TACKLING MARKETED TAX AVOIDANCE – the consultation document above which was issued on 24 January 2014.
There is absent a lack of an appeal process before the issue of “failure notices” and also the proposed extension of the accelerated payment regime to potentially all DOTAS registered schemes back to 2004.
Point 3.19 of the consultation document states that:
“It is important to note that this will simply be a form of payment on account and not a payment that determines the amount of the final liability…[if] the taxpayer continues to pursue their claim and is successful then they will get their money back with interest.”
However, as far as I can see the taxpayer has no right of appeal so how is he supposed to “pursue” the claim?
The “failure notice” requires the taxpayer to amend their return and give HMRC a notice to say they agree the tax case is relevant.
There is no right to appeal against the failure notice even if the taxpayer doesn’t agree that the tax case, that HMRC say is relevant, applies to his case. The taxpayer can ask HMRC to reconsider its position but cannot appeal their decision. If they do not amend the return as required they will be subject to a penalty (the amount is not specified).
To make matters even worse, the taxpayer is not even allowed to appeal against a closure notice giving effect to the amendment he/she was forced to make as a result of the “failure notice”!
A taxpayer could get in front of a judge if he deliberately fails to comply or pay and has a penalty imposed on him. Inevitably the appeal against the penalty will become the platform for the taxpayer to argue the substantive point but this is a very difficult procedure for a client to exercise his right to his day in court. Worse – it also forces normally law abiding (avoidance is legal – both Cameron and Osbourne have confirmed it) citizens to deliberately default in order to be heard.
The only other alternative will be to go for judicial review of the issue of the failure notice and have the argument as to whether the case is actually relevant to the tax payer at that hearing.
HMRC state that the reason for wanting this new legislation is to stop clients from pursuing claims where there is no prospect of success, however they refuse to allow appeals and want to rely on First Tier Tribunal decisions which do not create a legal precedent. Inevitably, by trying to cast their net too wide they will certainly in the short term increase the amount of litigation and I suspect on a significant number of cases will end up no further forward than they are today and in fact much out pocket due to having to fight these extra cases.
To be clear, we have no issue with HMRC arguing that a particular case applies to certain taxpayers’ planning. No doubt there are some taxpayers that fight on regardless of their chances of success but I think these are the minority. The problem is that, HMRC are by definition biased and are likely to see similarities where an unbiased court would not.
Accelerated payment for DOTAS schemes
The proposed rules now involve making taxpayers that have worked with “compliant” promoters pay any disputed tax up front. The clients of promoters who HMRC say do not comply with DOTAS will be unaffected. This seems totally at odds with HMRC’s stated aim to go after high risk promoters.
The other obvious effect that this proposed legislation will have is that it will mean the effective end of the DOTAS regime. If the downside of disclosing is that your clients will have to pay up front then why would you disclose? The DOTAS rules are not very well drafted (hence why HMRC keep wanting to change them) and I understand that I it is not difficult to get a respected QC’s opinion that a scheme is not disclosable. HMRC have only taken one case to court for failure to comply and they lost it so presumably promoters will be fairly comfortable with those odds?
Even if they do eventually get taken to court and lose, all this means is that they may (under the proposed high risk promoters’ rules) get a “consent order”.
All that these rules will achieve is to send all tax avoidance back underground where it was before DOTAS came in, making detection much harder. This seems to be a totally illogical step for HMRC.
Finally, I would question HMRC’s comments on the impact of the proposed rules. Given they can go back to cases implemented as far back as 2004, many thousands of clients will need time to pay. The man-hours HMRC will have to expend on agreeing the terms will inevitably be enormous. In addition, many clients, unable to borrow from banks, will go to the wall leading to no tax being collected and thousands if not tens of thousands of ordinary lower and basic rate taxpayers losing their jobs.
So although we welcome and applaud HMRC’s recent success in tackling largely artificial tax avoidance schemes, such as those recently highlighted in the press. The impact of pushing the proposed legislation through will inevitably cause damage to many business owners who accepted advice to undertake tax avoidance that was legal at the time, so to now re-write the rules and back date them is not only unconstitutional but not “British”.
The impact on a business and therefore ultimately the employment of staff will surely be considerable….
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