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