This year's Spending Review and
Autumn Statement was noticeably light on new measures but the chancellor still continued to find additional tax take merely by increasing HMRC's spending on tackling avoidance and evasion. Those already sceptical about this type of fiscal accounting – let alone those who are sceptical about the government ability to find 'savings' from the roll out of an IT programme – will raise an eyebrow at the announcement that £800m of the savings from the digitisation of the tax collection process and a smaller workforce will be ploughed back into tackling avoidance and evasion, generating an additional £7.2bn from 2015/16 through to 2020/21. There is no doubt that HMRC delivers a significant return from its crackdowns, but there must be a limit to how far into this jar the government can reach.
A number of targeted anti-avoidance provisions were announced with immediate effect, which are expected to generate an additional £1.2bn over the period of the spending review. Furthermore, since this is the year to which Michael J Fox time travelled in the 1989 film Back to the Future: Part II, it is quite fitting that tucked away in the detail was an announcement that, if in the future HMRC discovers any new schemes for disguising remuneration, it will consider legislating to defeat the scheme, where necessary backdated to take effect from 25 November 2015.
The Autumn Statement also confirmed that a new penalty of up to 60% of the tax will be payable if HMRC successfully defeat a scheme using the GAAR. Remember that rule? The first tax returns affected by the GAAR were due by the end of January 2015 but it is not clear whether the GAAR panel has yet met to discuss a real case. Budget 2013 said the GAAR would bring in an additional £60m last year and £50m this year which, even if true, is minimal in the grand scheme of things. The penalties, as with the GAAR itself, are probably calculated to have most impact for their deterrent effect.
Finally, as announced in the Summer Budget, the Finance Bill 2016 will include provisions requiring large businesses to publish their strategy relating to UK taxation and introducing a new 'special measures' regime for the most non-compliant businesses. The proposal for a voluntary 'code of conduct' for non-financial sector businesses appears to have evolved into a 'framework for cooperative compliance'. As it takes two to cooperate, hopefully the framework will set out expectations on how both sides of the table will operate. The original proposal was for the published strategy to mention whether the code of conduct had been adopted. The position on adopting the framework is currently unclear. The results of the consultations on these measures are expected to be published on or around 9 December.
The Autumn Statement confirmed that FB 2016 will include legislation to introduce a new strict liability offence for offshore non-compliance, stiffer penalties for offshore evasion (linked to the size of the asset), and penalties for 'enablers' of tax evasion by others.
Although the Statement also confirmed that the government plans to introduce the proposed offence for corporates of failing to prevent the facilitation of tax evasion by its agents, legislation will not be included in FB 2016. Perhaps the legislation might form part of a standalone bill for which Parliamentary time outside the FB allotment will need to be found. Then again, it may just form part of FB 2017. Clarity is expected when the response to the consultation is published on or around 9 December.
A new consultation was announced on introducing an 'additional requirement' to correct past offshore non-compliance during a defined window of time, with a new penalty for failure to do so. Reference to 'additional' reflects the existence of a legal obligation to self-assess the correct amount of tax in the first place. Details are scant but if the original non-compliance was careless or deliberate a penalty already applies, so the measure may be intended to levy an additional penalty upon those who do not come forward within the window. After the LDF closes at the end of this year, a revised disclosure facility on tougher terms will run until mid-2017. This new measure appears to be the 'stick' which will run alongside the 'carrot' of that revised facility. The consultation will take place next year.
Finally, in a bit of housekeeping, FB 2016 will introduce a new four year time limit for filing a self-assessment return. This is to deal with the issue which arose in R (oao Andrew Michael Higgs) v HMRC [2015] UKUT 92 (TCC). The taxpayer made a payment on account of tax and more than four years later filed a self-assessment showing a lower amount, thus, he claimed, triggering a refund. HMRC refused to make the repayment, arguing that the four year time limit for assessments under TMA 1970 s 34(1) applied. The court held that the s 34 time limit only applied to assessments made by HMRC and not to a self-assessment. Since this effectively left HMRC at risk of open-ended refunds where returns have not been filed, HMRC is taking steps to plug the gap.
So, in all, the Autumn Statement was mercifully light on new measures to tackle avoidance and evasion. This is no bad thing. HMRC has been given a raft of new powers in recent years (GAAR, APNs, enhance penalties) and it now needs a period of time for consolidation. Perhaps the idea that spending an extra £800m on field work will generate a near tenfold return on investment is not as make believe as it first seems.
