2014/15 Budget: Tax Avoidance & Tax Avoidance Scheme

Meet the team:

Share this post: linkedin Twitter facebookshare Email
Posted in:Banking and Finance|April 14, 2014 | Join the mailing list


On 19th March 2014 the Chancellor of the Exchequer gave his 2014/15 budget at the House of Commons.  One of the issues raised within the budget was the issue of tax avoidance schemes.

In summary, he has stated that he intends to close as many “loop holes” and to remove some means with which to reduce or avoid tax liabilities.  This is within the “we’re all in it together” theme brought in by the coalition government in 2010.

Of significant importance to Berg clients is the issue of tax avoidance schemes.  Berg offers a service to clients with regards to tax avoidance schemes that have been found by the tax tribunal not to be in compliance with the rules, and which resulted in the
scheme being closed.  Or, where a tax avoidance scheme is in the process of being challenged by HMRC.  It may be that a client wishes to investigate possible actiosn against your former advisors or managers of the scheme (or both).  We welcome enquiries and
instructions from anyone who has been affected by such schemes.

However, the budget has stated that in future if a tax avoidance scheme is challenged by HMRC then the disputed sums of tax (ie the amount of tax you would have to pay but for the scheme, and which you believe that you should not now pay as a result of the
scheme) must be paid over to HMRC up-front pending the outcome of a tax tribunal, or any appeals thereafter.  

If a scheme is found to be compliant by tribunal (or during any appeals), the monies will be returned to the scheme members, with interest.

It is therefore of vital importance that you consider with your advisors what to do should you be considering a tax avoidance scheme.

New rules are also being brought in that managers of such schemes must notify HMRC that it is such a scheme, and members must notify HMRC that they are a member of a notifiable scheme.

The new power will only apply to tax avoidance schemes that are disputed by HMRC. The legislation will make it clear that HMRC will only be able to issue an accelerated payment notice where they have first sent the taxpayer an enquiry notice or issued them
with a notice of assessment. It is not a new tax demand and does not make any changes to tax liabilities.

Below is the extract from the budget referring to “ensuring individuals and businesses pay their fair share”.  This can be found at page 52.  This is the entirety of the budget with regards to increasing tax receipts. 
The specific points relating tax avoidance schemes can be found at 1.198.

Berg cannot provide tax advice.  This article is a summary of the budget in regards to tax avoidance schemes.  If you have a tax question you should refer it to your independent financial advisor, tax advisor or an accountant.

Ensuring individuals and businesses pay their share

A fair contribution from all

1.191 The government remains committed to a fair tax system where everyone contributes to reducing the deficit, and those with the most make the largest contributions. An estimated 28.3% of all income tax receipts come from the top 1% of taxpayers. This Budget
announces a number of policies to enhance the fairness of the tax system further.

1.195 The government recognises that the structure of ATED can create some administrative burdens for genuine property rental, trading and development companies. The government will therefore stagger the introduction of the new ATED bands, with the £1 million
to £2 million band coming into effect from April 2015, and the £500,000 to £1 million band coming into effect from April 2016. The government will also consult on possible simplifications to ATED administration to reduce compliance burdens for genuine businesses.

1.196 As highlighted by the OTS review of employee benefits and expenses, working practices have changed. The current rules for benefits and expenses are complex and can lead to unfair outcomes. The government will undertake a call for evidence on remuneration
practices in the 21st century to inform future changes.

1.197 The Budget confirms recent announcements on migrants’ access to benefits and tax credits. In addition, the Budget announces that the government will increase compliance checks on European Economic Area (EEA) migrants to establish whether they meet the
entitlement conditions to receive Child Benefit or Child Tax Credit. The checks will be applied to both new claims and existing awards to prevent EEA migrants claiming benefits they are not entitled to.

1.195 The government recognises that the structure of ATED can create some administrative burdens for genuine property rental, trading and development companies. The government will therefore stagger the introduction of the new ATED bands, with the £1 million
to £2 million band coming into effect from April 2015, and the £500,000 to £1 million band coming into effect from April 2016. The government will also consult on possible simplifications to ATED administration to reduce compliance burdens for genuine businesses.

1.196 As highlighted by the OTS review of employee benefits and expenses, working practices have changed. The current rules for benefits and expenses are complex and can lead to unfair outcomes. The government will undertake a call for evidence on remuneration
practices in the 21st century to inform future changes.

1.197 The Budget confirms recent announcements on migrants’ access to benefits and tax credits. In addition, the Budget announces that the government will increase compliance checks on European Economic Area (EEA) migrants to establish whether they meet the
entitlement conditions to receive Child Benefit or Child Tax Credit. The checks will be applied to both new claims and existing awards to prevent EEA migrants claiming benefits they are not entitled to.

Tackling tax avoidance

1.198 Most individuals and businesses throughout the UK pay the tax they owe upfront. However, a persistent minority seek to avoid their responsibilities, preventing the tax system from raising revenue fairly and imposing costs on all taxpayers. The government
intends to fundamentally reduce the incentives for avoidance to address this problem.

1.199 At Autumn Statement 2013, the government announced that it would, following consultation, introduce a new requirement for taxpayers to pay disputed tax upfront where the avoidance scheme being used has been defeated in another party’s litigation through
the courts.

1.200 Tax avoidance scheme promoters must give HMRC information about schemes they promote under the Disclosure of Tax Avoidance Scheme (DOTAS) rules. Anyone using such

a scheme must declare to HMRC they are using a notified tax avoidance scheme. Following consultation, this Budget announces that the government intends to extend the new requirement for taxpayers to pay upfront any disputed tax associated with schemes covered
by the DOTAS rules or counteracted under the General Anti Abuse Rule (GAAR).

1.201 This new power will remove the cashflow advantage for the taxpayer of holding onto the disputed tax during an avoidance dispute. It will also provide HMRC with additional tools to address a legacy stock of an estimated 65,000 avoidance cases. The new
power will only apply to tax avoidance schemes that are disputed by HMRC. The legislation will make it clear that HMRC will only be able to issue an accelerated payment notice where they have first sent the taxpayer an enquiry notice or issued them with a
notice of assessment. It is not a new tax demand and does not make any changes to tax liabilities. If the taxpayer subsequently wins their case in the courts, they will be reimbursed with interest.

1.202 Following consultation, the Budget confirms the introduction of new rules to allow HMRC to identify and place new obligations and penalties on “high-risk promoters” of tax avoidance schemes. To reflect the extra revenue anticipated from the measures in
this Budget, the government will increase HMRC’s compliance yield target by a total of £1.6 billion over the coming 2 financial years.

International action on tax avoidance

1.203 The government is committed to working with G20 and OECD partners to prevent multinational companies engaging in aggressive tax planning, by taking forward the 15 point Action Plan to counter Base Erosion and Profit Shifting.

67 It is today publishing a position paper which sets out the UK’s priorities for the ongoing work on this global initiative. The first outputs are expected this year, including a proposal initiated under the UK’s G8 presidency in 2013 for a country-by-country
reporting template to give tax authorities worldwide a clear picture of where multinationals generate profits and pay tax.

1.204 The government is committed to completing work on all the actions to the agreed deadlines in 2014 and 2015, and will ensure that changes to the tax rules are implemented in the UK as soon as possible to make sure a fair amount of tax is paid by these
businesses.

1.205 Alongside working with G20 and OECD partners, Budget 2014 announces action to block arrangements involving payments between companies within a group which transfer profits to avoid tax. These payments will be disregarded for tax purposes, and companies
will pay tax on profits generated in the UK.

1.206 The OECD is due to consult on a new rule to address hybrid mismatches, which occur when the tax treatment of a financial instrument or entity differs between countries, allowing for exploitation by multinational groups looking to lower their effective
tax rates.

The government believes that banks and insurers should not be unfairly advantaged under this rule, and does not see a strong case for a full carve out of their intra-group hybrid capital instruments. However, as part of the consultation, the government will
consider whether there should be special rules when these instruments are a direct consequence of regulatory requirements.

Debt recovery

1.207 The Budget announces that tax credit debt recovery rates for the highest earners in the tax credit system will be increased. This means that households with higher incomes and smaller tax credit awards will repay their debts earlier.

1.208 The government will modernise and strengthen HMRC’s debt collection powers to recover financial assets from the bank accounts of debtors who owe over £1,000 of tax or tax credit debts, have the financial means to pay, and have been contacted multiple
times by HMRC to pay. A minimum of £5,000 will be left across debtors’ accounts.

This brings the UK in line with many other tax authorities which already have the power to recover debts directly from an individual’s account, such as France and the US.

Distributional Analysis

1.209 Information on the estimated distributional impact of this Budget is available in ‘Impact on households: distributional analysis to accompany Budget 2014’.69 Distributional analysis confirms that the richest are continuing to contribute the most to reducing
the deficit, both in cash terms and as a percentage of income and benefits in kind from public services. ONS data show that income inequality is at its lowest level since 1986.70

What these changes are anticipated to bring in to the tax pot?

Below are the sums expected to be brought in to HMRC through additional tax.  They are presented as £million, for tax years

2014-15 2015-16 2016-17 2017-18 2018-19

Avoidance and Tax Planning

52 Accelerated payments: extension to Tax disclosed tax avoidance schemes and the GAAR

+290 +1,230 +1,300 +715 +385

53 Avoidance schemes using the transfer Tax  of corporate profits

+60 +80 +80 +85 +75

54 Direct recoveries of debts Tax

0 +65 +110 +100 +90

55 Enveloped dwellings: new bands Tax  between £500,000 and £2 million

+35 +70 +90 +80 +90

56 Venture capital schemes: restrictions Tax on use

0 +35 +65 +55 +45

What are the total sums recoverable in tax as a result fo the 2014 budget?

2014-15:        £385 million
2015-16:        £1,480 million
2016-17:        £1,645 million
2017-18:        £1,035 million
2018-19:        £685 million

For more information about any of the above or for practical commercial advice on this or any other aspect of banking and interest rate swaps, please contact
Kalvin Chapman by telephone; 0161 833 9211 or Email.


The information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Berg or any of its partners or employees. Professional legal advice should
be obtained before taking, or refraining from taking, any action as a result of this article.

Join our mailing list

More from berg

Testimonial

 

The ‘energetic’ and ‘efficient’ team at berg includes team head Damian Carter, who is ‘a good tactician and goes the extra mile for his clients'.

Legal 500 2016, Dispute resolution – Commercial litigation