March 23, 2011

Budget 2011: Tackling Tax Avoidance

by Sophie McBain

The Treasury claims that the anti-tax-avoidance measures introduced in the 2011 Budget will increase tax receipts by about £4 billion over the course of this Parliament to go some way to reducing the tax gap of £42 billion (according to the HMRC). Specific changes have been introduced to clamp down on Stamp Duty Tax Avoidance, tax avoidance linked to double taxation agreements, and disguised remuneration aimed at avoiding PAYE and National Insurance contributions.

But just to show that the Government is really serious about tax avoidance, it published a Tackling Tax Avoidance paper alongside the Budget. Although the paper is big on jargon, rhetoric and ‘strategy’, it is not as scary as it sounds.

It pledges to review areas of the tax system that ‘have been under repeated avoidance attack’ to ‘get to the heart of the problem’, but the result of these reviews will not be felt until 2013. A consultation paper on relief for income tax losses and the use of Unauthorised Unit Trusts is due to be published in 2011, and legislation is timetabled to be introduced in 2013.

Further substantive changes to legislation billed for the next few years include a law to remove the cash flow advantage that tax avoiders can get by retaining tax during a dispute over liability. A consultation document on the issue is intended to be published this May, and the legislation will be passed in the Finance Bill 2012.

The Government is exploring the option of introducing a General Anti-Avoidance Rule, known by the evocative acronym GAAR, but this could be a while coming. A study group led by Graham Aaronson QC will report its conclusions to the Exchequer Secretary in October this year, and if they are convincing, the Government says it will pursue a formal consultation.

There are several specific types of avoidance which will be challenged: under consultation for legislation will be ‘capital allowances, the use of double taxation treaties and contributions to pension schemes in non-cash form. The Government will also consult further on extending the hallmarks that describe avoidance schemes required to be disclosed to HMRC.’

While the paper advertises the above changes as ‘tackling avoidance at the root’, it also promises to tackle avoidance through ‘challenge and litigation.’ As a first step this includes increasing public disclosure of tax avoidance schemes, such as by requiring avoidance scheme promoters to publish lists of the clients that have taken up their schemes. The first such list is due on 30 April 2011. As of 6 April this year, new and innovative inheritance tax avoidance schemes involving transfers into trust must also be included on the lists.

These are not insignificant changes, but for a paper that promises ‘a more strategic approach that gets to the root of the problem, rather than treating the symptoms’ the overall effect is pretty weak. The treasury paper struggles to define what it sees as the root of tax avoidance, and at Spear’s we can’t help but wonder, isn’t it high taxes?