HMRC asked tax avoider to sign pledge not to engage in practice again
Department says letter was sent as part of series of measures to discourage wider issue of tax avoidance and was not a legally binding document
HMRC wrote to a tax avoider asking them to sign a pledge never to do it again, it has emerged.
The letter was intended to make the recipient think more carefully about their tax arrangements, rather than to act as a legally binding document, HMRC said. But its tone has been criticised as “schoolmasterish”.
“It smacks of being told to write lines,” Tina Riches, a national tax partner at accountancy firm Smith and Williamson, told the Financial Times (£). She said she would urge a recipient not to sign the letter.
She was backed up by Neal Todd, a partner at law firm Berwin Leighton Paisner, who told the paper that while the letter indicated it would have no impact on the handling of future tax affairs, signing it could nevertheless leave someone a “hostage to fortune”. He said: “Even if you were a man of honour and abide by it, one man’s aggressive avoidance is another man’s sensible planning … The worry is that at a later date, HMRC takes the view that something is avoidance, and it could be rather damning if a serial avoider is seen to have gone against their word.”
HMRC confirmed it had sent the letter to one person who had engaged in tax avoidance and said it was part of a series of measures it has taken in order to discourage the practice.
A spokesman said: “We have seen that behavioural insights works in dealing with tax avoidance. We know from experience that many people who get involved with tax avoidance schemes later regret the time and cost of disentangling themselves. We would rather people avoided that problem than the tax that will ultimately have to be paid.”
While tax avoidance is defined as being within the letter of the law, HMRC can crack down on those schemes it believes are being used in a way that parliament did not intend – such as a film that is never made and which the authorities can demonstrate was never really going to be made.
However, there are many forms of tax avoidance which are perfectly legal and acceptable to the authorities. Avoidance is distinct from tax evasion, which is illegal.
A source suggested that the letter in question was unlikely to be used again, having been the subject of media reports.
