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Is tax law reform really required?

Recent press attention on the tax avoidance strategies employed by the wealthy suggests there is a problem with the current system. But as Baker Tilly senior tax partner George Bull points out, many of the schemes are successfully challenged by HMRC and there is a straightforward way to cut down the number of new schemes, without resorting to wholesale reform.

It is in everyone’s interest that the UK has a tax system which is both effective and efficient. As national tax systems go, the UK’s is one of the better ones. However, no tax system can be better than the law it has to apply.

With that in mind, calls for the Public Accounts Committee to review tax avoidance schemes which have been the subject of recent publicity, and to recommend changes to tax legislation to defeat the schemes, only make sense if:

1.    HMRC lacks the necessary legislation to tackle the schemes as they stand;

2.    normal legislative processes are not up to the job;

3.    the schemes are properly understood.

Understanding is key.

Statements made last week suggest that many individuals who enter into tax schemes do so on the basis of assurances from promoters bolstered by opinions from tax barristers that the schemes will be effective. Is this true? In the public relations battle of claims and counter claims, the only objective observers are the Courts and Tribunals who have considered the merits of past schemes. A review of those decisions indicates that nearly all of the schemes which have come before the Courts and Tribunals have in fact failed. So is the law really full of loopholes, or is this simply a perception put about by the scheme promoters (and, curiously, endorsed by the politicians) which is not in fact shared by the judges who decide these cases?

Against that background, a logical alternative to new rules to close perceived loopholes which do not in fact exist is simply to take control of the cash. That is to say, the tax which is subject to controversy (that is, the tax which will be saved if the scheme is successful) is paid over to or retained by HMRC upfront. It will then be repaid or paid over, presumably with interest, if HMRC does not successfully challenge the scheme. With some people estimating that tax schemes cost the Exchequer billions of pounds per annum, we can expect to see the Treasury backing those calls. Tax scheme promoters will not, however, be so keen!

George Bull is senior tax partner at Baker Tilly 

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. The answer to the title is yes –
    Asking someone in the tax advice industry for their opinion on this question is like asking turkeys to vote for xmas

    Tax law is too complicated full stop!

  2. Syphon off the majority of your income to an offshore trust which you own and borrow back the money never having to repay the loan? Yep it needs sorting out but not by those that have taken advantage of it already!

  3. I think the tax laws do need reform and simplified but also need tax advising to be regulated just like financial advice is now.

    I wonder how many of these schemes would exist if we had proper regulation and advisers who gave advice on them were held liable for the advice. I suspect that the level of tax evasion which this is after all would be non-existent within a very short period of time.

    It’s interesting to note that the Labour Party tried to pass legislation making professional tax advisers liable but they couldn’t get agreement with the professional bodies and therefore the new laws never came onto the statute books.

    I know that there is going to be an awful lot of people in our industry saying not more regulation but I do think it is time to have a proper level playing field. After all financial advice should be regulated including tax, that would soon stops the loopholes.

    It’s also interesting to note that you don’t have to have any qualifications whatsoever to practice as a tax adviser which is a major downfall of the present system – particularly when you have these people promoting the schemes!

    I forgotten how many times I’ve had somebody tried to sell me one of these schemes and mention that it’s been checked out by Queens Counsel – what a joke!

  4. I found it ironic that on the very day that Jimmy Carr was apologising last week I received an email from some tax consultants offering 11 schemes to avoid income tax/cgt/corporation tax with the promise that 5 others are in the pipeline. It would suggest that the answer to the question is yes!

    It may seem obscene to many high earners that they have to pay nearly half of their income in tax but we live in a society where, for example, someone who kicks a football is deemed to be worth up to 500 times the average paid to the rest of us. My heart bleedeth not. Get the loopholes closed.

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