The government has signalled that it plans to implement the majority of its proposals to force payment of tax upfront when individuals have signed up to a tax scheme which is subsequently found to contravene avoidance legislation and the measures will be enacted in Finance Bill 2014
The consultation, Tackling marketed tax avoidance, set out proposals, including draft legislation, to implement the Chancellor’s Autumn Statement announcement that accelerated payment of tax would be required from taxpayers involved in avoidance disputes where a ‘follower notice’ has been issued.
It also included proposals to extend accelerated payment to taxpayers involved in avoidance schemes:
• that are within the Disclosure of Tax Avoidance Schemes (DOTAS) regime; or
• where HMRC is undertaking counteraction under the General Anti-Abuse Rule (GAAR).
Over 840 responses were received, including over 400 from individuals who had signed up to a campaign website.
Commenting on the responses to the consultation, David Gauke, Treasury secretary, said: ‘I appreciate that some respondents contended that all tax should sit with the taxpayer until it is determined by a tribunal or court that they have to pay it.
‘We do not agree with this view. It is not what, in practice, happens now in many cases; and, in the clearly defined circumstances identified in the consultation document, we believe that the case for extending the circumstances where disputed sums are held by the Exchequer is convincing.’
Around 80% of cases that have been decided by the tax tribunals and courts in recent years have been won by HMRC, and many others settle without litigation, but this often follows several years of enquiry, investigation and litigation, during which time the majority of the taxpayers involved have been able to enjoy the use of the tax that they were trying to avoid. The government’s view is that this position is unacceptable.
‘We will, therefore, be taking forward the proposals in the consultation, which have been improved by suggestions in the responses. These new measures, allied to those on high risk promoters represent a further step forward, and we will continue to look for new ways to prevent, deter and counteract avoidance.’
The government refuted claims that HMRC already has sufficient powers to tackle this kind of tax avoidance under existing laws, stating that the tax authority needs additional powers to deal effectively with avoidance schemes marketed to a wide base of taxpayers.
In response to concerns about reliance solely on the term ‘principles’, it took this into account, confirming that that the new rules would be clear about the role of ‘principles’, stating that the proposal aims to focus on the tribunal or court’s reasoning behind the decision. The draft legislation will be amended to make this clearer.
The time limits framework set out in the consultation will also be retained as ‘separating the time limit for the “follower notice” and the related accelerated payment notice would add an unnecessary layer of administrative complexity and introduces a risk of error and misunderstanding’.
There were also criticisms of the retrospective nature of the legislation. The government stated that ‘this measure affects taxpayers who have used avoidance schemes in the past, but it is not a retrospective change to the substance of the issue’.
The government proposes to introduce legislation in the 2014 Finance Bill, and to apply the legislation to all disputes meeting one or more of those criteria, whether or not the dispute was in progress before or after Royal Assent.
HMRC will publish detailed guidance about the application of the proposed new rules by the end of May 2014. At the same time, it will scrutinise all existing DOTAS disclosures to draw up a list of which schemes will be subject to accelerated payment.
The consultation response document is available here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/298554/Summary_of_responses_TMTA_27032014_Final_v1.0.pdf
The Tax Information and Impact Note published with Budget 2014 on accelerated payments of tax associated with schemes covered by the DOTAS rules or counteracted under the GAAR is available from gov.uk https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293934/TIIN_5133_7040_and_9029_accelerated_payments_of_tax_DOTAS_GAAR.pdf