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Staff HMRC properly to deal with tax schemers and evaders, says CIOT President

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HMRC should be ‘properly’ resourced to enable it ‘track down and deal with schemers and evaders quickly and efficiently’, the President of the Chartered Institute of Taxation said last night. Speaking at a CIOT reception at the House of Commons, Patrick Stevens spoke out against ‘pushy salesmen persuading people to buy [tax avoidance] schemes that are probably too good to be true’.

Responding to a series of articles in The Times, Stevens suggested that an extension of financial services mis-selling rules to ‘attack the promoters and sellers of schemes that have no real prospect of working’ could lead to the tax system being treated with more respect.

‘Every time the person on the Clapham omnibus reads that high earners are paying little or no tax it encourages them to believe that our tax system is broken and they are foolish to be stuck paying tax when others are not. This could lead not just to anger but to increasing non-compliance – of both the avoidance and evasion kinds,’ he said.

‘But suggesting that the answer is an appeal to a moral judgment, or is down to deciding Parliament’s intention only gets us so far. Fundamentally, tax bills must be based on the law, not on a possibly arbitrary view or decision. A general anti-abuse rule is already on the table. If a GAAR can stop abusive practices without preventing legitimate tax planning or introducing damaging uncertainty that will be a positive step. If the GAAR can allow the UK to dispense with some of the forest of anti-avoidance rules that clutter our tax code, then the Aaronson group will have rendered the UK a valuable service.’

Tax law, HMRC resources and 'abusive' schemes

Stevens said tax law was improving but there was a need to build on the work of the Office of Tax Simplification and to ‘keep moving in the direction of better consultation’.

Secondly, there was a need to ‘properly resource HMRC to track down and deal with schemers and evaders quickly and efficiently’. He believed that ‘the vast majority of people in the tax profession’ would agree that the ‘HMRC cutbacks risk damaging their ability to run the tax system properly’.

‘Thirdly, we need to consider the nature of the schemes that claim to wipe out income tax. Many people in my profession believe that most of them simply do not work – and indeed that they shouldn’t work. In due course the judiciary may well agree.’

In the meantime, Stevens noted, ‘you still have pushy salesmen persuading people to buy schemes that are probably too good to be true because they really want to believe they don't have to pay tax’.

‘I hesitate to suggest we need more laws to stop this sort of thing – with the GAAR and existing rule book we have enough – but one wonders if we will need to look at rules like those in the United States where they have laws relating to abusive tax schemes.

‘These won’t be right as they stand because we have a very different legal system. But if we built on the financial services mis-selling rules they would attack the promoters and sellers of schemes that have no real prospect of working, who are the ones who really make the money from such arrangements.

‘Of course you will need plenty of safeguards to ensure that normal efficient ordering of your affairs is not inhibited. But it may lead to our tax system, so crucial to both our public services and our economic competitiveness, being treated with more respect.’

Making cuts in HMRC ‘seems a strange thing to do’

In an article published in The Scotsman last week John Barnett, Chairman of the CIOT's Capital Gains Tax and Investment Income Technical Sub-Committee, set out to explain why abusive tax schemes were still operating, despite annual Finance Acts ‘packed’ with anti-avoidance measures and the operation of the disclosure of tax avoidance schemes (DOTAS) regime established eight years ago.

‘First of all, it is time consuming for HMRC to take a scheme to a tribunal. The music industry investment [Icebreaker] scheme publicised [in The Times last week] is due to go before a tribunal in November. It may go to appeal after that. If HMRC are successful they will eventually get the tax due. If they are unsuccessful we may see new legislation in this area,’ Barnett wrote.

‘Second, it is very difficult to make the system water-tight. Last year 59 pages of legislation was passed on “disguised remuneration” (roundabout ways of paying people that try to avoid tax). However those running the K2 scheme clearly think they have found a way round this. Third, HMRC are under-resourced and getting to grips with complex schemes can take a lot of time and effort.’

‘What more can the Government do?’ he asked. The GAAR was an attempt to ‘get a step ahead’ of avoidance schemes. ‘But many worry that the proposal is too imprecise and will create uncertainty, while not catching many of the headline-grabbing cases. Resourcing HMRC properly would be more productive. In austerity times, making cuts in the department which brings in the money seems a strange thing to do.’

The long-term answer, Barnett said, was ‘simplicity’.

The Times reported that ‘Icebreaker denied that its partnerships were designed to avoid tax’. It also reported that K2 was promoted by Peak Performance Accountants Ltd, and that a statement issued by that company said that HMRC had been ‘provided at all times with full details of any tax scheme promoted by us’.