In my final article on Government action to combat domestic tax avoidance, I want to start with a look at HM Revenue & Customs’ plans to defeat schemes faster and with increased downside risk for users, promoters and intermediaries. A range of options will be considered, including legislative changes.
Building on the serial avoiders’ surcharge referenced in the first article in this series, the Government will consider whether it should introduce new surcharges or penalties for all avoiders. It should not be worthwhile to seek out and pay for an avoidance scheme and the advice on its use in an attempt to pay less tax than is due.
The Government will explore how to ensure promoters and users feel the full impact of their scheme being defeated in the courts. The Government will also consider whether it should target other sub-groups of avoiders and those with bespoke schemes.
As HMRC moves more processes online, it will be looking to utilise digital tools so that avoidance notifications can be warned of and issued earlier. It will also look for opportunities to exploit information more: for example, pre-populating tax returns and using intelligent automated prompts to challenge suspect or unusual behaviour.
On the increasingly important issue of timing, the Government will also consider whether further legislation is needed to stop avoiders from using tax administration processes and deadlines in an effort to frustrate or delay HMRC investigations.
Meanwhile, it will consider the impact of accelerated payment notices and the effect they are having on the avoidance landscape. It will look into whether the principle might be appropriate for different types of cases and whether it should be extended. Be warned: it has already introduced the APN process and defeated a judicial review, so it is now looking to move to the next level.
As a reminder, the accelerated payments regime has effectively changed the underlying economics of avoidance by removing the attraction of deferring tax while amounts remain in dispute.
From a HMRC standpoint, this new regime is having a very positive impact and is encouraging people to get out of avoidance altogether. It is ensuring a more level playing field, with tax being paid up front in avoidance cases. This puts avoiders in the same position as all other taxpayers: paying now and disputing later.
The Government is apparently committed to issuing 21,000 more APNs than the estimate originally announced, bringing in an additional £555m. These are cases that were already under investigation and which HMRC has now identified meet the criteria for the issue of APNs.
This will mean that, by the end of 2016, 64,000 users of avoidance schemes will have been required to pay tax up front. By the end of 2019/20, the measure will have brought in over £5.5bn in payments to the Exchequer.
So, what does all of this mean for tax planning? Simply put: concentrate on the tried and tested. If an avoidance strategy seems too good to be true, then it probably is.
The existence of consumer fear of arrangements that appear to be overtly aggressive has contributed to the material demise of the market for this type of scheme. This represents excellent news for financial planners that can articulate this truth and who found their planning strategies on tried and tested, non-aggressive but nevertheless highly effective strategies.
Included here would be registered pensions, Isas, collectives and insurance-based investments. Also included are investments generating business property relief and VCTs and EISs, all of which should continue to deliver the tax outcomes the legislation was written for.
Tony Wickenden is joint managing director of Technical Connection