It is quite well known that the Government has a multi-faceted approach to preventing “unacceptable” tax avoidance. Closing the £30bn-plus tax gap demands it.
Provisions for disclosure of tax avoidance schemes (Dotas) have existed for a while now. They represent an early warning system for HMRC and, broadly speaking, operate through the requirement for scheme promoters to secure a reference number by providing HMRC with details of their scheme.
Recently, applications have fallen markedly, reflecting the inevitable fall in consumer demand for aggressive tax avoidance schemes.
Of course, we also have the general anti-abuse rule, which provides a legislative basis to enforce the purpose of Parliament in relation to tax legislation. Before this, tribunals and courts would sometimes (in appropriate circumstances) apply purposive interpretation to secure such an outcome. This will continue but the GAAR will provide substantial reinforcement.
And as well as Dotas, purposive interpretation and the GAAR, we have seen highly effective media activity to turn public opinion firmly against aggressive tax avoiders, both individual and corporate, leading to a change in behaviour. Starbucks voluntarily paid £20m in corporation tax and Goldman Sachs decided not to defer bonus payments from 2012/13 to 2013/14 to enable the recipients to access a lower additional rate of tax.
Since 2009, banks operating in the UK have voluntarily signed up to a code of practice on taxation under which they agree not to access tax avoidance schemes that, while apparently within the letter of the law, were outside the spirit of the law. This was a major development and a clear indication of the rise in importance of being seen to be doing the right thing.
While most would agree that such voluntary action ought not to be necessary, the GAAR is a recognition of the fact that the words of specific and targeted legislation alone will sometimes (perhaps often) not be enough.
Since the banks’ code of practice was introduced, there have been misgivings over its existence. Most seem to agree with its broad principles but have also been worried about the amount of unchecked power it gives to HMRC.
It seems that the only right of recourse for a bank if it feels HMRC has acted unfairly – such as by making public the fact that a bank has not signed up to the code – is to apply for a judicial review. However, most agree that this is a very difficult means of redress to access.
The latest development in relation to the code is that a deadline of Wednesday 4 December was set for sign-up to a strengthened code of practice. HMRC will be given power by legislation to name banks which have not signed up as well as those which have. HMRC’s aim is that the naming of those which have signed up will deliver a positive “reputational dividend”.
Understandably, the banks are concerned about this new HMRC power to name and shame, in effect unilaterally. The commercial impact on reputation can be significant and, once named, the damage will have been done.
HMRC says it would be obliged to consider the advice of an independent reviewer and, if it ignored the advice and named a bank regardless, it would have to say why.
Apparently, there will also be enough time for a bank to start legal proceedings before it is named. Further commentary on the banking code of practice was given in the recent Autumn Statement.
There is a general feeling among banks, including those that have signed up to the code, that the power given to HMRC under it is too great.
That businesses and individuals would be influenced by the possibility of negative public opinion, even where their actions (such as carrying out some tax planning) are within the letter of the law, represents a significant and very real change in relation to tax avoidance in the UK. This change will be further reinforced once we get a clearer understanding of how the GAAR operates in practice.
The good news for financial planners is that they can continue, with confidence, to access reliefs and allowances intentionally given by the legislation and tax planning schemes that have been accepted by HMRC. Such arrangements, by virtue of their “accepted” status, can be put forward in the knowledge that competition from seemingly more exciting (and aggressive) arrangements has largely fallen away.
Tony Wickenden is joint managing director of Technical Connection
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