Budget 2010: Tax avoidance crackdown has more bark than bite

The government’s stated crackdown on avoidance and evasion has been reflected
by a raft of measures in the Budget, but do the figures hold water?

Advisers remain sceptical, and have urged the government to slice through the
complexity of existing legislation if they want the UK’s coffers to truly

The moves – which include clampdowns on companies’ double taxation reliefs,
income tax advantages gained by securities transactions, stamp duty avoidance,
and the strengthening of disclosure rules for tax planning schemes – are set to
rake in £1.5bn in additional yield by 2013, according to Treasury estimates. The
measures will also protect £4bn of existing revenues.

The warning is emphatic from Whitehall. “The government is taking further
action to change the game for those seeking to bend and break the rules on tax.”

However, advisers suggest that the warnings could mostly be rhetoric, and
question the figures. “You can never prove it because it simply hasn’t happened
yet,” said John Whiting, head of tax policy at the CIoT. “I find it surprising
it will raise so much money because they are all very narrow measures. It’s very
difficult to say one way or another.”

The government is also relying on all those companies and individuals
remaining in the UK to meet its goals.

Michael Wistow, head of tax at law firm Berwin Leighton Paisner, warned that
the announcements did little to “reassure” businesses and individuals
considering moving out of the UK.

Even so, some in the profession are still bracing themselves for a backlash
in the future. Chas-Rhoy Chowdhury, head of taxation policy at ACCA, believed a
focus on tax advisers’ conduct would come later in the year.

But in one key area the government appears to have compromised. Accountancy
commentators have panned the tax avoidance disclosure scheme for being too
heavy-handed and employing a scattergun approach, but Whiting said the rules
had actually been watered down.

Rules on when a promoter first communicates a “fully designed” scheme have
been focused to guard against advisers being punished for giving clients a
casual rundown of a possible tax planning opportunity.

There is also a move to pinpoint the promoter of a scheme rather than a firm
which is only the middle man.

“It appears to target the mischief makers directly rather than the firms who
are bending over backwards to comply,” he said.

However, others are still worried about the complexity of the legislation.
Paul Harrison, head of tax at KPMG, supported attempts to stamp out tax evasion
but warned

HMRC needed to take care to differentiate between those who have deliberately
withheld tax and those had unwittingly fallen foul of the “notoriously complex
tax legislation which governs off-shore income and gains for UK residents”.


Avoidance legislation is complicated by definition. The government would
do better to introduce rules that are easy to understand and implement for
companies in addition to being more difficult to avoid. The double effect could
benefit the UK more than an avalanche of new rules.

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