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Govt may force disclosure of clients using avoidance products

Treasury 480

The Government has published proposals to improve HMRC oversight of financial products used to reduce tax liabilities and schemes used to reduce employment taxes, including forcing advisers to disclose any clients using them.

Under the proposals, published today, stronger client list reporting standards, including disclosure of end users, could be mandated or HMRC could be given the power to require more information on those using schemes that meet the Disclosure of Tax Avoidance Scheme rules. Currently, client disclosure only requires the number and type of clients, not individual identification.

The consultation paper says: “The information that promoters are required to provide on client lists is not sufficient, where the scheme is mass-marketed to individuals, for HMRC to readily match the data to specific customers. Moreover, the client may be merely an intermediary, not the end user who is intended to obtain the expected tax advantage. There is no onward reporting obligation on intermediaries, so in such cases client lists will not inform HMRC who the end user is.”

The paper also proposes that when a financial product delivers a tax efficiency that would not arise “but for” its use, they will become eligible for disclosure to HMRC. The current standard is that the product must contribute a “significant degree” of the tax advantage. HMRC says this is too narrow and can be hard to prove.

Products that will face this test include, loans, derivatives, securities sale and repurchases, stock lending agreements, shares, arrangements which produce returns “economically equivalent to interest”, collective investment schemes and alternative investment funds.

In the wake of Jimmy Carr’s apology over his use of the K2 scheme, tax schemes involving employers paying staff through third parties will also be disclosable.

Scheme promoters will face higher hurdles for not having to disclose details of their schemes and those using them will be expected to report schemes not meeting the disclosure rules.

Treasury exchequer secretary David Gauke says: “These schemes damage our ability to fund public services and provide support to those who need it. They harm businesses by distorting competition. They damage public confidence and they undermine the actions of the vast majority of taxpayers, who pay more in tax as a consequence of other enjoying a free ride.”

The Government is considering mandating scheme promoters to disclose other parties involved in the scheme’s structures. Alternatively, HMRC could be given more powers to require further information from promoters of schemes which meet the conditions.

Additional client list reporting requirements on promoters and intermediaries of such schemes could also be introduced, including disclosure of the end user of schemes. Cambourne Financial Planning director Mark Loydall says: “A few advisers specialise in these kind of schemes, but for most this will probably not affect them. Advisers who want to exist on the fringes will continue to exist, the cleverer the legislation becomes the cleverer they become.”

Last month, the Government published plans for a General Anti-Avoidance Rule that would allow HMRC to require changes to “artificial and abusive” tax arrangements more easily. The paper says that tax avoidance represents almost 14 per cent of the UK tax gap.


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. Dominic Thomas 23rd July 2012 at 3:41 pm

    If I weren’t suspicious of spin and giving the aappearance of doing something, I’d suggest that here in Britain we have a unique tax identifyer, pension companies use it, ISA companies use it, it is called a National Insurance number. Just make this a part of every application form so that the HMRC can collect tax it believes is owed. Stop fudging the issue and asking others to report on a system that has been around for donkey’s years that Government (any of them) has absolutely no intention of really changing. If they did then we would have one rate of tax on all UK derived income in all its forms.

  2. It doesn’t seem to have occurred to these geniuses at the Treasury that if they keep pushing they will jusu push the rich offshore – to join their money.
    It is being done already where entreprenurrs put the assets offshore, just work for a wage and the dividends are paid offshore into various family trusts.
    HMRC can stand on their head – they can’t stop it.
    The very rich really know the value of money and perhaps they believe (as we probably all do) that Governments just tax and waste? They are just in the fortunate position of allowing Governments to waste less of their money.
    Furthermore it would be interesting to see how much this small cohort in aggregate donate to charitable causes. At least in this was they are able to direct their munificence and minimise the opportunity of some bureaucrat or politician on the make to fritter it. That they may also collect some tax relief on the donations is only to the good.
    Perhaps vitriol against these people would be better directed in ensuring that tax revenues are spent more wisely. After all what is tax but compulsory charitable donations? Perhaps it would also be better if those with their hands out actually did a little more to help themselves. Many of the super-rich have worked pretty hard and rather resent having their money fund the feckless.
    Then of course the attack entirely ignores how many jobs, industries, exports, dividends and capital gains these people have been responsible for.
    I just hate this politics of envy.

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