Wednesday, July 13, 2011 | Posted by: Dave Jennings
Categories:
Protecting your wealth
| Tags: tax,
Taxpayers are being encouraged to think twice before entering into listed, aggressive tax avoidance arrangements. But the proposed preventative measures may target some people and hit them with a punitive double charge.
Hot on the heels of the many initiatives and amnesties launched to tackle tax evasion, such as the Liechtenstein Disclosure Facility, and moves to target High Net Worth Individuals, on 31 May 2011 HM Revenue Customs (HMRC) began a consultation period in respect of a new approach towards the users of tax avoidance schemes.
Preventative measures on tax avoidance
HMRC is keen to change the behaviour of those taxpayers who it considers a higher risk. The measures it wants to introduce are therefore preventative, as opposed to the enforcement measures used when tackling tax evasion, such as the task forces being piloted against the restaurant sector.
The aim is to remove the cash flow benefit for taxpayers of entering into a tax avoidance scheme. HMRC believes that even if the scheme is subsequently challenged in the courts and found not to work, the scheme user still has the benefit of delaying the payment of the tax, and as HMRC sees it, is effectively getting a cheap loan from the Treasury.
To put an end to this practice, HMRC is looking to list those schemes which it regards as high risk. HMRC’s definition of what constitutes a high-risk scheme is one which uses contrived arrangements to seek a tax benefit.
A punitive double charge?
If HMRC’s proposals come to fruition, users of such high risk tax arrangements would have two options:
• either pay the tax that would be due upfront
• or face an additional charge if the scheme is subsequently proven not to work and the tax becomes due.
While it is clear to see that HMRC is trying to deter taxpayers from participating in tax planning by removing the cash flow benefit, the proposed measures seem punitive. HMRC can already charge interest backdated to the original due date for the tax avoided and a penalty if it alleges that the avoidance was a ‘sham’, or incorrectly implemented.
Taxpayers who undertake planning that is ultimately unsuccessful may therefore feel that they are being hit twice.
Guilty until proven innocent
Taxpayers are, in effect, being asked to pay the tax before it has been determined, usually through the tax tribunal and court procedures. HMRC would list schemes considered not to work as intended when ultimately the tribunal could find in favour of the taxpayer.
Whatever your view on the proposed new measures to tackle ‘high risk’ tax avoidance schemes, the consultation process is open until 31 August 2011 and anyone is able to take part. I would be interested to read your thoughts on this proposal.
You might also find these posts useful:
* HMRC offers chance to avoid court and settle EBT enquiries
* Singalonga taxman as HNWIs targeted to boost tax take
* Read more wealth articles on tax planning
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