WESTMINSTER IS CAUGHT UP in an "anti-tax avoidance arms race" that is in danger of distorting the debate, and could have a chilling effect on genuinely commercial activities, according to Conservative MP John Redwood.
The Treasury yesterday announced proposals that would see users of tax avoidance schemes compelled to pay their tax bills upfront while HM Revenue & Customs conducts investigations into their arrangements.
Meanwhile, the taxation of limited liability partnerships (LLPs) is under scrutiny, with HM Revenue & Customs and the Treasury concerned that it allows "disguised employment" to take place, whereby people who are ostensibly partners, in fact have a guaranteed income and little decision-making power.
However, steps to prevent that from taking place are in danger of impinging on innocuous, commercially-motivated activities, stakeholders maintain.
"There is an arms race over anti-avoidance [between the main parties]", Tory MP Redwood told a New City Initiative roundtable in London. "'Avoidance' is a terribly convenient idea for the political classes. It puts you [the taxpayer] on the defensive, it implies you're doing something wrong, you [the government] don't have to threaten people with higher tax rates, but you find ways under anti-avoidance to take more of their money off them."
Redwood added a "concept of good and bad avoidance" is needed in order to further the debate.
He said: "There's a lot of good avoidance - and there must be good avoidance - because it's actively encouraged by the government. I've explained to my parliamentary colleagues that they're all tax avoiders, and I know they're all tax avoiders because they all contribute to the parliamentary pension fund.
"One of the main ways that people avoid tax in Britain is by putting money away for their future retirement. It's one of the many purposes the government says is wholly worthy, and one of the things my colleagues do is move on from dabbling in pensions to become serial avoiders and they take out an ISA.
"So we need a concept of good avoidance and bad avoidance."
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