Taxman targets cash flow perk of avoidance schemes

HM Revenue & Customs will next month reveal how it intends to tackle avoidance schemes that let users exploit a cash flow advantage of retaining tax while continuing to dispute a liability.

Users of the “high risk” schemes, some of which have already been ruled against by the courts, will be “encouraged” by the Revenue to pay the disputed tax earlier than is currently required.

On how this is to be achieved, HMRC explained that it would introduce an additional late payment charge once the tax bill the taxpayer is disputing is found to be owed (due to the scheme failing).

To be proposed in a consultation in May, the extra penalty should remove the “cash flow advantage” from using such schemes – necessary action, HMRC adds, because these “artificial” arrangements to avoid tax are still being advertised.

Treasury officials let on last month that they want to take action against the schemes which, according to Tackling Tax Avoidance, will become the subject of a type of blacklist, authored by HMRC.

“Some taxpayers are prepared to enter into high risk schemes to exploit a cash flow advantage of retaining tax whilst continuing to dispute a liability, in some cases even where the courts have ruled against similar transactions,” the Treasury wrote.

“This advantage results from tax and interest only becoming payable under some tax regimes once HMRC has proven each use of a scheme to fail.”

In the document, published alongside the Budget, the officials added: “It [the government] will bring forward proposals to list specific schemes in regulations, with a range of options to ensure that users of the listed schemes do not benefit from retaining the tax in dispute.”

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