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Tax disputes & investigations & UK trusts, tax and estate planning

‘Tax Day’ – government continues its campaign to tackle non-compliance

In the UK’s first ever ‘Tax Day’ on 23 March 2021, the government released more than 30 consultation documents relating to the future landscape of the UK tax regime. Whilst these documents scruitinised how taxes should be paid, opportunities for simplification and the potential of digitalisation, it was tackling non-compliance which was firmly in the spotlight once again. Tax & estate planning Partner, James Austen, gives his opinion on the proposed measures.

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Promoters of tax avoidance schemes

HM Treasury’s reminder that the so-called “tax gap” is at a record low of 4.7% (of which tax avoidance only counts for £1.7bn – approximately 5.5% of the total) is timely and welcome.  HMRC has certainly enjoyed remarkable success at overturning aggressive tax avoidance schemes in the Tribunals and Courts.  Nevertheless, with a view to promoting fairness in the tax system, appearing tough on “tax evasion and unacceptable tax avoidance” is never out of fashion and proposals for further measures are announced in today’s “Tax Day” command paper.

The Government wishes to bring additional pressure to bear on promoters of tax avoidance schemes.  The reality is that such promoters are now few and far between and those remaining in the market are normally based outside the UK, which presents obvious difficulties in taking effective enforcement action against them.  There is little or no publicly available quantitative evidence, but one suspects there remains a small but stubborn market for aggressive avoidance schemes and the die-hard remnants of the scheme promoters industry persists in developing and promoting schemes.  HMRC wants to break the ties between offshore promoters and those UK business which profit from implementing their schemes.  It consults on a new punitive approach whereby UK facilitators of offshore promoters would face heavy financial penalties, with the possibility of having their assets frozen by HMRC to secure the penalties.  Limited safeguards would be introduced alongside the new regime.

Instinctively, few would object to effective measures to tackle the remaining hard core of tax avoidance promoters and their UK-based enablers.  As ever, though, there is a danger of overreach and the suitability of HMRC’s proposed regime will depend on effective safeguards which limit its effects to its intended targets and not more widely.

Raising standards in the tax advice market

Related to this is the welcome consultation on “raising standards in the tax advice market”, in which it is proposed that all UK tax advisers would be compelled to have professional indemnity insurance.  Reputable professionals such as solicitors, accountants and chartered tax advisers are already insured, so the change would only affect unregulated firms.  The risk profile of some unregulated tax advisory practices is such that insurance will be unobtainable for them – at least at an economic cost.  That would force them to lower their risk profile by changing their business model and work practices, or ensure they close their doors.  As such, it may increase the cost of tax advice for users of those unregulated businesses.  Conversely, reputable regulated firms have nothing to fear from these proposals, and potentially much to gain from a more level playing field.

Tackling disguised remuneration tax avoidance and Off-payroll working rules

Both disguised remuneration (and the controversial “loan charge”) and off-payroll working (“IR35” and related provisions) are topical.  Both are clearly still on HMRC’s radar, though no new measures specifically targeting them are announced in today’s command paper, which will be a relief to those affected.

No safe havens

HMRC has published rather curious discussion documents, which contain details of how HMRC uses data received via the various international tax transparency and reporting schemes (such as CRS and FATCA).  These contain consultation questions intended “to inform future policy measures”, but they contain no firm proposals about improving taxpayer compliance.  HMRC’s general approach to promoting compliance “by designing it into our systems and processes” is to be welcomed: the key to high levels of compliance is to make it easy for taxpayers to achieve.  Ts is especially important given the UK’s regrettably complex tax code.

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James Austen

Partner

james.austen@collyerbristow.com