Lawyers have criticised Government plans to effectively bind users of tax avoidance schemes to previous judicial rulings as “unfair”.
Proposals in the Finance Bill, discussed in Parliament yesterday, will give HM Revenue & Customs power to issue what is called a “follower notice”.
Based on a judicial ruling on a tax avoidance scheme which is deemed to apply to a wider group of taxpayers, the notice would bind other users of the scheme despite them having no involvement in the original case. The power would effectively be setting a precedent for tax avoidance schemes that HMRC has ruled against.
No appeals will be allowed though those subject to the notice can ask HMRC to reconsider.
The Law Society says the Government’s definition of judicial ruling appears to include first tier tribunals which are unable to set precedents.
A briefing note from the organisation says: “The use of first tier tribunal decisions to determine another taxpayer’s affairs and ultimately require an accelerated payment of tax would be unfair because first tier tribunal decisions have no precedential value.”
The Law Society argues the Government should allow taxpayers to appeal against a follower notice. It says: “All a taxpayer can do is ask HMRC to reconsider. This is insufficient process.”
In a debate in Parliament yesterday, shadow Treasury minister Shabana Mahmood said while Labour does not oppose allowing the rulings of lower courts to bind other taxpayers, there was a risk it would restrict “taxpayers’ access to justice”.
She said: “A county court in a personal injury claim does not set a precedent, it is usually set by higher courts. That is just how the system works.”
Citing the Eclipse 35 scheme used by celebrities including former Manchester United manager Alex Ferguson, Conservative MP Charlie Elphicke asked whether a follower notice would be acceptable in the event of “cookie cutter schemes”, which apply the same rules to all scheme members, saying “they should all fall over at the same time”.
But Mahmood said there are always cases that are significantly different and the follower notices must not be applied in these cases.
Treasury exchequer secretary David Gauke said a “small but persistent minority” try to find ways around the tax rules.
He said: “It is not right they can frustrate efforts to resolve their cases, often spinning things out only to settle on the steps of the tribunal. Many avoidance schemes are marketed widely, often with very minor variations. When HMRC wins a case the tribunal or court’s decision will in all likelihood decide the related cases as well.
“Taxpayers whose avoidance scheme has been shown to fail in another party’s litigation should promptly settle their dispute with HMRC.”