Tax avoidance schemes: ‘Emergency measures’ tolerable for dealing with courts backlog, but wider application goes too far
Controversial proposals to tackle the backlog of outstanding mass marketed avoidance cases going through the courts are understandable given the size of the backlog but only as an ‘emergency measure’ applying in tightly defined categories of cases for a limited period of time, the Chartered Institute of Taxation (CIOT) has said. And the Institute has expressed strong opposition to extending the new rules, which would see the loss of safeguards such as rights of appeal, to all schemes notified to HMRC as having characteristics associated with avoidance schemes.
The Government’s proposals would link together cases which are deemed to be similar, so that if a court ruled against one taxpayer, not only that taxpayer but all others deemed to have ‘follower cases’ would have to pay straight away the tax HMRC believe is due. They would get the tax back if they pursued the case and ultimately won. The Government’s intention is to encourage taxpayers to either not pursue or to expedite cases which the Government believe are bound to fail. Often the cases will involve hundreds of taxpayers using the same scheme or a close variant of it from the same company.
CIOT President Stephen Coleclough commented:
“We have sympathy with the Government's need to accelerate dealing with some tens of thousands of outstanding mass marketed avoidance cases which are jamming up the courts. In some, but not all, of these cases there is undoubtedly an intention on the part of the taxpayer to delay the appeal and consequent payment of tax. It is reasonable for the Government to be robust in taking this on.
“However, handing HMRC almost unprecedented executive powers to decide who falls within the mischief they intend to deal with, without the usual safeguards and appeal rights, is not something which should be done lightly. It should be regarded as an emergency measure to deal with a clearly defined set of cases and it should be time-limited.
“If this is to proceed, HMRC should issue comprehensive guidance at the same time as the Bill is published to show what situations are to be tackled in this way. It should only apply to members of the same scheme or very close variants of it. Additionally the legislation should include a sunset clause repealing the legislation after, say, three years as the exceptional circumstances that are currently in existence should be dealt with in that time. These emergency measures should not become a permanent state of affairs.”
While the CIOT believes the proposed ‘emergency measures’ are workable, subject to the conditions set out above, in relation to ‘follower cases’ in the courts, the Institute has expressed its opposition to a proposal to apply the same requirement to pay tax up front to all taxpayers who are members of schemes notified to HMRC under Disclosure of Tax Avoidance Schemes (DOTAS) or General Anti-Abuse Rule (GAAR) legislation. The Institute is particularly opposed to the application of the provisions retrospectively.
Stephen Coleclough explained:
“We are very concerned about HMRC’s proposal to extend the accelerated payment proposals to existing schemes disclosed under DOTAS. This is in effect introducing retrospective legislation.
“The fact that there has been disclosure indicates an intention to be open and transparent with HMRC. In a number of cases the disclosure has been made even if the promoter or taxpayer did not believe it to be strictly necessary ‘to be on the safe side’. To now introduce a retrospective change of law leading to an accelerated payment of tax is unreasonable. To extend HMRC’s powers without safeguards to taxpayers who by definition have been transparent with the tax authority is unjustifiable. If these provisions are to come in at all then they should only apply to arrangements entered into after Finance Bill 2014 is passed.”
Stephen Coleclough concluded:
“We have had an unprecedented response from our members to these consultation documents. Without exception, our members have expressed their deep concerns about the lack of safeguards in the proposed measures and what they see as the erosion of the principles of a fair justice system. The vast majority of tax advisers support most or all of the Government’s approach to stopping aggressive tax avoidance. Pressing ahead without adequate safeguards and appeal rights runs the risk of reducing that support.”
Notes to editors:
1. The CIOT sets out its views in its responses to HMRC’s Tackling Marketed Tax Avoidance and Raising the Stakes on Tax Avoidance consultations:
· To read HMRC’s Tackling Marketed Tax Avoidance consultation document please see here.
· To read the CIOT response to Tackling Marketed Tax Avoidance please see here.
· To read HMRC’s Raising the Stakes on Tax Avoidance document please see here.
· To read the CIOT response to Raising the Stakes on Tax Avoidance document please see here.
2. Disclosure of Tax Avoidance Schemes (DOTAS) was first introduced by Finance Act 2004. The rules place obligations on promoters of various tax arrangements to disclose details of the arrangements to HMRC. The purpose of the legislation is to identify the schemes seeking to avoid tax and those who use such schemes. It enables HMRC to react quickly to avoidance schemes by introducing countering legislation and targeting resources into investigating users’ tax returns, and where necessary pursuing the matter through the Courts.
3. The Chartered Institute of Taxation
The Chartered Institute of Taxation (CIOT) is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.
The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.
The CIOT’s 17,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.