Paul Draper, Tax partner at Clarke Nicklin LLP, reviews some of the Budget’s proposals working their way into law.
Many people have entered into tax planning arrangements over the years. A lot of these people will have done some straightforward planning and not one of the aggressive avoidance schemes that have been marketed (anyone remember Gary Barlow?).
Most people would draw a distinction between reasonable tax planning which is acceptable and very aggressive avoidance which is not. The tax legislation does attempt to draw such a distinction and it does so through two main measures:
DOTAS (disclosure of tax avoidance schemes). Introduced in 2004. Broadly, if the planning scheme contains certain features or hallmarks it must be fully disclosed to and registered by HMRC. The basic idea is that HMRC then have the opportunity to quickly tackle the scheme. Generally, DOTAS targets the mass- marketed schemes put forward by promoters but other more traditional planning can also be caught.
GAAR (general anti-abuse rule). Introduced on 17 July 2013 to apply to planning entered into after that date. The basic aim is to tackle “abusive” tax avoidance of all types. Abusive in this context broadly means something that a reasonable person would not reasonably do! Straightforward planning should not be caught but the scope of the GAAR has yet to be tested through the courts.
Up until the Budget in March this year people could enter into schemes or arrangements within the scope of DOTAS or the GAAR and have the ability not to pay the related tax until the efficacy of the scheme or arrangement was determined in Court or at Tribunal. Often this meant no payment of the tax at stake for a long period with some schemes still running and not agreed for a decade or more.
However this year’s Finance Bill looks set to change that. Current measures being debated in the House of Commons give HMRC the power to make taxpayers pay tax related to certain schemes/planning upfront and accelerate the payment of disputed tax on others. These new powers come in three parts:
DOTAS/GAAR arrangements and schemes
Upfront payment can be enforced by HMRC on disputed tax payments with the facility to repay money to the taxpayer if the scheme is ultimately successful. This only applies where DOTAS or the GAAR applies to the planning or scheme concerned. HMRC have said they will issue a list of affected DOTAS schemes.
Follower Notices / Notice to Pay
HMRC can issue a notice to a taxpayer to resolve a dispute (typically long running) when another case or judicial decision considered relevant to their case has been decided. This power will also allow HMRC to issue a notice to pay the tax under dispute, within 90 days ordinarily. Typically this will cover marketed or promoted avoidance schemes.
More generally, HMRC may have the power to take money directly from taxpayer’s bank/ building society accounts if they think a taxpayer is deliberately not paying tax which due. This power should only be invoked after other collection methods have repeatedly failed. The Government is consulting on these proposals having published details on 6 May2014.
People may be affected by these proposals but not realise it yet. The proposals despite plenty of lobbying seem likely to become law in early July 2014 when the Finance Bill usually receives Royal Assent. Anyone who thinks they may be affected needs to consider taking advice, probably from the people who originally advised or promoted the arrangements, and think particularly about what the cash flow effect could be if HMRC can enforce payment. It will take some time before HMRC do start issuing notices but early action now will help people who are affected to manage their affairs. If potential insolvency issues arise then legal advice should also be taken.
Paul Draper can be contacted at Clarke Nicklin LLP on 0161 495 4700 or by email: email@example.com