Legislation will be introduced in the Finance Act to widen the scope for taxpayers to pay tax upfront in the case of any disputed tax associated with the Disclosure of Tax Avoidance Schemes (DOTAS) rules or are counteracted under the General Anti-Abuse Rule (GAAR).
It is expected that tens of thousands of contractors who have used these schemes could be in the firing line.
Prosecuter, judge and jury
Some see this as a step too far without adequate safe-guards in place. In effect, allowing HMRC to be prosecuter, judge and jury.
The Chartered Institute of Taxation (CIOT) says that it understands and sympathises with the Government’s need to strike down mass-marketed tax avoidance schemes, but allowing HMRC to act as prosecutor, judge and jury based on the DOTAS regime, which was not meant to be used for these purposes, is going too far.
On the other hand, the equivalent rules applying to follower cases where an example case has lost before the courts, seem acceptable given the backlog of unsettled avoidance cases.
CIOT President Stephen Coleclough said: ”These measures introduce a significant retrospective change to the DOTAS regime without providing adequate taxpayer safeguards in the collection of the disputed tax in advance. Extending these measures beyond follower cases to DOTAS schemes raises serious questions about the breadth and proportionality of these proposals.
“The fact that there has been disclosure under DOTAS indicates an intention to be open and transparent with HMRC. It is unreasonable to now introduce a retrospective change of law leading to an accelerated payment of tax.
“It is now incumbent on HMRC to publish a list of DOTAS schemes to which this legislation will apply as quickly as possible”.
DOTAS was first introduced by Finance Act 2004. The rules place obligations on promoters of various tax arrangements to disclose details of the arrangements to HMRC. The purpose of the legislation is to identify the schemes seeking to avoid tax and those who use such schemes.
It enables HMRC to react quickly to avoidance schemes by introducing countering legislation and targeting resources into investigating users’ tax returns, and where necessary pursuing the matter through the Courts.
One law firm saw this as having the potential to drive avoidance underground.
Jason Collins, Partner at law firm Pinsent Masons, said: "The requirement to pay tax up front in new, disclosable tax avoidance schemes is likely to send promoters offshore - where they will not be subject to a penalty if they wrongly advise their customers not to disclose a scheme and thus avoid upfront payment. It may drive avoidance underground and reduce the information HMRC has about new forms of tax avoidance.
"HMRC is sending mixed messages. New tax avoidance opportunities have been announced for investment in Social Enterprise, Theatres, micro-businesses and others - but investors are becoming ever more wary of investing in anything which mentions "tax" because HMRC is developing a reputation for moving the goalposts and tying investors up in knots."
Accelerated payments of tax associated with schemes covered by the DOTAS rules or counteracted under the GAAR - HMRC briefing note
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Susie Hughes © Shout99 2014