Hartnett bemoans "opaque" disguised remuneration schemes

A LOOPHOLE in the HMRC’s drive to ensure taxation of “disguised remuneraton” involving offshore tax havens has been admitted by HMRC tax secretary Dave Hartnett.

He told the Lords Economic Affairs Finance Bill Sub-Committee: “Some of the offshore arrangements have been pretty opaque to us for some time.”

Hartnett said: “It is not always possible to use the exchange of information provisions under treaties and other things to expose those.”

The disclosure regime had done everything it could do “but where you have promoters outside the UK – there are a number of promoters of disguised remuneration schemes in the Isle of Man, in Jersey and in other low tax jurisdictions – the disclosure regime has no bite, and that has been the difficulty”, he said.

The committee has been taking evidence on the technical aspects of the Finance Bill, including a major crackdown on “disguised remuneration”, which Hartnett told peers involved 50,000 employees of 5,000 employers and £1.5bn in potentially lost revenue.

He strongly denied that tax authority forecast that the crackdown will secure £750m meant HMRC had given up on half, stating this was only a “quite conservative” estimate.

Responding to other witnesses’ claims the crackdown could have been achieved with less detailed legislation, he said that would have resulted in large numbers escaping through gaps “and the nation would have lost a fortune”.

He told peers the coalition government was not as ready to use retrospective legislation as the last Labour administration, whose threat to do so caused uproar, but he warned that ministers might be persuaded to do so if he were to warn them of a wholly exceptional case involving the loss of huge amounts of revenue.

He said “disguised remuneration” was complex, ranging from gold coins to employee interests in offshore trusts and admitted legislation on readily convertible assets in 1998 had “perversely” incentivised people into employee benefit trusts.

Hartnett also expressed his view that reducing tax rates does not necessarily improve compliance.

Anti Avoidance Group head Sue Walton said HMRC was in favour of developing “principles based” tax law but this would not work in every case.

The committee is exercising powers that allow unelected peers to examine the process of taxation but not its merits, which remains the preserve of elected MPs in the Commons.