40 finance


Don’t give the taxman more powers


Tax has been much in the news of late, writes Cormac Marum, Harwood Hutton tax partner


First there was the controversy over the ‘sweetheart’ deals struck by HMRC mandarins with Vodafone and Goldman Sachs allegedly following expensive lunches.


Then Harry Redknapp and Milan Mandraic successfully fought off prosecution relating to the non-payment of tax on money arriving in Harry’s Monaco bank account, or did it belong to Rosie, his dog?


And finally Barclays Bank has been castigated for devising ‘highly contrived arrangements’ which, within the law, avoided tax being paid when it sought to buy back its issued debt that was trading at a discount in the market.


The cry has gone up that something must be done about all this and action should be taken to stamp out the modern scourge of tax avoidance.


... giving more power to the taxman is definitely not the right answer. Only further trouble lies that way and it won’t solve the problem


One potential solution gaining some favour is the introduction of a General Anti-Avoidance Rule or GAAR which was put forward last November in the Aaronson Report. This proposed to limit the implementation of the GAAR to ‘egregious schemes’ (ie outstandingly bad schemes).


Under such a GAAR, if ‘abnormal’ arrangements seek to achieve an ‘abusive tax result’, no matter what the wording in the tax legislation says, the taxman can come along afterwards strike it out and apply a different set of rules more to his own liking.


It might be different if we could trust HMRC but sadly we can’t


However appealing this prospect might be to the poor ordinary taxpayer and citizen paying the full amount of tax and bearing the brunt of the public sector cuts, giving more power to the taxman is definitely not the right answer. Only further trouble lies that way and it won’t solve the problem.


It might be different if we could trust HMRC but sadly we can’t. There was once a fine public institution in this country called the Inland Revenue, which held the respect of the British public. We might prefer it if they did not have to do their job, but we know that it was required.


www.businessmag.co.uk


And even though the Inland Revenue was far from perfect, it did go about its work fairly playing by the rules and expecting everyone else to stick to them as well.


HMRC officials regularly make incorrect statements in letters to taxpayers saying, for example, that an individual has no choice whether they are self-employed or employed


The same sadly cannot be said about its successor, HMRC. It appears to have a deliberate policy of misleading the public.


• It deliberately erodes the distinction between tax evasion, which is illegal and should not be tolerated at all, and tax avoidance, which is the perfectly legal application of the tax rules as they stand.


• HMRC officials regularly make incorrect statements in letters to taxpayers saying, for example, that an individual has no choice whether they are self-employed or employed. Of course, an individual is free at the outset to structure his working arrangements on a self-employed or employed basis. If the facts support self-employment status, the individual is self-employed and has a right to be taxed accordingly.


• There is a ‘helpful’ Spotlights section on the HMRC website which is highly disingenuous and apparently designed to frighten ordinary taxpayers away from certain legitimate ways of managing their tax affairs.


• This approach culminated in the Daily Telegraph article by top taxman Dave Hartnett earlier this year when he suggested that paying cash to a builder or cleaner was aiding and abetting in tax evasion.


And this is the type of organisation which some people think ought to be allowed to make up and apply the tax rules as it thinks fit?


The GAAR will also not solve the question of tax avoidance. It will merely change the battlefield where the argument takes place.


• What is an ‘egregious scheme’? • What are ‘abnormal’ arrangements? • What is an ‘abusive tax arrangement’?


Nobody really knows and it will be terribly difficult to define. The only people who will benefit will be the lawyers who will argue over it in court. And in the meantime business will not


know where it stands.


Allowing the taxman freedom to make up the rules after the event is not the British way of doing things and, I believe, should be rejected


Are we getting het up over a non- problem?


The taxman already has a powerful early warning defence mechanism to protect the public purse from losing too much money from tax planning. Advisers who bother to read the tax rules closely and think how best to apply them for their clients have to disclose those tax planning ideas to HMRC under the Disclosure of Tax Avoidance Scheme rules. This allows the taxman to become quickly aware of the consequences of the tax rules he introduces. If he is alarmed by his sloppy legislative drafting, he is then able to repair his mistake by introducing new rules.


This seems to be a fairer way to maintain the balance between taxpayer and the authorities. Allowing the taxman freedom to make up the rules after the event is not the British way of doing things and, I believe, should be rejected.


Details: Cormac Marum 01494-739500 www.harwoodhutton.co.uk


THE BUSINESS MAGAZINE – THAMES VALLEY – APRIL 2012


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52