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HMRC targets high risk avoidance. But what does it mean?
HMRC has published a consultation paper giving details of proposals, originally announced at the time of the Budget, to require taxpayers to disclose the use of certain listed schemes to HMRC. If the scheme is ultimately unsuccessful, the taxpayer will suffer a charge, in addition to the usual interest and penalties. This additional charge is designed to reverse the cash flow benefit which a taxpayer may obtain by not paying tax on the usual tax payment date.
HMRC has previously used its Spotlights publication to identify areas in which it will take action to shut down what it perceives as aggressive avoidance. HMRC are clearly frustrated that this has not proved a sufficient deterrent and that some taxpayers may be using highly aggressive schemes - even in cases where there is little chance of success - on the grounds that they will in any event obtain a cash flow benefit in not paying the tax due for several years. The new proposals are designed to remove that benefit.
That all sounds very reasonable. As is often the case, the real questions in this consultation revolve around the scope of the powers and how, in practice, the Government and HMRC will use them if and when they are brought into effect.
The proposal is that the Government will take a power to list schemes where it appears that "the scheme might be used for the purpose of seeking a tax advantage" and "HMRC believes that the scheme does not deliver the claimed advantage".
There isn't much in that definition to separate relatively conventional tax planning from highly contrived and unmeritorious schemes, at which, we are told, this measure is targeted. The fear will be that this power could be misused in effect to legislate without proper parliamentary scrutiny either by describing schemes in such broad terms that many innocuous transactions are caught or by listing schemes which HMRC may not like but which, on a reasonable view, may be effective. The consultation paper seeks to address these points by suggesting that the Government will not list a scheme unless it has received independent advice that the scheme does not work, that the Government will, where possible, consult in advance of listing a scheme and that regulations which list schemes will be subject to the affirmative resolution procedure.
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01 June 2011
Author: Ashley Greenbank
