AAT RESPONSE TO THE HMRC CONSULTATION DOCUMENT: LIFTING THE
LID ON TAX AVOIDANCE SCHEMES
1.
INTRODUCTION
1.1
The AAT is pleased to comment on the issues raised in the HMRC
consultation document “Lifting the Lid on Tax Avoidance Schemes” (the
document)”.
1.2
We have over 50,000 full and fellow members and 71,000 student and
affiliate members worldwide. Of the full and fellow members, there are
approximately 3,700 Members in Practice (MiPs) who provide accountancy
and taxation services to individuals, not-for-profit organisations and the full
range of business types.
1.3
The AAT is a registered charity whose objectives are to advance public
education and promote the study of the practice, theory and techniques of
accountancy and the prevention of crime and promotion of the sound
administration of the law.
1.4
In pursuance of those objectives the AAT provides a membership body. We
are participating in this consultation as part of our contribution towards the
public benefit of achieving sound and effective administration of taxes.
2.
GENERAL
2.1
We always endeavour to consult our membership, as we feel appropriate,
when gathering feedback in order to respond to public consultations that we
consider relevant for us to comment upon. Recognising the significance of the
proposals contained within the document we have, therefore, engaged with
key elements of our membership to ensure that our response reflects the
wider view of our internal stakeholders.
2.2
A typical MiP is engaged by their clients to provide practical, cost effective,
day-to-day tax compliance services to individual taxpayers as well as Small
and Medium Sized Enterprises (SMEs).
2.3
Our members play a valuable role in relieving their client businesses of the
burden of an ever more complex tax system and in ensuring that their clients
pay the right amount of tax at the right time.
2.4
It should be noted that the activity of designing and, or, the marketing of tax
avoidance schemes (schemes) is not something which our membership
would generally be engaged in.
3.
OBJECTIVES OF THE LEGISLATION
3.1
We note that the consultation outlines the Government’s new programme of
work to improve the information available to HM Revenue & Customs
(HMRC) in respect of tax avoidance schemes (schemes), the risks associated
with using them and their associated disclosure.
3.2
Furthermore, that it is seeking to ensure that UK taxpayers are better
informed in respect of schemes and the risks of using them.
4.
AAT Position
4.1
AAT considers it to be a sensible step to undertake a post implementation of
the Disclosure of Tax Avoidance Schemes (DOTAS) legislation review. The
published document affords the Government, HMRC and other interested
parties the framework and time to undertake such a review and at the same
time to consider whether the existing legislation has achieved its aims.
Furthermore whether there is a need for it to be adapted in order to keep
pace with ever evolving schemes. Finally, to see if there is a need to deal
with any unforeseen consequences arising from the implementation of the
DOTAS legislation.
4.2
Taking into account our comments made at 2.4 we, as a representative body,
feel it is incumbent upon us to respond to the issued document for the wider
public benefit (see 1.4 above).
4.3
As a consequence of 2.4 there will not be many, if any, instances where the
proposals contained with the document will directly impact on AAT members.
We do see the proposals to be of benefit in assisting our members through
their attempt to clarify, yet further, the inherent risks associated with entering
into a scheme and as a consequence making them less attractive to the
ordinary taxpayer on the street.
4.4
We are pleased to note at 2.4 of the document that there has already been a
decline in the number of schemes sold through the introduction of more
“robust” legislation and a greater level of operational “challenge.” AAT
believes that both of these two factors are fundamental in the tackling of
marketed schemes as well as aggressive and abusive tax avoidance. It is an
often stated and widely held view within the accountancy and tax profession
that there is no substitute for properly drafted legislation which is
subsequently robustly, but appropriately, enforced.
5.
CONSULTATION QUESTIONS
“Do you have any comments on this proposed programme of work?”
5.1a
The intention to improve the quality of information available to the public in
respect of schemes and their associated risks is to be welcomed (3.1).
5.1b
Additionally, we are pleased to note the comment made at 3.2 “The
Government wants to do this co-operatively with representative bodies and
reputable tax agents and businesses (the vast majority), many of whom have
publicly and strongly condemned artificial and abusive schemes.” As an
organisation who has engaged with HMRC at all levels for well over 10 years
we are fully appreciative of the benefits, for all, that can flow from
collaborative working.
5.1c
We would encourage HMRC to explore vigorously with the accountancy and
taxation profession (and possibly other interested parties) ways to publish
details of avoidance schemes, their risks and the consequences attached to
involvement in them. Such a move would enable tax advisers to more
confidently advise their clients that engaging in such schemes could have
serious and far reaching consequences and also helps to alter public
sentiment against schemes in general.
5.1d
It seems entirely appropriate in cases where HMRC consider a scheme, used
by a taxpayer, to be ineffective that it notifies the taxpayer to that effect and at
the same time draws their attention to the inherent risks associated in their
involvement. HMRC needs to exercise great care in adopting the proposed
approach. In that they need to acknowledge and accept that there will be
times when, whilst they do not believe a particular scheme to be appropriate
upon it being tested at Tribunal level or above, it will be found to be legitimate
according to the prevailing legislation. It would therefore be prudent to ensure
that any warning issued by HMRC, in the cases of schemes that have not
been tested in law, ensures that taxpayers are made aware of this fact and of
their related rights should they be the subject of an HMRC action in the future.
5.1e
The suggestion at 3.6 of the document in respect of building on Financial
Services mis-selling rules could conceivably have some merit and, therefore,
possibly act as a deterrent. As an organisation we have insufficient data to
comment further on the efficacy of this sub-proposal. Furthermore, we would
recommend that a period of time is allowed to elapse between adopting
changes in legislation that might arise from this consultation and, in respect of
the GAAR, before seeking to either extend existing legislation or enacting
more.
5.1f
AAT would encourage the introduction of a statutory override to protect third
parties seeking to share information in respect of schemes with HMRC.
“Do you have any suggestions for improving the communication of
information about tax avoidance?”
5.2a
As an organisation we pride ourselves on being forward looking. A fact that
can be illustrated by the way that we have successfully implemented a
business transformation strategy that has moved us from a traditional paper
based office to a high dependency user of technology, both in the way that we
operate internally and also in the way that we communicate with our
membership. Taking this into account we have built up extensive knowledge
in respect of the utilisation of Social Media which we would be pleased to
share with HMRC if this was thought to be helpful.
5.2b
Whilst the adoption of a communication strategy is vital we would draw
attention to the fact that the most successful means of communication in
respect of tax avoidance is for HMRC to pursue a clear simple strategy in
respect of combatting evasion and aggressive and abusive avoidance and,
where appropriate, resort to legally enforcing compliance. A success at
Tribunal level or above in the Courts would immediately affect both the
taxpayer and the scheme purveyor’s behaviour.
“Do you agree that the options suggested would be feasible ways of achieving
the described objectives?”
5.3a
AAT supports the Government’s first objective (4.2) which in essence seeks
to ensure that HMRC ultimately receives or has access to sufficient
information and documentation to understand the workings of a disclosable
scheme and all those involved.
5.3b
From a review of the scenarios set out at 4.3 of the document, we would
recommend the adoption of a hybrid approach (the third option) with
additional safeguards i.e. the right to the scheme provider / taxpayer to resort
to the Tribunal system to test whether the information they have been
requested to supply to HMRC should be handed over.
5.3c
As an alternative to a referral to the Tribunal system consideration could be
given to whether the proposed GAAR Advisory Panel, if it were to come into
existence, could be used to provide a cost-effective alternative.
5.3.d
We found the issue at hand in 4.5 – 4.7 and its allied suggested remedy at
4.8a problematic to understand and feel that the read of the document would
have benefitted from an illustrative example of the issues experienced. If, as
4.6 suggests, the current information requested is insufficient for its intended
purpose it would seem sensible to revise legislation to ensure that HMRC is
put into a position to request the correct information.
5.3.e
On reviewing the three scenarios as set out in 4.8 the simplest, but still not
necessarily easy, route would be to impose a duty on intermediaries to inform
promoters of their clients. However, it is immediately obvious that
intermediaries in many cases will not wish to disclose such information.
Taking the reluctance to share information into account, promoters would find
it hard and in certain cases (say offshore) impossible to obtain the client list.
As indeed would HMRC is they were to approach the intermediaries direct.
5.3f
AAT does not consider it to be unreasonable, where a promoter has an
appropriately formed legal opinion for them to rely on as a defence, for their
earlier non-disclosure of a scheme (4.9 – 4.13).
5.3g
We are concerned that 4.14 takes a far too simplistic approach through its
suggestion that in all cases where a promoter has incurred a penalty for
failure to comply with DOTAS there is an automatic justification for imposing
additional reporting obligations. Clearly, in particularly serious cases the
imposition of such an obligation should be automatic. However, in less
extreme cases the suggestion would be inappropriate. We believe that there
is a clear need for further work between HMRC and lead members of the
accountancy and tax profession and other interested parties outside of the
response to this particular document.
5.3h
Our comments made in 5.3g in respect of there being a clear need for further
work between HMRC and lead members of the accountancy and tax
profession and other interested parties outside of the response to this
particular document are equally applicable in the case of 4.15.
“Can you suggest alternative options for achieving the same objectives?”
5.4
Any suggestions for alternative options have already been made in section
immediately above.
“Would the proposed changes to Hallmark 1(paragraphs 5. 16 to 5.18) be
proportionate and effective?”
5.5a
The suggested change of word from “the” to “a” would conceivably
achieve its objective.
5.5b
We do not agree that the scenario, as set out in 5.17, would automatically
lead to the scheme falling within the second test. We understand that it is
standard practice, as part of a promoter maintaining a competitive
advantage over their rivals, not to leave detailed documentation with their
clients. Taking the aforesaid into account we cannot see how failure to
leave detailed papers with clients of a scheme can automatically lead the
scheme falling within the second test.
5.5c
The expanded definitions are largely appropriate. However, it should be
noted that the promise of a fighting fund and an indemnity in and of
themselves does not actually mean that what is on offer is a scheme. In
fact, promoters could insert such clauses into their offer to appear more
edgy than otherwise it might seem.
“Would the proposed changes to Hallmark 2 (paragraph 5.22) be proportionate
and effective?”
5.6
The attempt to introduce a hypothetical being into Hallmark 2 may help.
However, in the longer run the test is still only subjective, as is the case with
the first Hallmark.
“Would the proposed safeguard in Hallmark 6 (paragraph 5.27) address
concerns about catching ordinary business start-ups?”
5.7
AAT acknowledges that the suggested amendment to Hallmark 6 would
address concerns in respect of ordinary business start-ups. We base our
comment upon the fact that “Ordinary” business start-ups” are not involved
with unregulated collective investment schemes.
What types of benign tax planning around corporation tax losses might the
proposed change to Hallmark 6 (paragraph 5.34)) catch inadvertently?
5.8
We decline to answer this question.
“Would an employment income via intermediaries hallmark based upon the
characteristics described in paragraphs 5.44 to 5.46 be workable?”
5.9
In the short run it is likely that such a hallmark could conceivably work. The
issue is not so much whether in theory it would work as whether it would be
sufficiently easy to understand. The answer to the latter question would be
“no” it would not be sufficiently easy to understand.
Would a ‘but for’ test (paragraph 5.54) be reasonable for determining whether a
financial product is an active ingredient of an avoidance scheme or merely
incidental to it?
5.10a AAT acknowledges the need for a financial products’ hallmark and at face
value believes that a “but for” test would achieve the Government’s
objectives. The problem with it, as with all of the hallmarks, is that it would
give rise to a great deal of subjectivity and judgement.
5.10b In addition to the points made in 5.10a there are a number of times when a
financial product is a vital component of an arrangement and by being there
could give rise to a tax advantage.
Would filters based upon standard products or the amount of the tax
advantage (paragraph 5.56) be workable? If not, what are the alternatives?
5.11
There is every chance, in the very short term, that “filters based upon
standard products or the amounts or the tax advantage” might work.
However, in the medium to longer time periods providers of schemes would
merely “re-engineer” their offer and the way that they do business so as to fall
outside of the hallmarks, in much the same way as they do now.
Do you have any comments or suggestions on the Tax Impact Assessment?
5.12
AAT does not have any comments or suggestions.
6.
SUMMARY
6.1
AAT is keen to support the Government in its wish to tackle both schemes
and artificial and abusive arrangements in a targeted and systematic way.
6.2
Whilst we understand the need for periodic reviews of existing legislation and
the resultant amendments that are likely to ensue in order to tackle changes
in behaviour of promoters and providers designed since original enactment
and are broadly supportive of it. We draw your attention to our comment
made at 4.4 (above) “there is no substitute for properly drafted legislation
which is subsequently robustly, but appropriately, enforced”
6.3
Finally we would like to draw attention to our offer made at 5.2a to share our
extensive knowledge in respect of the use of Social Media.