Tax avoidance promoters 'running rings around HMRC'

The promoters of ‘boutique’ tax avoidance schemes are “running rings around” HM Revenue & Customs in what appears to be a “game of cat and mouse,” which the department is losing.

Issuing the damning verdict in a critical report of HMRC, leading MPs said the tax authority has allowed a system to evolve where the “die are loaded in favour” of the scheme promoters.

Too often, said the Public Accounts Committee, the promoters – who do not face penalties for merely marketing the scheme - sign up as many clients as possible before HMRC can act.

The promoters, or the providers, then move on to a new scheme and repeat the process of using the complexity of tax law to create opportunities to exploit it through avoidance.

Moreover, added the PAC, the promoters – who take a fee from their users regardless of whether the scheme succeeds – can escape penalties by manipulating the disclosure rules.

In particular, the promoters plead that, in the opinion of a QC, they have a ‘reasonable excuse’ for non-disclosure, which prevents HMRC from applying a penalty, the MPs said.

This “window of opportunity” lets scheme users make a lot of money at taxpayers’ expense, while the same “time lag” between scheme launch and closure is exploited by the promoter.

To assist HMRC in taking a much more “robust” approach, the PAC says HMRC should publically ‘name and shame’ those who sell tax avoidance schemes and those who use them.

With the aim of discouraging both parties from such tax-avoiding activity, the naming and shaming might harness public opinion against those that play their part in them, such as banks, lawyers and accountants.

Further recommendations from the committee to HMRC were also made, including following the example of Australia, where promoters must obtain clearance for schemes before using them.

New powers for HMRC to fine those who promote schemes that could not ‘reasonably be expected’ to work, also in force in Australia, should be looked at seriously in tandem, the MPs said.

Without such action, or at least fresh use of its £77m injection to tackle avoidance schemes more swiftly and comprehensively, the number of cases HMRC takes to court is feared by the MPs to remain “tiny” compared to the overall caseload.

Although HMRC’s success rate once in court is high, the most positive the committee sounded was in backing draft rules to eliminate tax-avoiding firms from Whitehall’s supply chain but, even then, its members want to “monitor closely” how any such framework is applied in practice.

In fact overall, and pointing to HMRC’s latest estimate that the total tax at risk from avoidance over time is £10.2bn (compared with £5bn a year in 2010-11), the taxman was told he has a “lot more work to do” to successfully tackle avoidance.

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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