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Tax Avoidance Schemes: The End of the Road?
Selling second hand cars as a sideline (and at a considerable loss) doesn't sound the most persuasive argument to advance in an attempt to off set your alleged expenditure against your tax bill in order to reduce your overall taxable liabilities to the HMRC (although it is a change on film production or renewable energy projects).
And so it proved to be when one of the latest cases relating to aggressive tax avoidance schemes fell to be determined by the tax tribunal and the judgment somewhat inevitably in the current climate went in favour of the government.
It is perhaps indicative of the sea change that is taking place in this sphere of tax law and society in general, that where advisers advance aggressive tax avoidance schemes they are generally frowned upon socially and more importantly, legally.
The clamp down on tax avoidance by the authorities raises some interesting questions which have yet to be answered conclusively by the government and, in particular, HMRC in any great detail. The answers to these questions, which are considered below, will have an important impact, not only on professional advisors but also the subscribers to these apparently defunct schemes.
The first key question the government’s new approach raises is how long will it be until the promoters of these aggressive tax avoidance schemes begin to face concerted criminal investigation and subsequent prosecution? Defeat at a tax tribunal is one thing but if defeat follows defeat, the issue will inevitably be raised as to why these companies should, not only be prevented from continuing to trade, but why should they not face penal sanctions also?
Further and linked to the above, is whether the distributors of these schemes, normally accountants or independent financial advisers, will face more concerted regulatory action from either their professional bodies or from the Financial Conduct Authority instead of criminal proceedings? In the current climate, which has seen an increase in regulatory activity of late across the financial field, there must be a growing concern that the world of tax will not be immune in the future.
Finally, on a more general point, what is the future for tax avoidance schemes in the current economic and fiscal environment? There is no sympathy for these schemes amongst the general public, the media, government and increasingly in the courts. Will the pre-registration of the schemes with the authorities lead to more successful schemes being launched or will advisors become increasingly circumspect as to whether preliminary undertakings by the authorities will be respected several months or years later when the schemes are challenged in the courts, especially if they are too successful?
One thing though will remain constant in the short term, the authorities will continue to target aggressive avoidance schemes and the professionals and subscribers involved in this industry will have to continue to operate in a state of uncertainty both legally and financially. An unsatisfactory state of affairs for all concerned.