Wise words indeed (source The Telegraph):
Whiting is also unhappy about the way the boundaries between evasion and avoidance have almost disappeared in the eyes of the tax authorities.
"People have lost sight of the fact that evaders are criminal. Avoiders are people in the main who are compliant.
It's curious that avoidance has become vilified."
Tax does have to be taxing.
Tax Investigation for Dummies, by Nick Morgan, provides a good and easy to read guide for anyone caught up in an HMRC tax investigation. A must read for any Self Assessment taxpayer.
Click the link to read about: Tax Investigation for Dummies
HMRC Is Shite (www.hmrcisshite.com), also available via the domain www.hmrconline.com, is brought to you by www.kenfrost.com "The Living Brand"
HMRC won't be allowed to continue with their unreasonable, aggressive stance. They will be told soon enough. Gordon's pulling the strings - and he wont last long.
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just playing with words......
ReplyDeleteeither you're paying the correct tax or you're not.
If everybody did the right thing and paid what they owe then there wouldn't need to be a tax authority (or at least not the size that it is now), so how is it HMRC (or the Gov't's) fault?
Yet again the article gives no examples.
ReplyDeleteI really don't understand, if one has complied with the letter of the regulations or the concessions\actual practice they publish if laxer, how they can pursue you for tax.
Has anyone got any examples?
Xoggoth,
ReplyDeleteTry a Google search for "Ramsay v CIR" and/or "Furniss v Dawson". These are the classics that the then Inland Revenue won. For one that they lost, look up Arctic Systems.
I'll probably comment more when I have the time and inclination. Needless to say, I don't wholeheartedly agree with everything in the article. It's very interesting, though. Thanks for linking to it, Ken.
(Crybaby: note the comments about MPs flipping houses. Hypocritical, perhaps, but the tax laws are the same as for the rest of us!)
Xoggoth,
ReplyDeleteYou may also wish to look at:
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ConsultationDocuments&propertyType=document&columns=1&id=HMCE_PROD1_029639
(catchy link, isn't it?)
In particular, appendix 2 tries to explain, with examples, what HMRC means when it talks about avoidance. To be honest I don't think that appendix is particularly well written, but at least it's short! In any case, it should be clear from reading it that we're not talking about investing in an ISA or using your personal allowance here - it's all about being within the letter but outwith the spirit of the law.
Somewhat clearer. Cheers. Those first two are probably not really schemes available to the ordinary taxpayer, we can't afford such creative accountants.
ReplyDeleteGlad they lost the Arctic case. If a very straightforward and common practice is carried on with the full knowledge of the Revenue it is reasonable for people to assume it is tacitly approved by them and in fact accountants will normally advise their clients to that effect.
They are entitled to halt such a scheme but to attempt to backdate it and apply it retrospectively to those, many of whom were only following their accountant's advice, is quite wrong.
"Those first two are probably not really schemes available to the ordinary taxpayer, we can't afford such creative accountants."
ReplyDeleteThat's exactly the point I frequently try to make. The efforts that HMRC puts in to counter avoidance is by far concentrated on this sort of complex scheme. Large-scale avoidance (and, funnily enough, Ramsay and Furniss weren't actually that enormous - as far as I know it was medium-sized enterprises involved - they just happened to establish a really important legal principle) rips off the taxpayer to the tune of hundreds of millions every year with some frankly outrageously contrived schemes. Some of them really are raids on the exchequer with no commercial basis (or certainly no basis in UK commerce) whatsoever.
"to attempt to backdate it and apply it retrospectively to those, many of whom were only following their accountant's advice, is quite wrong."
I agree that to backdate the finding in something like the Arctic case would be highly dubious. However, I'm pretty sure they weren't trying to do that with Arctic. The revenue looked into a number of similar cases and investigations (or to use the legal term, "enquiries") were opened. As is often the case with avoidance schemes, one, Arctic, was taken all the way through the courts while the others were put on hold pending the decision. If HMRC had won Arctic, it would have won those enquiries that were open as a result, but that's not really back-dating.
There is a provision for backdating legislation, whereby the government can introduce legislation and then have it apply retrospectively to catch schemes already in existance. It can only be used for absolutely outrageous avoidance that poses an exceptionally severe threat to the exchequer. To the best of my knowledge it has never been used, but I'm ready to be corrected.
"If a very straightforward and common practice is carried on with the full knowledge of the Revenue it is reasonable for people to assume it is tacitly approved by them"
Probably, yes. However, while I'm not intimately familiar with the avoidance involved in Arctic, I'd speculate that it wasn't actually that widespread for that long. There may have been isolated cases (some of which may well have been enquired into), but I'd be willing to bet that it didn't kick off until the introduction of the 0% starting rate for companies. Before that:
1) there were a lot less small businesses (the Arctic scheme was only really worthwhile for small businesses) operating as companies, because the 0% rate prompted everyone to incorporate their small sole trade or partnership as a company (incidentally, doing so constituted a form of tax planning that the revenue did nit consider to be avoidance)
2) without the 0% starting rate, I'm pretty sure the Arctic-type scheme wouldn't have actually saved you a material amount of tax! It almost certainly wouldn't have been worth the accountancy fees.
Didn't the revenue try and claim that the Artic couple owed a large sum by arguing from wording in previous legislation that was for another purpose? They didn't just take them to court to stop them doing it in future.
ReplyDeleteI would call that backdating. If they thought that act applied to dividend distribution they should have enforced it from the outset, not created an impression that an informal concession existed.
There's a danger that we get into an argument over the semantics of the word "backdating".
ReplyDeleteAs I tried to explain above, however, I don't think the Revenue ever gave the impression that an informal concession existed here. This type of scheme emerged as an issue, enquiries were opened, it went to court, and the taxpayer won. That's the way it works (though, of course, the taxpayer doesn't always win, of course).
I see the use of the settlements legislation as a separate issue. I don't know enough of the details of the case to really comment on how un-cricket it was of the revenue to apply it. (If you really want to get deeply into a discussion about this I'll get hold of the case and look into it at the weekend - if so be prepared for some exceptionally long posts.) At the end of the day the commissioners and the high court agreed with the revenue, so the argument can't have been all that outrageous!
Meanwhile, the promoters of complex avoidance schemes will never shrink from dragging up ancient legislation if it will help a scheme work. That's the way the game is played.
One thing that does surprise me with Arctic, however, is that the revenue didn't agree to pay the taxpayers' legal fees no matter the outcome. They often do that with cases involving small businesses which go to court and involve very important principles, but not this one. There was presumably a reason why they didn't here, but it doesn't look too good.
"the commissioners and the high court agreed with the revenue, so the argument can't have been all that outrageous!"
ReplyDeleteIn fact, skimming through the judgement (before work, Ken!), I see that there were two points at issue that were considered by the Court of Appeal and House of Lords:
1) Whether it was a settlement.
2) Whether the exemption for gifts to a spouse applies (thus obviously looks like a gift to a spouse, but there's an exception to the exemption that kicks in if the nature of the asset in question is substantially in the nature of a right to income).
The Revenue had to win BOTH to win the case.
The Court of Appeal found for the taxpayer on 1 but for HMRC on 2. The HoL, however, found for HMRC on 1 but for the taxpayer on 2. This was a very, very close-run thing.
As for whether the settlements legislation was old legislation dragged up to be applied to something it wasn't intended to address, I think the Accountancy Age article (first AA page when you Google "Arctic Systems" puts something of a spin on it (as, of course, does the HMRC page that comes up as a result of the same search). The settlements provisions were first introduced in 1930. However, they are certainly still current. They've been updated and incorporated into the latest income tax legislation (ITTOIA 2005). Also, as I explained above, the avoidance scheme wasn't a long-standing and widespread practice when the then-Inland Revenue began enquiring into it (*). The legislators in 1930 therefore clearly weren't thinking of this specific scheme! However, the purpose of the settlement provisions are, where someone gifts an asset with an associated income stream to someone, that income is treated as theirs (i.e. the income of the "settlor", or the one who gave the gift) during their lifetime. It's more complicated than that, of course (e.g. exceptions to exemptions, as above), but it should be pretty clear why it was felt that this at least MAY have been relevant.
(* - The accounting period in question was in 1996! By the time the HoL passed judgement in 2007, it would certainly have seemed like a long-running practice, because lost of people were still doing it! Once problems were identified, enquiries were opened into a large number of companies, and as the case went through the courts, practitioners were kept updated and basically told: we don't like this, but keep doing it if you like and if the courts find for us we'll revisit the issue - there's even a suggestion in one of the press releases that disclosing the scheme in the tax return's "any other info" box will mean that, if the courts agree with the revenue, penalties won't be charged. I can provide some links if necessary.)
Avoidance is a name given by the rich to avoid payijng their fair share. tbh avoidance = loopholes we havent closed yet. But we will mwah hahahaha
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