THE GOVERNMENT is to introduce a new deterrent to tax avoidance by tying up disputed tax liabilities so they cannot be used as cash flow advantage.
Experts described the move as a clear effort to refresh the coalition’s approach tax avoidance.
As the chancellor finished his Budget speech, the government released its document for a new consultation called Tackling Tax Avoidance.
Measures in the document said the government will threaten the users of aggressive tax schemes to pay the disputed tax early or face late payment penalties.
“It will bring forward proposals to list specific schemes in regulations, with a range of options to ensure that users of the listed schemes do not benefit from retaining the tax in dispute,” the document said.
“Users of schemes will be encouraged to pay the disputed tax earlier than is currently required or will face an additional charge for late payment of the tax when it is found to be due.”
Francesca Lagerberg, tax partner at Grant Thornton, said: “What they are doing is creating an environment in which people think twice about entering into a tax scheme.”
Chas Roy-Chowdhury, head of tax at the ACCA, said: “They want to make sure people aren’t flying a kite.”
“The low rate of interest charged by HMRC meant that wealthy taxpayers were effectively getting a cheap loan from the Government whilst waiting to see whether an avoidance scheme would work. Plans to introduce an additional charge for late payment of the tax due will render such a strategy ineffective,” said Adam Craggs, tax partner at City law firm Reynolds Porter Chamberlain.
“There will now be a significant disincentive for taxpayers to use aggressively marketed tax avoidance schemes.”
The Tackling Tax Avoidance document refreshes the coalition’s attack on tax avoidance after it became an election issue when the Liberal Democrats claimed that up to £7bn could be saved through clamping down on avoidance.
That figure was regarded with scepticism and avoidance measures in today’s are estimated to save the government just £900m. Experts told Accountancy Age that there had been a ‘reality check’ on the sums that could saved through an avoidance campaign.
The avoidance strategy will also proposes a “rolling review” of high risk tax areas.
“Users of schemes will be encouraged to pay the disputed tax earlier than is currently required or will face an additional charge for late payment of the tax when it is found to be due,” the consultation document said.
The first two high-risk areas targeted by the strategy will be income tax losses and unauthorised unit trusts.
The review will look at reliefs for income tax losses and their purpose can be maintained while at the same time shutting down the opportunity for avoidance. Several schemes have been closed down in the past.
The Treasury has also moved to issue its new protocol for changing tax law outside the normal schedule of events such as Budgets.
The protocol accepts that backdating law changes will only take place under exceptional circumstances and agrees to consider consulting privately and discretely before changes are made.
Picture above: A troupe of George Osbornes from campaigning organisation 38 Degrees dressed as Artful Dodgers were outside parliament waiting to find out what the budget has in store for tax dodgers (© 38 Degrees)
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