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Gauke recognises tax planning and signals move to a ‘flatter’ system

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Treasury ministers know the difference between tax planning, tax avoidance and tax evasion, David Gauke told experts attending the ICAEW’s Hardman lecture.

‘We recognise that the law legitimately gives scope for tax planning,’ the Exchequer Secretary to the Treasury said, but ministers aimed to improve HMRC’s operational capacity to identify and discourage tax avoidance.

‘I know there are times when Parliament’s intentions can be ambiguous, and that it is not always possible to divine the spirit of the law. Better tax policy making will help us here. But there are also times when it’s perfectly clear what the law intends – where reliefs and exemptions are then used in a highly artificial way. In these instances, people use their resources – and their talents – to twist the law and create results that everyone knows are simply too good to be true,' he said.

Gauke was ‘very attracted’ to the approach adopted by Nigel Lawson in 1988, which reflected a desire to reduce tax rates that are too high, abolish unwarranted reliefs, make life simpler for the taxpayer and remove injustices from the tax system.

Simplicity was fundamental to improving the way the tax system works, he said. ‘As a general rule, it’s our preference to have fewer reliefs, but lower headline rates, in order to create a simpler, flatter system of taxation. And as we moderate tax breaks, we will reduce the opportunity for tax avoidance – an issue that this Government takes very seriously.’

Gauke said he aimed to publish further details by the end of this month on reform of the Controlled Foreign Companies regime.