under the DOTAS regulations automatically results in that scheme being “tax avoidance”. That is an incorrect position. DOTAS rules seek to find tax advantages that are available in circumstances where one or more of the hallmarks are present. Those hallmarks are all largely untested in Court and the weight attaching to each will vary in different circumstances. Unless and until a final Court decision is available it cannot be said that a scheme complying with its administrative obligations and making a DOTAS disclosure is actually “tax avoidance”.

On the assumption that there must be a change in reporting obligations to identify the potential application of GAAR to any particular scheme entered into post January 2014, taxpayers should be given an opportunity to withdraw claims for relief before any special measures are applied. HMRC already has the power to withhold tax repayments, deny relief until conclusion of enquiry, issue information requests to third parties or issue an APN and consequently the measures announced above are adding little to the scope of those already available.

Q6. What sort of special measures would best positively influence the behaviours of serial avoiders?

A requirement to add a fixed or variable amount to an instalment of tax due or on 31st January following a tax year where HMRC has notified that a particular scheme is subject to GAAR counteraction AND was entered into post January 2014.

The point again is that the sins of the past are an inappropriate means of applying penalties in the present as many of the structures entered into before 2014 were not realised as being “avoidance”, let alone “abusive” until HMRC applied sufficient resources to examine and make a challenge.

It is appreciated that HMRC may have met the legislative conditions for opening an enquiry and being able to subsequently make adjustments in most cases. It is nevertheless the belief and assumption for many investors who have made the correct return disclosures that a lack of activity from HMRC means that their scheme is “safe”. That may be incorrect but is nonetheless a widely held view. Unless and until HMRC can give more timely warning of particularly GAAR potential counteraction, preferably through the ability for promoters to seek a clearance in advance that GAAR will not apply, a penalty for retrospective actions will be widely disparaged and ineffective.

We will consider and respond to more questions in due course.

Our central concern remains that the application of such rules and penalties in retrospect not only makes NO DIFFERENCE to current taxpayer behaviour but risks considerable resentment in taxpayers and possibly a hardening of their resolve to resist what they may see as unfair treatment.

StrengthInNumbers
2nd February 2015, 14:15
A bit confused as have not read in full.
Does any of this apply to schemes before April 13? I think it was jul 13 when GAAR came into effect.

jbryce
2nd February 2015, 14:39
A bit confused as have not read in full.
Does any of this apply to schemes before April 13? I think it was jul 13 when GAAR came into effect.

As published by HMRC (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/399270/2__HMRC_GAAR_Guidance_Parts_A-C_with_effect_from_30_January_2015_AD_V6.pdf):

C10 Commencement of the GAAR legislation
C10.1 In respect of those taxes listed at B9.1 the GAAR applies to all tax arrangements
entered into on or after 17 July 2013 and from 13 March 2014 in respect of National
Insurance contributions.
C10.2 It does not apply to any tax arrangements entered into before this date.

jbryce
2nd February 2015, 15:27
True enough, but to tackle that they need to reconstruct the way Ltd companies work or force one man band Ltd's into an alternative format. It seems that the second concept is live in the proposals for Freelance Limited Companies (FLC's) which that august contractor stalwart body (I'm being sarcastic here) appears to support.

The document linked appears to me to just be a continuation of the crackdown on schemes and ornate, artificial income structures which I think the majority of us can safely say we saw coming ages ago. Anyone naive enough to join or to have continued to have used a scheme without putting aside a very large contingency pot for when the HMRC hammer falls is quite frankly deserving of the treatment they get.
The writing was clearly on the wall for schemes some years ago.

So what do you rekon? Will there be a year zero as the date that GAAR came into force, after which repeated use of avoidance schemes will be impacted by this legislation, or will they go back and look at everyone that used a scheme since the year dot and apply it to that.

On another note - my accountant rekons it's also an attempt to strengthen the settlement argument because if you settle, without prejudice, then you will not have been a member of a failed scheme.

webberg
2nd February 2015, 15:47
A lot depends on what is meant but a tax arrangement post 2013.

If you did a scheme pre that date but (for example) had the loans reorganized/repaid/written off, post that date, is the later event post 2013?

Could it be argued that the arrangement arose before then?

StrengthInNumbers
2nd February 2015, 16:04
Quickly read through my self and agree that it does not look like applying to arrangements before. I stopped 3 months after first letter from HMRC i.e. Feb 13. Have been limited company since then.

So until they apply this to limited companies which would be very far fetched ( as GAAR is for abusive etc), all who stopped using these schemes should be ok.

Not Losing Any Sleep
2nd February 2015, 16:51
This is not intended as a criticism of any on in particular, and much of this forum is very helpfulm but I hope nobody is taking any of the advice given as gospel.