Controversial measures to tackle mass marketed avoidance are set out in this year’s Finance Bill. The measures give HMRC the ability to issue ‘follower notices’, where it believes that there is a final ‘judicial ruling which is relevant to the chosen arrangements’; and ‘accelerated payment notices’, requiring the taxpayers to make upfront payments of the disputed tax, pending the outcome of an enquiry or tax appeal. A payment notice may be issued: following a follower notice; if the ‘chosen tax arrangements’ are ‘disclosure of tax avoidance scheme (DOTAS) arrangements’; or if a GAAR counteraction notice is or has been given.
The provisions are largely unobjectionable and do not effect the step change to tax compliance that many suggest.
It’s difficult to think of a measure that has attracted as much hostility as the accelerated payments provisions. Badged by the Telegraph as treating taxpayers as ‘guilty until proven innocent’ and elsewhere as ‘unconstitutional’ and ‘having the effect of making HMRC judge and jury’, they are nevertheless in the Queen’s Speech.
These are heavy charges. But they are unfounded. The provisions don’t effect any step change to the status quo and are largely unobjectionable.
Step change? They bite only where you are holding on to the cash fruits of alleged avoidance behaviour. But there’s no constitutional principle at stake in removing that cash. Proof? You only hold it in the first place if – fortuitously – you happen to have been able to assert the relief in question by way of set-off (because you’re self-employed), rather than claim (because you’ve suffered deduction of tax at source).
Objectionable? HMRC, it says, wins over 80% of tax avoidance disputes. In such circumstances, there’s no clear logical imperative that should lead to the taxpayer having the use in the meantime of money he’s likely to have to hand over later. And there are safeguards. For HMRC to issue an accelerated payment notice either: the GAAR panel must find the transaction ‘abusive’; it must have been disclosed; or there must be a judicial ruling which, if applied, would deny the asserted advantage. None of these are perfect – they are mere proxies for the question which is the subject of the appeal (is there ‘bad’ tax avoidance?). But, added to the 80% figure, they make, to my mind at least, the provisions largely unobjectionable.
Largely? The provisions are not perfect. The DOTAS ‘safeguard’ is particularly short-sighted. Many taxpayers will have made disclosures from an excess of caution or a desire to be good taxpaying citizens without considering themselves ‘caught’. That they should be, in effect, punished for behaving in ways the government would wish to encourage is likely to prove counterproductive.
The retrospective aspects of the provisions give rise to real concerns.
No one would sensibly dispute that people need to pay their tax due on time, but it is far from clear that these new powers will help with that. Instead, they may just result in a bad reputation for our tax system and unfair demands being placed on taxpayers who are doing their best to resolve enquiries which, through no fault of their own and despite settlement offers, have often run for a very significant length of time.
The majority of people will be deeply concerned at the prospect of having to pay potentially large sums which could cause them or their business very real difficulties, especially in cases where the taxpayer may well be successful at the end of the day.
A key question is how these retrospective powers will be implemented. That is a real concern for taxpayers, for our justice system and for the reputation of the UK as a jurisdiction which respects the rule of law.
No one disputes that HMRC needs to be well-equipped to collect money due, but the worry is that these powers will result in unfairness – when the tax debate is currently centred on fairness. One hopes that they are reserved for cases that are particularly egregious, but at present we have little experience of how the general anti-abuse rule will be used, let alone these new powers.
If the new powers are not very carefully used (and even if they are), there will no doubt be challenges, whether through judicial review or human rights actions.
If there is any risk at all that individuals with cases that are currently under investigation could face accelerated payment demands, once the new powers come into effect, they will want to do everything in their power to resolve those cases.
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