Tax officials soften stance on avoidance

It was announced in August that HM Revenue & Customs would adopt a less
combative approach to resolving tax disputes with businesses. This was a step
that had been anticipated in the profession for two broad reasons. The first
reason was simply that the previous, somewhat “macho”, approach was
counter-productive since it locked up tax disputes for a very long time and did
not produce the expected revenue to the Treasury. After all, taxpayers are human
and if they are the subject of an aggressive stance, rather than cave in, they
often become equally intransigent. Secondly, of course, the Treasury needs the
money at the moment therefore, by moving towards a more reasoned approach,
particularly one involving settlements, it is likely that there will be a surge
in money due to the HMRC in the next year or so, as the parties meet halfway and
some tax is paid.

It also has to be said that this is a sign that perhaps the Revenue’s
clampdown on aggressive avoidance has come to an end on the basis that it has
been very successful. The disclosure rules have identified tax schemes quickly;
the success in the courts which HMRC has achieved in some but not all cases has
been helpful; and the discussions with the profession, encouraging it to move
away from avoidance has had a definite effect.

So, the question arises as to what accountants who manage offshore money
should do in these new circumstances. The position remains, of course, that
where evasion is concerned and where aggressive tax avoidance is being carried
out by multiple tax avoiders (as Dave Hartnett would call them) there is no
change: HMRC will continue to investigate and challenge these individuals
strongly.

However, in the sort of grey areas where, say, the transfer of assets abroad
rules apply (the old ss.739 and 740) and where perhaps the remittance rules are
in point, then one can expect a more understanding approach from HMRC. Further,
if there are arguments that can be put forward on a reasoned basis (including,
perhaps, the so-called escape provisions by which a commercial rationale for
moving assets abroad trumps the anti-avoidance provisions – ITA 2007 s.737) then
one can expect to be able to discuss with the relevant tax official the various
arguments in support of the taxpayer’s position on a more sensible footing.

So, for the future accountants, it is to be hoped, should see a move back to
the “good old days” at least to some extent when one could have meaningful
debates with HMRC with a view to finding the correct answer even if this was not
the answer the Revenue perhaps would have wanted. Further, where disputes are
ongoing then accountants should probably seek to negotiate settlements over time
and should do so with more confidence in the light of the new announcement: HMRC
may be more amenable than in the recent past.

Patrick Way is a member of the Chancery Bar Association and barrister at
Gray’s Inn Tax
Chambers.