Over the past few articles I have looked at what is required for the issue of follower notices, accelerated payment notices and partnership payment notices.
All these are intrinsic to HM Revenue & Customs’ strategy for getting tax from those who have adopted what, in its view, amount to aggressive tax avoidance schemes without having to wait for the outcome of the relatively long- winded assessment and appeals process. This strategy is widely regarded as a bit of a game changer, and it is where a lot of the recent publicity over tax avoidance has been focused, especially with the recent failure to have the payment notice process ruled invalid by judicial review.
Just to be clear, though, the APN process does not deny the right to appeal against an assessment. If you have a notice issued then the tax ‘at risk’ will ‘rest’ with HMRC pending the outcome of the appeal, not with the taxpayer.
The HMRC rationale for this is “it’s only fair” and “goes with the territory” that you have to accept if you enter into a scheme that has a Dotas reference number.
Of course, the recent proposals and draft regulations to expand the number of schemes for which Dotas reference numbers can be issued are a really important part of this strategy to increase the number of potential APNs – generating transactions that are in the pipeline.
The ability to “get tax in” on account and ahead of the appeals process being considered has understandably been seen as highly newsworthy. This is especially so as a number of relatively rich and relatively famous people have been affected.
But despite all this interest in advance payments, it is important that financial planners and their clients do not lose sight of the much bigger picture in relation to the relentless HMRC fight against what it sees as unacceptable, aggressive tax avoidance. ‘Avoidance and legal interpretation’ does after all contribute about 24 per cent of the £35bn tax gap.
A really good reference point is the Government policy paper on tackling tax evasion and avoidance. It has a very strong focus on evasion, especially offshore, as this is a strong contributor to the tax gap. But it also sets out a very clear and multi-faceted strategy to combat domestic tax avoidance. Yes, it was issued under the Conservative-LibDem coalition but it was issued in March and its contents remain, as far as we know, very much part of the policy of this current Government.
In the section on domestic avoidance (not an explanation of how to avoid doing the washing up), HMRC states that over a relatively short period the strategy has transformed the way avoidance is tackled.
Rather than just acting to block individual abuses, the radical new approach has altered the underlying economics of avoidance by accelerating the payment of disputed tax and stemmed the supply side by acting against the highest-risk tactics of avoidance promoters.
These actions have been a significant leap forward, but more can be done.
In the March Budget, the coalition announced it would introduce a range of new measures for those who persistently enter into tax avoidance schemes that HMRC defeats.
Avoidance is the preserve of a persistent minority. The measures that ministers have taken already are working to reduce that minority. Among those that remain, there are some who avoid tax again and again, often using more than one scheme each year, knowing that some will fail but hoping that one will not.
The Government also announced it is asking the regulatory bodies that police professional standards to take a firmer lead in setting and enforcing clear professional standards for those who help and promote avoidance. This is to protect the reputation of the tax and accountancy profession as a whole as well as for the greater public good.
No-one can be in any doubt about the level of official commitment to stamping out what is thought to be aggressive avoidance. The days of relying on the long-winded process of litigation have long gone.
That is not to say litigation has ceased to be part of the anti-avoidance strategy. It has just been substantially supplemented by publicity (naming and shaming) and legislation, both in the shape of targeted anti-avoidance rules and the general anti-abuse rule.
Tony Wickenden is joint managing director of Technical Connection