Archive for the ‘Avoidance’ Category

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Have I got news for you? (Well, have I?)

July 23, 2012

There’s been some very poor reporting of the speech David Gauke made this morning at the Policy Exchange – “cowboy” tax advisers will be forced to “name and shame” their clients, for example.  No they won’t, and, don’t be daft.  Some journalists need to do some research that doesn’t involve google once in a while.

The speech itself is interesting, though, in part because the Minister has a go at what’s acceptable and what isn’t in terms of tax planning:

Legitimate use of reliefs is not tax avoidance:

Claiming capital reliefs on investment is not tax avoidance – when those reliefs were introduced precisely to encourage the investment in question.

Claiming reliefs against double taxation is not tax avoidance – when the alternative would be taxpayers paying tax twice on the same income.

Claiming back tax on legitimate charitable donations is not tax avoidance – any more than ticking the ‘gift aid’ box is.

Not paying tax on your pension contributions is not tax avoidance.

Taking out a tax free ISA is not tax avoidance.

Quite.  (Although you then ask yourself why we then had the ill-conceived consultation on capping charitable tax reliefs…???)  

Buying a house for personal use through a corporate entity to avoid SDLT is avoidance.

Channelling money backwards and forwards through complex networks for no commercial reason but to minimise tax is avoidance.

Paying loans in lieu of salaries through shell companies is avoidance.

And using artificial ‘losses’ deliberately accrued to claim back tax is avoidance.

To which we say “yes!!!!” (And, when are you going to give HMRC the resources to do something about it??)

Where, though, do we find the announcement that leads to the “name and shame” the “cowboys” headlines?  Well, a consultation IS announced:

Today we consult on ways to improve the information available to the public on avoidance.  Publishing warnings for all to see, and making it easier for taxpayers to see if their adviser has promoted failed avoidance schemes in the past.

(which, you will note, suggests that it’s information about advisers that might be made public, not about their clients)

Let us turn, then, to the Tax Updates and Consultation Tracker helpfully provided by HM Treasury, which lists as To Be Published in July a consultation on “Disclosure of tax avoidance schemes (DOTAS)” Hmmm…. the accompanying PDF helpfully elucidates that this will be

Consultation on extending the DOTAS hallmarks so as to capture avoidance schemes that do not currently have to be notified.

Because, as anyone who works in tax would already know, there is already a regime which says that, if you’re going to market an avoidance scheme, you have to tell HMRC about it.  You have to give it a reference number, and you have to tell the people who buy the scheme from you what the reference number is, and they have to include the reference number on their returns.  Avoidance, not evasion, remember?  These are people who are trying to outsmart the taxman, not hide from him.

So have I got news for you?  Or, to put it another way, is this consultation “news” at all?

Well we don’t know what it’s going to say yet, do we.*

But…

Well…

Look at the briefing note which the Law Society produces for its members, telling them what their responsibilities are if they are the promoters of a scheme and reassuring them that they aren’t going to be asked to violate their professional ethics by disclosing privileged information and they aren’t going to be caught by the legislation if they simply give advice to their clients on a scheme that someone else is promoting.

And turn to section 9, “more information”, and the list of legislation on disclosure of tax schemes.  There are thirty two of them.  So far. Including

I seem to recall that David Gauke said, in the foreword to Tax Policy Making: A New Approach that

Business and tax professionals have previously criticised the tax policy making process as piecemeal and reactive, pointing to the wide range of policy announcements in recent years that have been unexpected and insufficiently thought through.

We could discuss whether this vast train of DOTAS legislation is the result of “piecemeal” policy development that hasn’t been sufficiently “thought through”, or is a sensible use of an iterative approach.  Or we could just say that it’s the tax authorities and the tax avoiders playing whack-a-mole.

As the Minister himself said in his speech today:

There are some who might say that consultation documents on tax administration are often an effective cure for insomnia, but this is one consultation that will keep the promoters of aggressive tax avoidance schemes awake at night.

Um… are you sure, Minister?

 

[*Update: not twenty minutes after I’d posted this, I saw in my twitter feed a tweet from Tax Journal which had a link to the consultation itself.  So we DO know what it says.  But – having read through it – I’m afraid the rest of this still stands.  Sorry and all that.  Oh, and could someone from the Treasury please explain why they bother having a tax consultations tracker at all if it isn’t up to date, please?  Thanks!]

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K2, #toffshore and aggressive avoidance

June 21, 2012

So you resign from your job with – let’s call them “Employer Ltd” – and you go to work instead for a company, which we’ll call, originally, “Company”.  And your old employer takes out a contract with the company for Company to provide various services to Employer… Services like, oh, exactly what you used to do when you worked for them, for example.  And – what a coincidence – Company sends you to go off and provide those services for Employer.

You might be doing the same stuff, perhaps sitting at the same desk, surrounded by the same people.  But you don’t work for Employer any more.  You work for Company.  And all that Company pays you is minimum wage, so that’s what you pay tax on, all legally done and dusted.

Except – oh look!  Company are also making you a loan of a remarkably large amount of money.  And you don’t pay tax on loans, do you.  So you’re quids in… until you have to pay the loan back.

You never have to pay the loan back.  You effectively own Company (via a trust and a couple of quick offshore shuffles).  Woo hoo.

That, at least as I understand it, is the essence of K2, the avoidance scheme that has embarrassed Jimmy Carr over the last 24 hours.  And, to his credit, he’s said he was just acting on the advice of his accountant and, now he gets it, he’s not going to do it any more.

And here’s an infographic showing the difference in scale between the amount of tax he might perhaps have avoided, and the amount of tax a certain multinational might have avoided recently…

There are a couple of things to be said about all this.

First of all, there’s a huge amount of hypocrisy from politicians about this case.  It makes me think it would be a good idea if we went down the American route and made tax returns subject to Freedom of Information Act requests, with a reasonably chunky fee payable (to discourage the frivolous or plain nosy) without preventing or pricing out proper investigative journalism.

Secondly, not that I’m a conspiracy theorist or anything, but there’s a worrying number of pieces about tax avoidance that seem to end with a plea for a flat rate tax.  It’s a trojan horse: don’t be fooled.  We might have to come back to that one!

Finally, it’s relatively easy for the press, the political class, and the twitterati to go after a tax-avoiding individual.  People have reputations to maintain.  People have family and friends to look in the eye.  People have shame.

Big business?  Their reputations may not suffer from an aggressive “tax arbitrage” or “tax mitigation” strategy.  And how many of them have any friends?  Any shame?