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Crackdown: Politicians set their sights on tax avoidance

Advisers should be braced for further tax clampdowns as political consensus grows for legislation to tackle aggressive avoidance ahead of the general election.

The Liberal Democrats became the latest party to promise a tax overhaul this weekend when they set out plans to create a new offence of aiding evasion, and outlined penalties to match those for the evader.

The Lib Dems’ intervention followed revelations of alleged tax dodging at HSBC’s Swiss private client bank earlier this month. But with the polls set to open in less than three months’ time and tax evasion at the top of the agenda, what can we expect to see in the major parties’ manifestos?

Legislation

Of the five major political parties questioned by Money Marketing, three have pledged specific legislation.

Chancellor George Osborne joined the chorus when he said in the House of Commons this week: “We are looking very seriously in the Budget at what further actions we can take [on evasion].

“Aggressive tax avoidance is something we need to clamp down on and stop.”

Labour has promised a new tax avoidance bill, while the Green Party says it wants to introduce new legislation targeting corporations.

Although Ukip has yet to outline specific plans beyond a zero-tolerance approach to evasion, it too promises to come down hard.

Ukip economics spokesman Patrick O’Flynn says: “Britain needs lower and simpler taxes that are internationally competitive. But it also needs a party that does not turn a blind eye to those who seek to dodge what they are legally bound to pay, while still availing themselves of the many advantages of living or doing business in Britain.

“Ukip is the one party with the appetite to tackle these infuriating abuses.”

Financial services PR firm MRM believes the combination of a likely coalition government after the election and the increasing volume of the political debate means some form of tax evasion bill may be inevitable following the election.

Head of public and regulatory affairs Havard Hughes says: “We are seeing a consensus being formed that politicians want to do more on the tax evasion front.

“You never quite know how much light it will see past the election campaigns, but politicians are starting to talk each other into a corner.”

Hung parliament

The potential for reform on evasion and aggressive tax avoidance is further heightened by the likelihood of a hung parliament in May.

YouGov figures published this weekend put Labour ahead by 1 per cent, while research from Populus had the two leading parties tied at 32 per cent.

If a coalition government is formed again, measures to tackle tax dodging are likely to become a key negotiation point between parties.

Hughes argues the complexity created by tax reform could benefit the advice sector, particularly larger firms.

Professional bodies are also on the alert about looming tax changes, and are cautious about the implications of a hardline stance on legitimate tax planning.

A spokeswoman for the Institute of Chartered Accountants in England and Wales says the body’s tax faculty is currently weighing how to respond to the Lib Dem plans to criminalise aiding tax evasion.

Reform inevitable

Independent regulatory consultant Richard Hobbs agrees some reform of the tax system is likely, particularly if Labour is voted into power.

But he says the party’s plans to tackle tax avoidance schemes could be kicked into the political long grass.

Hobbs believes a Labour-led government would instead focus on “mainstream” tax reform, rather than pursuing limited returns from avoidance schemes.

“There might be a bit of tax avoidance stuff, but they will quietly drop it because the money you can collect would be a drop in the ocean compared to mainstream tax,” he says.

“Tax policy is about collecting as much money as cheaply and effectively as you can, and there simply isn’t a huge amount to come there.”

The reason politicians are clamouring to be seen to be clamping down on aggressive tax avoidance is in no small part due to the furore caused by the recent revelations about HSBC’s Swiss private bank and the so-called Falciani list, named after the whistleblower who leaked the names of 1,100 UK customers that HSBC is said to have helped avoid tax.  

But Hobbs says much of the conduct relates to several years ago. “If you talk to some of the high-end IFAs they will tell you that this was all done and dusted a long time ago.”

Political capital

While the revenue raising potential of tackling tax dodgers may be relatively small, MRM’s Hughes argues the publicity generated by the HSBC story means reform will remain a priority.

“This isn’t about what is really happening in the financial world. It’s about the campaign trail, and what is happening in the minds of the politicians,” he says. “If they think there is a problem then they will regulate regardless of what the actual position is.”

Hertfordshire-based IFA Mark Hughes will be running as the Ukip candidate for the seat of Harwich and North Essex, and warns UK tax law is already too confusing.

He says further changes risk deterring advisers from wanting to discuss certain opportunities with their clients.

He  says: “Particularly for sophisticated investors, a client suitability report is almost a tome, it’s a huge document. You will find there will be a number of advisers who will walk away from some products and that would be a shame.”

Hughes adds part of the problem is a lack of clarity around what is meant by “aggressive” tax avoidance.

“For the average man or woman in the street a tax avoider might be someone who has an offshore account, not someone who puts money into their pension. We need a lead from Government on this, but it’s a political football at the moment.

“What we need is a simplification of our tax regime and what is understood by acceptable tax avoidance and tax planning.”

Adviser view

solomons

Alan Solomons, Director, Alpha Investment & Financial Planning

This is all political posturing and stage management before the election. The uncomfortable situation of HMRC being very aggressive in attacking tax strategies has been going for seven to 10 years. There’s nothing new about it at all apart from the fact that HSBC is in the spotlight.

Adviser view 

wilson

Julie Wilson, Chartered Financial Planner, Pen-Life Associates

There are 50 shades of tax avoidance, so what does aggressive tax avoidance mean?

The problem is that politicians don’t seem to understand the difference between evasion and avoidance, so the man in the street is misunderstanding that all tax planning is immoral.

Clarification would be good, but I don’t think it’s practical, because while there are complex rules around tax there will always be people trying to bend them.

Tax avoidance clampdown – where do the major parties stand?

Conservatives

The Conservative Party has promised to raise an additional £5bn in taxes by cracking down on aggressive tax planning and the exploitation of loopholes.

It has also said it will introduce new rules to deter avoidance and make it easier to reclaim unpaid tax.

Chancellor George Osborne has also promised to investigate further reforms ahead of next month’s Budget.

Labour

Labour has pledged to introduce a new tax avoidance bill if elected.

The bill will require overseas territories and crown dependencies to produce publicly available registries of beneficial ownership, as well as seeking to introduce new penalties for individuals falling foul of anti-abuse rules.

It would also attempt to close loopholes on overseas profits, tax relief for umbrella companies and end shares-for-rights schemes.

Finally, Labour has vowed to end “disguised” self-employment and to demand more frequent reporting by dormant companies.

Liberal Democrats

The LibDems have proposed a new criminal offence of aiding tax evasion, which would see those facilitating tax dodgers hit with the same financial penalties as the evader.

They also plan to strengthen codes of practice applying to professions that advise on tax affairs.

Ukip

A Ukip spokesman was unable to cite specific policies. The party has pledged to take a harder line on tax evasion than Labour, the LibDems and the Conservatives.

The Green Party

The Green Party has promised to introduce a tax dodging bill to specifically target corporations in the first 100 days after the election.

It is positioning the bill as an alternative to austerity measures, and would demand more transparency, as well as tougher penalties for tax evasion.

Specifically, it will seek to better track overseas companies’ profits for the purpose of taxation, and ensure UK tax rules do not encourage companies to avoid tax in developing countries.

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. Wouldn’t it be a good idea if the led by example and cleaned their own house first? Expenses, cash for questions and all the other nefarious activities prevalent in that cess pit.

  2. @Julie

    I disagree. Most politicians understand the distinction perfectly well. Despite public perception most MPs aren’t morons. It does however create the opportunity for earning political capital with the man on the Clapham omnibus who is generally ignorant of the difference to elide the two terms.

  3. Creating a specific criminal offence may have the same chilling effect on dealing with the general public as FATCA has with US citizens. Imagine advising a family with IHT issues who have no intention of mentioning a holiday home overseas or valuable chattels. The adviser knows about them. Do they now become equally culpable as the executor of the will?

  4. Why do the Green party get treated as though they will be the country’s saviour – they promised to build 500,000 house from 2.7 billion so called saving i.e. not real savings just assumed to be available.As Putin invades Ukraine, annexes Crimea & sends planes to probe UK air defences they want to abolish the armed forces! Surely there can’t be that many Islington, Champagne socialist snobs stupid enough to vote as Turkeys for Christmas?

  5. If we take one definition of evasion as ” dodging something you are supposed to do “, ie pay your taxes, then anything that is specifically created with only that outcome in mind must be unlawful.

    Tax incentivised schemes such as ISA’s, Pensions, EIS, VCT, BPRA are designed to help individuals save capital, start up businesses obtain finance and expertise, and run down areas to regenerate for example. There is a tangible benefit beyond any tax advantages.

    I am a seed investor in a new UK gangster film, my family are in the business and I might get a part as an extra, just getting into character. The point is that there is an end product, I share the investment risk, and I receive tax benefits as a result. If we stick to these criteria there should be no confusion.

  6. I can’t be bothered to even read the article.

    Politicians please Prioritise for the well being fo the Nation and NOT for your re-election prospects.

    1. Crack down on tax EVASION
    2. Legislate to reduce (Legal) but aggressive tax avoidance
    3. Accept the fact that avoiding paying tax using the legitimate tax breaks that have been legislated for is fair and reasonable and simply change the legislation if it is not achieving your aim rather than whinging about it.

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