HMRC, in their self righteous war against tax avoidance (tax avoidance is perfectly legal) have decided to change the rules to allow HMRC to interpret parliament's "true intentions".New guidance from HMRC now tries to define tax avoiders as those seeking to pay less tax than "if Parliament turned its mind to the specific issue in question".
This change of definition will lead to many taxpayers, who have made perfectly legal tax arrangements, being subjected to HMRC investigations.
This change in the rules undermines parliament's right to legislate.
The new "code of practice" for tax inspectors defines tax avoidance:
"Avoidance is not defined in the Taxation Acts...One definition is 'a situation where less tax is paid than Parliament intended, or more tax would have been paid, if Parliament turned its mind to the specific issue in question.
At a practical level the problem is then essentially one of deciding what Parliament would have intended and identifying who should be asked to decide this.
Inspectors need to have in simple terms a working concept of 'avoidance' in order to properly identify cases which can be worked...The starting point should be that one would normally expect taxpayers to pay tax on their income or profits...It is reasonable to assume that where a commercial transaction is carried out in a particularly convoluted way, then avoidance is afoot."
Slowly but surely HMRC are attempting to put themselves above statute and parliament, and take on the role of judge, jury and executioner wrt taxation and the interpretation of tax law.
This is an "evolution" that must be stopped.
The bedrock of dictatorship is an overempowered, arrogant, unaccountable, unelected bureaucracy populated by "little men" who believe that they are working for a "greater cause".
Issues wrt tax legislation are for the elected members parliament to address, not the unelected bureaucrats of HMRC.
Tax does have to be taxing.
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This is going to be a toughie for the parliamentarians. On the one hand the government is desperate to increase revenue, and on the other hand so many of our 'honourable' friends use non-domicile status or offshore trusts etc (or simply "arrange their affairs" in the UK) to minimise their tax bills that it would be like turkeys voting for Christmas.
ReplyDeleteHark... is that the sound of Nazi jackboots approaching?!!!
ReplyDeleteAchtung HMRC... vee haf vays of making you pay!!!
ReplyDelete"Slowly but surely HMRC are attempting to put themselves above statute and parliament, and take on the role of judge, jury and executioner wrt taxation and the interpretation of tax law."
ReplyDeleteDoes this mean courts will not be able to over rule them? Surely judges and juries would still have the role of judge and jury?
Are you suggesting that MPs should investigate and find out themselves when an accountant has invented a scheme exploiting a gap in legislation and find a way to close it? Without any help from people employed to administer the system? Or should they just leave it open until it is used by everyone and no one pays any tax?
To Anonymous 11:43
ReplyDeleteAll tax avoidance schemes are registered with HMRC within 5 days of first being promoted.
The fact that HMRC don't look at Tax Schemes in detail until Returns are submitted is their problem and loosely worded 'guidance' is a cop out from understanding the Schemes when submitted and doing something about it with properly thought through legislation.
"All tax avoidance schemes are registered with HMRC within 5 days of first being promoted." You mean they should be.
ReplyDeleteAnd Kens problem with the loosely worded guidance appears to be that it exists at all. "Issues wrt tax legislation are for the elected members parliament to address, not the unelected bureaucrats of HMRC."
Oh dear Ken. I know you don't *do* complicated, but this is getting ridiculous. As a CA you should already know everything I'm about to say, so I'm starting to wonder whether you're deliberately trying to mislead.
ReplyDeleteDo you have a reference for this code of practice, by the way? In the meantime, the following points spring to mind:
1) None of what you've posted is new and it doesn't represent a change in the rules. A purposive interpretation of legislation has been part of HMRC and its predecessors' approach to avoidance for decades.
2) I'm sure you understand how the English legal system works, but for some reason you tend not to explain it very well. Once again, you've completely glossed over the fact that "the law" consists both of legislation and the huge body of judicial precedents (i.e. case law). This is the first thing a law student gets taught and I'm sure it's at least mentioned in passing during CA training!
Let's look at a couple of cases, then:
3) CIR v Ramsay dates from 1981! The judge set out the principal that it's necessary to take a purposive interpretation of legislation when arriving at the correct tax result in avoidance cases.
4) CIR v Willoughby (1997)*:
"The hall mark of tax avoidance is that the taxpayer reduces his liability to tax without incurring the economic consequences that Parliament intended to be suffered by any taxpayer qualifying for such reduction in his tax liability"
5) It follows from point 2 that the principles set out in these two cases is PART OF THE LAW!
6) In fact, the purposive interpretation of legislation has been established as a central tenet of the law in general for decades (if not more) prior to Ramsay. As another judge later said (off the top of my head I think it was in Craven v White), all the Ramsay judge did was apply it the principal to tax - something which the later judge commented was long overdue.
7) If you're suggesting that the phrase "if Parliament turned its mind to the specific issue in question" represents something new, it doesn't. There are precedents in human rights law, among others, that establish that "parliament's intentions" means, in law, what a reasonable person would interpret parliament's intention as having been given the facts under consideration. It is not necessary for Parliament to have considered exactly the same circumstances.
I could of course go on, but I'll leave it there for this evening. I look forward to you explaining which, if any, of the points above are inaccurate and why, as I know you're always so willing to engage in dabate when your point of view is challenged.
By the way, which MPs are non-doms?
(* - http://www.publications.parliament.uk/pa/ld199798/ldjudgmt/jd970710/willough.htm)