Labour signalled its intention to crack down on tax avoidance and evasion when it came to power in 1997. But, as it started putting its ideas into action this year, there were signs of a growing realisation of the tricky practicalities inherent in many of them.
Proposals for the long-awaited general anti-avoidance rule were finally published in October, after what was described as a gestation period of elephantine proportions. Practitioners said the Treasury’s failure to define tax avoidance effectively would create doubt and uncertainty even in legitimate business transactions.
The good news, however, was that the government said it would delay the GAAR’s introduction until at least 2000, and would consult further on the issue.
Tax practitioners were more surprised when a consultation on the treatment of VAT groups was announced in the March budget.
The main proposal, to restrict VAT grouping to fully taxable companies, could have landed the UK banks and insurance groups with an increased VAT bill of up to #1bn.
But with the growing realisation that most of these large groups would go to the trouble of restructuring their operations to avoid this, the government’s enthusiasm began to wane.
As the threat appeared to rescind, however, a new and potentially more dangerous one emerged. In the consultation discussions, it became clear Customs & Excise was seeking wide powers to vary the composition of VAT groups. Although it is not yet clear what form these powers might take, they would be felt not just in the financial sector, but across the board.
On a practical level, the biggest concern of most tax managers is the introduction of corporate SA next year. Seen as something of a Trojan horse, fears are growing that its introduction will unleash armies of tax investigators to pore through the minutiae of a company’s financial affairs.
The system will also bring forward tax payment dates dramatically for large companies, which face the challenge of estimating tax liabilities and making their first payments six months before year-end. Estimates of the boost this will give Inland Revenue coffers have been as high as #20bn.
It has already enjoyed a boost in receipts from individual SA.
Increased honesty among taxpayers sparked by the new regime is cited in its annual report as a reason for the #13.7bn boost in tax receipts this year. The report also claimed: ‘Taxpayers and their agents coped well with the new system. We received fewer calls for help than planned and the standard of the tax return completion was far higher than we expected.’
Countless tales of Revenue ineptitude and delays in dealing with SA received by Accountancy Age over the last year contradict this somewhat rose-tinted view.
As the year comes to the end, a new threat has appeared – EU tax harmonisation – which has put tax stories on the front of even the raciest tabloids.
This is the story likely to dominate the 1999 tax year review.
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