HMRC is all set to now claim back-dated tax on avoidance schemes that were legitimately entered into prior to new legislation coming in.
More than 2,000 people are now going to have to pay tax bills totalling around £200million, even though they used legitimate schemes in the early 2000s to mitigate their UK income tax. British workers could legally set up an offshore partnership in the Isle of Man in order to reduce their rate of income tax to just 5% until the Treasury closed the loophole in its "double-tax" agreement with the self-governing dependency in the 2008 Finance Act.
In September 2015, a judge ruled that HMRC could retrospectively enforce the legislation to force people to pay backdated taxes.
The recent approach to dealing with tax avoidance by both HMRC and the courts has provoked much discussion among tax practitioners and financial advisers in relation to mitigation arrangements. The tax tribunals are overwhelmed with a raft of tax avoidance cases involving various creative schemes, often with similar elements such as the circular movement of money, self-cancelling transactions or the insertion of numerous steps that seem to serve no commercial purpose, other than to secure a reduction in tax.
Over the last 30 years, when considering tax avoidance schemes, the approach taken by the courts has varied significantly, and there often seems to be no consistency in their approach. At Budget 2011, HMRC and HM Treasury published their new anti-avoidance strategy. This involved four strands:
• Introducing legislation to reduce the cash flow benefit of using tax avoidance schemes.
• A rolling programme of review of high risk areas. This has resulted in the introduction of, among other things, legislation aimed at tackling high risk promoters.
• Considering the need for a general anti-avoidance rule. The government concluded there was a need for a General Anti Abuse Rule (GAAR), which was implemented in the Implementing targeted tax measures to address specific schemes or particular taxpayers.
• Most recently, HMRC has proposed measures to tackle serial tax avoiders and large businesses that persistently undertake aggressive tax planning.
Slater and Gordon’s specialised tax investigations team can assist clients who have issues with HMRC in relation to an anti-avoidance scheme. We are currently challenging Revenue in relation to the legality of what some would consider to be pernicious legislation.
Sarah Sharpe is the Head of the Tax Investigation team at Slater and Gordon.
If you have been affected by the new tax legislation and would like legal advice, please contact Slater and Gordon Lawyers. Call us on freephone 0800 223 0093 or contact us online and we will call you.