A strong government against evasion and avoidance
This government has done more than any previous administration to tackle tax avoidance. The Chancellor’s 2015 Budget speech suggested that £3.1bn will be raised on further clampdowns on tax evasion and avoidance.
It is fair to blame the previous 13 years of Labour government for laxity; poor legislative drafting and lack of will in tackling the problem which has cost the Treasury, and accordingly the public purse many tens of billions over the years. It is this government that has resolutely implemented tough but fair new rules to eliminate avoidance. The facts speak for themselves - £100bn in additional revenue over this Parliament, with £31bn from big businesses and £1.2bn from the UK’s 6,000 richest people.
As a Chartered Accountant and Chartered Tax Adviser in Practice in a medium sized Kent firm, I am only too aware of the complexity of the UK’s tax system which now runs to over 17,000 close scripted pages, in comparison with the entire tax code of Hong Kong running to only 235 pages. That itself is a problem to be solved and a discussion point for another day. As a member of professional Institutes, I operate under clear standards expected within the profession.
This government has introduced measures to tackle evasion and aggressive tax avoidance including a new General Anti-Abuse Rule (GAAR). In easy terms – if a designed tax avoidance plan or arrangement looks like a duck, walks like one and quacks like one – then it most probably is one, even if it slips through the words of tax legislation via a loophole. We must take care however not to allow draconian and unchecked powers to any organ of the state to simply use new powers to make up for poorly drafted law. This new rule, to my interpretation, sensibly allows HMRC to prevent the most abusive arrangements.
This document gives a reasonably understandable summation of what all of this means.
Other measures extended over this Parliament have been targeted actions by HMRC to allow individuals to “come clean” over previous tax avoidance within a lighter touch penalties regime, a carrot and stick approach to get affairs in order. These are notably the Liechtenstein disclosure facility and industry specific measures to ensure that various traders and professions declare all of their income and that it is appropriately taxed. Doctors and dentists, who often have complicated affairs and income streams across many sources are one profession that have been targeted.
The UK has been at the forefront of obtaining international agreement for exchange of information between previously closed and secretive banking regimes, notably Switzerland and Caribbean tax havens. Over 600 tax information exchange agreements have now been signed internationally leading to further previously untaxed disclosures.
Other measures implemented
Disclosure of Tax Avoidance Schemes (DOTAS) have been in place since 2006. Coming into force in July 2014, the new regime of Follower Notices and Accelerated Payments came into being. In brief, if a taxpayer is involved in a scheme with similarities to a scheme that HMRC have been successful against in the courts, the taxpayer faces additional penalties if he/she does not end the dispute or can make an Accelerated Payment of the amount of tax due under HMRC’s interpretation of the correct position in light of a tribunal decision of a similar type, and can then continue legal defence of his/her own position.
Budget 2015 proposals
These include strengthened criminal offences for those indulging in offshore tax evasion and for companies failing to prevent tax evasion, and new civil penalties on those who help facilitate evasion.
Of particular concern are arrangements by which international companies (and not so international individuals, see Vivienne Westwood, Green Party donor’s widely condemned offshore tax arrangements) shift profits from the place of operations to a lower tax destination, so called the “Google Tax”. Anti-avoidance to this profit shifting was laid out in the 2015 Budget. A new 25% tax called the ‘Diverted Profits Tax’ will apply where a foreign company obtains tax advantage using transactions that lack economic substance. This will come into force on 1st April 2015.
There are calls by many action groups for further legislation, notably the “Tax Dodging Bill Campaign”. Visit their website.
Given the foregoing and the robust action of this government and further action in the pipeline, I do not see the need for further legislation beyond this. The aims and concerns of many campaigning groups have now largely been achieved.
Tax simplification and transparency is an area that would however receive my full support as an MP after May 7th.