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Tony Wickenden: A significant shift in the tax planning landscape

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In recent weeks, the press has carried a few stories that many accountancy and tax-structuring businesses are finding the public’s appetite for aggressive tax schemes had diminished significantly. In some cases it could be said that demand has fallen off a cliff, like Jimmy’s Lambretta in the film Quadrophenia.

The combination of the following seem to have had a very powerful impact:

–Publicity against high- profile avoiders, the activity 

of the public accounts committee and the resulting verdict of the “Court
of Public Opinion”, to use
David Cameron’s words

–Continued targeted anti-avoidance provisions

the new General Anti-Abuse Rule  – activated with the passing into law of this
year’s Finance Act

–The public, it seems, just does not want the risk of a fight with HMRC.

Some adviser focus groups we have run reveal that there is a far from weak them and us feeling, especially among business owners and despite there being (officially) suppressed appetite for aggressive tax avoidance. 

This is corroborated by our latest qualitative adviser research carried out with our research partners So Here’s
the Plan.

“Them” being the multi-national corporates (you know who) who have seemingly limitless opportunity to legitimately (within the law as it stands) shift profits to low/no-tax jurisdictions.  “Us” being UK-based businesses with no such opportunity.

Be that as it may, as well as the severe reduction or cessation of the public appetite for aggressive tax avoidance, technically there has also been a significant shift in the tax planning landscape.  I have been writing about it, possibly ad nauseam, over the past few months.  It is, however, very real. And it is very important for financial planners.

Tax evasion and tax crime was always – and remains – wrong and unacceptable to both the public and the Government.  However, the old way was always that if something was permitted within the letter of the law, even if it was not aligned to Government intent, it would be legitimate planning and classed as “permissible avoidance”.

Because of this basis of interpretation, HMRC has been increasingly prone to litigation and has litigated seeking so-called “purposive” judgements in the tribunals and courts.  This aspiration requires the courts and tribunals to consider the substance of the arrangement as opposed to merely its form.

In many cases, artificial steps inserted merely to avoid tax and with no commercial purpose would be ignored to facilitate the reaching of such a purposive judgement.  

Decisions in the Ramsey  case, Furniss v Dawson and
the ensuing line of cases have been somewhat landmark in this context.

To reinforce both targeted anti-avoidance provisions which continue to pour out of parliament (witness the provisions relating to the “non-deductible liabilities” provisions in relation to inheritance tax and litigation aiming for purposive judgements. Both will continue as weapons for HMRC)  we now have the GAAR.  As I have explained over the last few weeks, this will enable HMRC, through legislative means, to ensure the intent of parliament in cases of abusive tax arrangements where the legislation as it stands does not secure the outcome
HMRC intended.

The world of tax planning has most definitely changed.  The Lambretta LI ‘slim style’ of aggressive tax avoidance is, as I said earlier, off the cliff, lying smashed on the rocks of the beach. The Jimmy of aggressive tax scheme promoters is trudging disconsolately up the beach, his US Korean War M51 parka flapping in the breeze.  

The Mr Postman of officialdom has most definitely killed his scooter.

OK, enough of the nostalgia – great film though.

Back to the theme – evasion remains unacceptable but so now is abusive avoidance. Planning that is not “abusive” remains acceptable – subject to any targeted anti-avoidance provisions.

Financial planners, as a result, have an opportunity – perhaps even a responsibility – to inform and reassure clients in relation to what does and does not represent acceptable planning.  

To not do this may leave some clients with misunderstanding over certain perfectly acceptable tax planning opportunities.

Tax reduction specifically permitted by legislation and planning accepted by HMRC still works perfectly well – and there is no need to feel guilty about it or morally repugnant for carrying it out.  

This covers the vast majority of commonly-used financial planning products and strategies, including pensions, Isas, VCTs, EISs, BRP schemes and most of the commonly used IHT planning schemes.  

So in relation to this type of planning, yes it may be less exciting but no it will not be attacked under GAAR so seek advice – and fill your (Clarks heritage desert) boots.

Tony Wickenden is joint managing director of Technical Connection

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Comments

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

  1. Absolute rubbish. Belize based trust funds from whence un-taxable loans can be taken still thrive. HMRC will focus on the multi nationals to appease the tabloids whilst the more complicated schemers profit onwards.

  2. All very well trying to play fair with the taxman, but this should be a two way street.

    Unfortunately the taxman is not able to act in isolation – his master is the Government and that is the nub of the problem. Acceptable tax planning is acceptable to all, just so long as the legislators don’t change the rules. Pension planning has been castrated. Can we trust Westminster to leave ISAs (and the old PEPs) alone for the next 40 years? Look what happened to TESSA’S. Look at the overall allowances into tax exempt vehicles in the past, allow for inflation and compare to what is available today.

    If the art of taxation is to pluck the goose with the least amount of hissing. The current regime is getting perilously close to getting pecked. UK Plc. might be ‘open for business’ but if the profits and the remuneration of those running that business are pillaged, and then the avowed plan of being an attractive place for business is being destroyed. There are alternatives, even for smaller firms. Who will follow WPP and others to pastures new?

    Don’t let’s talk of VCTs, or EISs, They are the epitome of the tax tail wagging the investment dog and in too many instances do more for the promoters than the investors. As for BRP – Basic Retirement Pension? Boosting Reading Potential? BRP – world leader in motorized recreational vehicles and power sports engines??

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