The long-term viability of artificial tax avoidance schemes hinges on the
forthcoming finance bill, with experts divided on whether it will suppress their
use entirely, or give way to new tax loopholes.
As Accountancy Age reported last week, tax advisers have observed a
correlation between the increase in redundancies with a growth in the number of
tax avoidance schemes. But it remains questionable whether the finance bill –
due for release following the Budget on 22 April – will strengthen the
government’s tax avoidance powers.
According to Nigel Davies, principal at ITEPAdvisors, the recession seems to
have pushed many more taxpayers to focus upon their individual wealth,
increasing the likelihood they will enter into some form of avoidance.
Davies says the introduction of ‘new and complex’ legislation has the
potential to limit opportunities in one area and create them in another.
‘Given the rate at which legislation is being introduced at the moment, I
would not bet against another scheme coming out of this year’s Finance Act,’ he
As Davies points out, any new legislation is subject to the ‘law of
unintended consequences’, which means it can do the opposite of what was
intended; in this case, provide new opportunities for avoidance.
He says the legislative framework underpins both the development and
distribution of these schemes, which take advantage of loopholes in new pieces
‘Presumably, the modus operandi of a scheme developer is to look at the
exemptions, and then seek to create the facts that make it possible to fall
within them. Once one learns of the shelter being offered, it is generally not
too difficult to reverse engineer it,’ he says.
But as Mike Warburton, senior tax adviser at Grant Thornton, points out, the
Tax Avoidance Disclosure regime – introduced in 2007 to force tax advisers to
declare a scheme to the taxman almost as soon as they put it into action – has
allowed the government to stamp out many artificial schemes. The finance bill is
likely to strengthen the regime.
The sheer volume of many disclosures has led the government to investigate
arrangements it considers unacceptable under the terms of the regime.
One £200m scheme was uncovered by HM Revenue & Customs in January this
year, and shut down within a matter of days.
A statement by HMRC at the time said the scheme sought to abuse tax reliefs
available for employment-related liabilities incurred by current and former
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