Tax avoidance is best avoided
Tax avoidance costs HMRC £5 billion each year, so it’s understandable that it is going after both promoters and beneficiaries of certain tax avoidance schemes.
It has launched a consultation, ‘Raising the stakes on tax avoidance’, which is focused on tackling the behaviour of ‘high-risk promoters’ of tax avoidance schemes, and introducing penalties for users of failed avoidance schemes namely, those defeated in court by HMRC. According to the Treasury, HMRC has a better than 80% success rate when it takes avoidance cases to court. The purpose of the proposed new rules is to deter taxpayers from using defeated schemes and to ensure they pay the tax that they owe.
Under the proposals, HMRC will be able to publicly identify advisers and accountants who recommend aggressive tax avoidance schemes. The consultation contains a formal process for identifying ‘high-risk promoters’ i.e. those firms and advisers who fail to disclose a scheme under DOTAS (Disclosure of Tax Avoidance Schemes), breach an undertaking with HMRC, or rely on going undetected to achieve tax advantages for their clients.
If the promoter is designated as ‘high-risk’, HMRC will have far-reaching powers to obtain information from them about their products, their clients and the intermediaries they work with, imposing strict penalties of up to £1 million for failure to comply. Clients who use a defeated tax avoidance scheme will also face penalties unless they can show that the basis for its prior defeat in court is not relevant to their circumstances.
Most of the inheritance tax planning/avoidance schemes used by mainstream advisers (loan trusts and discounted gift trusts and excluded property trusts) will be unaffected by the proposed measures which are intended to target those who promote and take advantage of abusive schemes and whose behaviours – according to HMRC – are detrimental to the fairness of the tax system.
Private equity tax ‘loophole’ set to close
Danny Alexander, Chief secretary to the Treasury, has announced plans to close what he calls a tax ‘loophole’ relating to loans made by private equity firms.
Speaking at the Liberal Democrat conference in Glasgow this September, Mr Alexander said the LibDems plan to introduce a mansion tax, cut the lifetime allowance from £1.25 million to £1 million, and reform capital gains tax, ensuring that those who “have the most will continue to contribute the most.” He said he made “no apology for going after tax dodgers”.
Private equity trade body The British Venture Capital Association denied that the structures were “loopholes” and argued they were “commercial transactions” and that its tax experts had been in “continuous dialogue with the Treasury and HM Revenue & Customs on the issue”.
Mr Alexander also referred to the need for the Government’s Help to Buy scheme, saying more affordable homes needed to be built and and help had to be given to borrowers who can afford to repay their mortgage but have the money for the large deposit required. Mr Alexander said the amount owed to HMRC totalled £500 million, and said that the “rogue minority” of landlords had to “pay up or face the consequences”.