PBR 09: Darling strengthens powers to plug loopholes

The landscape for tax avoidance is set to become even more hostile after government plans were unveiled in the pre-Budget report to strengthen the rules for disclosing schemes exploiting tax loopholes.

Tough new anti-avoidance proposals will be rolled out, demanding harsher penalties for failing to disclose aggressive schemes to the authorities.

There is also a requirement for promoters to provide client lists and declare which list is using a particular tax plan.

This will enable HMRC to cross-check whether a taxpayer has declared in their tax return whether they are using a scheme.

These are all part of HMRC's moves to keep tabs on murky avoidance plans, which constantly evolve to take advantage of loopholes in tax legislation. An HMRC source said the proposals taken together will protect £400m of revenue by 2013/2014 and, with HMRC's current stance, the likelihood of more measures in the future is high.

Tax advisers welcomed the move but also warned that those who are acting legitimately and complying with the rules should not be targeted.

"HMRC is just clamping down on the ones who are playing fast and loose and it's a sensible move providing it's done sensibly and appropriately," said John Whiting, head of tax policy at the Chartered Institute of Taxation.

"What we want to see is that this is focusing on those that are completely abusing schemes," added Whiting. "In our talks with HMRC we know that there are some advisers who are 'playing the game'. That's why we need this action to be localised."

Caspar Fox, tax partner at law firm Eversheds, said: "HMRC is persevering with this [the disclosure regime] and getting goods results from using it."

However, HMRC is doing its best to avoid the 'sledgehammer to crack a nut' approach in working with advisers. "The relationship with tax advisers is hugely important," said an HMRC spokesman. "We've got to have a very helpful, open and trustworthy relationship with the profession."

But true to form, HMRC's velvet glove hides an iron fist. Separate from avoidance schemes, £25m is lost annually, according to estimates, through deliberate contrivance by advisers to conceal client assets or other failures to give an accurate picture of a taxpayer's circumstances, HMRC said.

Alongside, HMRC plans to publish the names of tax avoiders, the taxman has now warned that errant advisers face the same fate.