Open season on disclosure

All legitimate tax advisers face the shadowy competition of the man on the
next barstool, who whispers to the client: ‘I could have got you a better deal.’
Tightening disclosure rules are handing the competition a new line.

The disclosure of tax planning is necessary. Tax avoidance, though, can be
useful in exposing flaws in the tax system. The sooner it is known, the sooner
the lessons can be learned.

The trouble is, it’s not clear what you have to disclose. The ‘filters’ are
vague – you have to guess, for example, whether anyone could have got a ‘premium
fee’ from anyone (not just your client). The result? Reputable advisers will err
on the side of caution (but not too much, as they know HMRC doesn’t want to be
‘drowned in paper’).

Rogues will always find some reason why they don’t have to. Counsel may
confirm that reason, after all, there will be room for legitimate doubt. And the
clients will carry the cost of going through all the hoops – or filters – even
if by any standard there was no need to disclose all along.

Of course, this imbalance is a familiar feature of our tax system. It’s
easier to beat up legitimate taxpayers for failures at PAYE compliance, or to
catch out people registering for VAT for not doing so sooner, than it is to
catch the ‘pay me in cash’ brigade.

From 1 August, the disclosure rules will be extended. Why? Well the number of
disclosures was falling off. But didn’t that mean the policy was working? No,
because the tax industry was still in business. Discount the idea that an ever
more complex system creates even more need for advice. So now, virtually all
areas and all taxes are covered.

Also there are more hoops to go through – seven or eight, instead of three –
before you can conclude you don’t have to disclose. Oh yes, and now the
‘filters’ are called ‘hallmarks’, but let us call them ‘hoops’.

So more costs for the innocent. But it’s still not clear whether the man on
the barstool will be caught. After all, if there are so many hoops, and HMRC
still doesn’t want to be drowned in paper. There will be more questions about
each hoop.

HMRC has done a great job in consulting over the change and listening to
valid points raised.

But this has been a damage limitation exercise. The root cause of the problem
is that the rules were not clearly targeted and the extension announced without
any evidence of need.

The man on the barstool will still say, ‘I could have got you a better deal’
and then add, ‘and I wouldn’t have had to tell them either’.

John Cullinane is president of Chartered Institute of Taxation and a tax
partner at Deloitte LLP

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