Tax avoiders to pay up while HMRC investigates schemes

USERS of tax avoidance schemes are to be compelled to pay their tax bills upfront while HM Revenue & Customs conducts investigations into their arrangements, under proposals announced by the Treasury.

The consultation will look at proposals to include any disputed tax associated with schemes that are subject to the Disclosure of Tax Avoidance Schemes (DOTAS) regime and taxpayers engaging in the most abusive tax avoidance and therefore being investigated under the government’s General Anti-Abuse Rule (GAAR).

The move will eliminate the tactic some employ of holding onto disputed tax while their case is investigated and litigated, which can take years.

As things stand, HMRC currently wins 80% of tax disputes that it litigates.

Although not changing fundamental tax rules, the move will significantly shift the economic balance and boost HMRC’s chances in resolving the approximately 65,000 cases it is currently investigating.

It is also thought it will act as a deterrent to those tempted to exploit the cashflow advantage allowed by the current rules.

At present, taxpayers must make a disclosure to the taxman when they enter a tax avoidance scheme, and in doing so accept HMRC may investigate and challenge it.

Taxpayers will be free to continue to make their case to the tribunal or court and, if successful, their money will be returned with interest.

Exchequer Secretary to the Treasury David Gauke (pictured) said: “The government has been absolutely clear that we will not tolerate aggressive tax avoidance and will take action to make sure people pay the taxes that are due. While the vast majority of taxpayers play by the rules, there is still a minority who will engage in artificial schemes as a way to avoid their responsibilities.

“The consultation we are publishing today will not only seek to remove the advantage that tax avoidance schemes users have; it will send a clear message to anyone thinking of using these schemes to avoid paying the tax that is due – tax avoidance doesn’t pay.”

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  • LK

    What is an avoidance scheme? I thought these were tax-efficient investments.
    For consistency the same rules would surely have to apply to EIS schemes?
    Is the purpose to discourage any tax relief on any investment?

  • Madoff

    Tax-efficient investments are promoted by the government to encourage investment or to stimulate parts of the economy. The government is free to vary the amount of relief available and the sectors it wishes to promote. Promoting these schemes is in the wider public interest.

    By contrast, aggressive avoidance schemes go against government’s intentions by exploiting loopholes in the law to benefit clines at the expense of the wider community. Such schemes are against the public interest but the professional bodies turn a blind eye to their promotion either because they have so many members promoting them or, possibly, because they claim not to understand what it means to “serve the public interest”.

    Professionals should aim to serve their duty of care to clients but subject to that not being against the interests of the wider community. Aggressive tax avoidance breaches that constraint and is against the public interest as generally understood.

  • Paula2

    If they can beat the crappy interest paid by my bank I may be tempted to declare a spurious avoidance scheme. Is interest from HMRC tax free?