It seems that the debate about the extent of the taxman’s investigative
powers has reared its head yet again.
In June, a revised code of practice had been issued quietly to tax inspectors
but was only noticed by leading tax practitioners at a recent meeting.
“Avoidance,” it started, “is not defined in the Taxation Acts and attempts to
define it have not in the past been successful. One definition is ‘a situation
where… more tax would have been paid if Parliament turned its mind to the
specific issue in question’.”
The implication seems to be that a taxpayer could be investigated by
they have actually broken any laws.
The guidance has sparked belated anger among accountants and lawyers. One tax
lawyer told Accountancy Age they were “angered when HMRC… seem to think they
make the rules rather than the courts, Parliament or Europe.”
Another correspondent expressed outrage at what they called “tax avoision”
guidelines, where HMRC has been perceived to pursue legal tax avoidance cases
almost as if tax evasion has occurred.
Warburton, private client director at
agrees: “The government has tried to treat avoidance and evasion as if one is
leading into the other,” he said. “It’s perfectly clear avoidance is legal,
evasion isn’t; but the Revenue is trying to muddy the lines between them.”
However, Chas Roy-Chowdhury, ACCA’s head of taxation, didn’t think HMRC’s
tone has changed “from before the downturn”, saying HMRC had “just taken a new
angle [in their definition of avoidance] in deciding what Parliament would have
“But [that could be] pretty dangerous because nobody can really know what
“While businesses and individuals obviously need to be careful they arrange
their tax affairs in a way that they’re above board and legal, investigations
into them by the revenue could end up in lots of extra expense which doesn’t
result in any gain or loss Parliament could rule either way,” he added.
Tax practitioners are, of course, familiar with the Ramsay v IRC (1981) case,
where Lord Wilberforce ruled that taxpayers were permitted to arrange their
financial affairs to reduce their tax liabilities, although the distinction
between unacceptable tax avoidance and acceptable tax planning has remained
unclear ever since.
HMRC said in the aforementioned code of practice that “fiscal authorities are
becoming less and less concerned with fine distinctions between tax planning and
tax avoidance and more concerned with the effect on the yield to the Exchequer.”
With government debt at such high levels, it is understandable that the
taxman will try to recoup as much tax revenue as it possibly can. But is going
after law-abiding citizens and companies before Parliament have even ruled
whether the laws have been broken really the answer?
Warburton, for one, is very concerned. “It’s a fundamental right of democracy
that Parliament sets the laws, not some unelected body,” Warburton says.
“For the revenue to slip this through for inspectors to milk money from
hard-working businesses without laws being passed, is unacceptable.”
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