During this year’s Budget it was declared that “the government is determined to reduce tax avoidance in order to protect the Exchequer and maintain fairness for the taxpayer. The government is introducing measures which will raise around £4 billion over the current Parliament, balancing long-term improvements to the anti-avoidance framework with targeted measures to prevent particular schemes spreading.”
Taking ourselves back a decade, the 2001 budget also announced “further measures to tackle tax avoidance and close loopholes.”
Tax avoidance has not gone away. The government – egged on no doubt by HM Revenue& Customs (HMRC) – has upped the ante. Having learned that financial advisers are being encouraged to segment clients in the run up to RDR, HMRC wants to segment tax avoidance schemes.
We are now to have ‘High-Risk Tax Avoidance Schemes’ (HRTAS). Does that mean that there are low-risk tax avoidance schemes? Will HMRC adopt risk profiling for avoidance schemes in the same way that advisers risk profile clients? The possibilities are (almost) endless.
What is a HRTAS?
“A HRTAS is a scheme that uses contrived arrangements to seek tax advantages in circumstances where they are not intended to be available and which HMRC believes does not deliver the advertised tax advantages.”
The government proposes to list (in regulations) HRTAS. Users would be required to disclose a scheme’s use to HMRC, as well as being subject to an additional charge when repaying the underpaid tax. Note that HMRC is assuming success in denying a scheme’s claimed advantages.
The additional charge would be set at a rate that would remove the cash-flow benefit of using the scheme. The government believes that HRTAS are often used because they offer a cash-flow advantage to the user – despite the fact that under the current regime, users pay interest on any tax ultimately payable when a dispute is resolved. Users would be able to protect themselves from incurring the additional charge by paying the tax in dispute upfront.
The government intends that only the most contrived and aggressive schemes, where there is reasonable certainty that they do not work – ie deliver the claimed tax advantage – under existing law will be listed. The grounds for believing a scheme does not work may vary. For example, the tax analysis applied by the promoter to the facts may be wrong, or the facts of the scheme may differ in key respects from the scheme as it is described to potential users.
A scheme will not be listed unless the government has firm independent legal advice (triples all round at the Revenue Bar?) that the scheme does not deliver the claimed tax advantage to the user. There will also be informal consultation with tax professionals.
The good news is that most of this will be subject to a consultation process. The HRTAS legislation will be included in next year’s Finance Bill but the consultation will be confined to the detail.
