The success of HM Revenue & Customs’ disclosure regime lies in the vital
part it plays in protecting the revenue by providing information about contrived
tax avoidance schemes, in close to real time, enabling the government to take
early legislative action.
Specifically targeted anti-avoidance measures, informed by disclosures, have
been a feature of recent finance legislation. More recently, in the pre-Budget
report 2006, measures were introduced which make a number of schemes that are
seeking to avoid payment of stamp duty land tax ineffective. Those were informed
by disclosures.
So if the regime works, why is the government proposing to amend it now? In
short, because powers are needed to deal with a minority of promoters who apply
avoidance techniques to the regime itself. Not surprisingly, the minority comes
largely from those organisations who specialise in aggressive avoidance schemes.
At the moment HMRC has no specific powers to investigate cases of apparent
failure to disclose a scheme. In practice our approach is to invite the promoter
to provide us with information and explanations as to why the scheme is not
notifiable.
Some promoters have effectively told us to ‘go away’. Others have offered
reasons as to why they consider the scheme is not notifiable. But even here
there is a problem because there is no specific mechanism to resolve a dispute
as to whether or not a scheme is notifiable. Penalty proceedings are not the
right way to resolve such disputes.
The net result is that an organisation who chooses to ‘play the system’ can
delay HMRC discovering details of the scheme for many months.
And of course the disclosure regime is all about timing the objective is to
obtain information in real time so that the risk to the revenue can be removed.
It is clear from our discussions with mainstream promoters that this situation
is widely known about. Indeed, mainstream promoters frequently ask us when we
‘are going to do something’ to ensure a level playing field.
The powers proposed would enable HMRC to explore the reasons as why a scheme
has not been disclosed and, where the evidence is sufficient, apply to the
special commissioners for an order declaring the scheme to be notifiable. We
believe this is a sensible and proportionate response to the problem and are
looking forward to the consultation.
Chris Tailby is HMRC’s director of the anti-avoidance
group