Parties' tax avoidance plans don't add up, says IFS

Labour and the Tories are “both relying on anti-avoidance numbers plucked from thin air” and have “nowhere near enough” measures to meet their revenue targets, a think-tank says.

The Lib Dems are eyeing even more by tackling evasion and avoidance, but their revenue-raising plans are also “vaguely-defined and opaque”, found the Institute for Fiscal Studies.

In many cases, the three main parties’ anti-avoidance proposals would lead to “unnecessary increases in complexity” and “inefficiency in the tax system,” the institute warns.

In the Tories’ case, they propose an overall tax cut albeit just a small one, as ‘giveaways’ on IHT and income tax will be offset by ‘takeaways’ on pensions tax relief and anti-avoidance.

In Labour’s case, they propose a £12bn tax rise by targeting ‘the rich’ and companies but, added the IFS, over half of it will come from anti-avoidance measures that are “unspecified”.   

But on Friday, a day after the IFS’s criticisms, a Labour party official told ContractorUK that an Ed Miliband-led government would, specifically, tackle ‘disguised self-employment.’

It is part of the 10-point plan that Ed Balls, shadow chancellor, wants to put in place to hit tax avoiders. It says “strict deeming criteria” would combat self-employment that is disguised.  

The official confirmed: “As for the deeming criteria, a Labour government will move quickly to consult on the best way of executing this, building on preliminary investigations made in 2009-10.”  

Asked why Labour’s manifesto fails to mention the proposal, the party said the manifesto was its “vision for a better future,” not a “comprehensive list of policies and policy details.”

Although there was no word on how the proposal might interact with IR35, the official clarified that any proposal within “the ten point plan for tax avoidance…is Labour policy.”

The clarification vindicates the boss of a Labour small business forum, who thinks the move against ‘disguised self-employment’ smacks of an old idea being dusted off as a new one.  

But it is not the only tax measure from the party that it is resurrecting. In particular, Labour has pledged to re-introduce the 50p top rate for individuals earning over £150,000 a year.

The IFS reflected: “Previous evidence has shown [that] much of [the] response [to the 50p tax rate is the] increased use of tax deductions and shelters.

“Labour’s anti-avoidance measures and restriction on tax relief on pension contributions may increase yield from this tax rise. Even so, [they] cannot rely on significant additional revenues from this.”

Despite the alert about shelters, an accountant told the FT at the weekend that avoidance vehicles have become less common than in 2010 thanks to the clampdown on perceived abuse.

Editor's Note: Related Reading -

What the political parties plan for contractors

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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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