Wealthy investors protest against new UK tax rules
Proposals to tighten the screws on users of tax avoidance schemes in next week’s Budget have sparked protests from wealthy investors and their advisers who say the measures would be retrospective and “completely contrary to natural justice”.
Thousands of financiers, celebrities, entrepreneurs, and other wealthy users of tax avoidance schemes will potentially be hit by proposals to clear a backlog of 65,000 cases by making them pay disputed bills upfront.
The Treasury is considering targeting all users of schemes dating back to 2004 that are still under investigation. The measure would build on plans unveiled in December to raise £800m by 2015-16 by requiring upfront payments in cases where a court has ruled against a similar scheme.
The escalation of the Treasury’s efforts to stamp out aggressive tax avoidance comes amid frustration over the length of time it can take to make tax avoiders pay up, even when their schemes are expected to fail in the courts.
The Treasury said its proposals would “significantly shift the economic balance” by removing the cash flow advantage to individuals holding on to the disputed tax – sometimes for years – while their case is being investigated and litigated.
Stephen Coleclough, president of the Chartered Institute of Taxation, said the measures would hand “almost unprecedented executive powers” to HM Revenue & Customs. “Without exception, our members have expressed their deep concerns about the lack of safeguards in the proposed measures and what they see as the erosion of the principles of a fair justice system,” he said.
The institute said it had had an unprecedented response from its members to the latest proposals, which it described as “unreasonable” and retrospective. It accepted the previously announced plan to tackle the logjam of legal cases was reasonable, although it said this should be regarded as a time-limited emergency measure.
The Institute of Chartered Accountants in England and Wales said the prospect of extending upfront payments to all avoidance schemes notified to HMRC would hit schemes entered into many years earlier, including some which had only been notified to HMRC as a precautionary measure. It said: “In principle we believe that retrospective legislation of this nature is wrong.”
HMRC was being given powers “akin to prosecutor, judge and jury with no right of independent appeal”, it said. “The proposals lead to a potential position that taxpayers are guilty until proven innocent, with wide powers given to HMRC at the expense of taxpayers that could be abused and be used in inappropriate cases, for example where the tax planning works but HMRC just do not like it.”
The Treasury has said the proposals do not change the underlying tax rules, describing them as “effectively an extension of the terms and conditions taxpayers may have to accept when deciding to use an avoidance scheme”. Taxpayers could continue to take their case against HMRC to the courts and, if successful, their money would be returned with interest. HMRC has won more than 80 per cent of avoidance cases that it litigates.
The number of new tax planning schemes has fallen sharply, with 77 launching in the year to September 2013. The move away from contrived and artificial schemes has accelerated as a result of a public backlash, heightened reputational risks for tax avoiders, a new anti-abuse rule, an attempt to block tax avoiders from public contracts and a code of conduct for banks that used to facilitate many schemes.
Credit: Financial Times