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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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Manufactured payments

June 21, 2012

I can’t pretend that I understand the legislation on Manufactured Payments.  In fact, I can’t actually pretend I have even *read* the legislation!  I barely managed to stay awake while I was reading the consultation document.

What I DO know something about, is what the government has promised to do when it contemplates making a change to legislation that will have an impact on business, and in this case it seems to me that it hasn’t done it.

First of all let’s look at what’s being proposed.  You don’t really need to know what a manufactured payment is for these purposes; let’s suppose you replace the words “manufactured payment” with the words “complicated thing”.

 1.5 In making these proposals it is the Government’s aim that as far as possible the changes to these tax rules should:

  • reduce the compliance burden on both payers and recipients of manufactured payments;
  • neither impede normal market transactions nor act as an incentive to transactions;
  • provide consistency of treatment between manufactured payments and similar payments made under derivative contracts such as swaps;
  • be consistent with the trend in recent years for taxation of financial instruments to follow the accounting treatment and for payments between UK companies to be paid without deduction of tax;
  • reduce the potential for tax avoidance.

What I take from this is that the government proposes to make the tax treatment of manufactured payments simpler, close down a tax avoidance loophole involving double taxation relief, reduce the potential for new loopholes to be thought up, and make life simpler for everyone.

As a TIIN specialist, I therefore turn next to the TIIN to see what that does to the numbers.

Page 22 of the document shows there will be no impact on tax receipts until the 2014/15 tax year, and that the effect after that is expected to be “negligible”.  I comment in passing that the TIA should begin when the legislation is due to be presented, not 2011/12 which is neither here nor there at this point when we are already in the 12/13 tax year!

The main question to be addressed in a TIIN is – why are you doing this?  Given that there is no exchequer impact from the change, then I would have expected the reason for change to be a saving in the administrative burden on companies involved.  However there is no attempt to quantify this: let’s look at the impact on businesses and civil society organisations:

Most businesses will not be affected. Those businesses involved in stock lending may benefit as the abolition of the need to deduct tax from some payments should lead to reduced administrative burdens. The prices of stock lending and repo transactions may need to be adjusted to reflect changes in the tax credits due to different participants in the market. There are likely to be transitional costs involved in changing IT systems and adjusting pricing models.

There’s no saving to HMRC either: “The impact on HMRC will be negligible as only a small number of staff are involved with manufactured payments.”

And there’s nothing else: “No other impacts are envisaged”

So why are we doing it?

Chapter 3 of the condoc, the “case for change” says:

3.6 More generally, there has been a trend in recent years towards the abolition of any requirement to deduct tax where payment is made by one UK company to another.

3.7 In addition the current rules are extremely complex and now run to over 100 pages of legislation. This complexity to some extent reflects the need which has arisen in the past for frequent changes to the legislation to defeat avoidance schemes.

3.8 HMRC continues to receive disclosures of avoidance schemes indicating that this area remains vulnerable to avoidance risk. Simplifying the legislation, and removing the need to deduct tax, will reduce this avoidance risk.

I’m interested in this idea that there’s a “trend” – sounds nice and organic, doesn’t it, as if we’re simply going with the flow.  But tax isn’t a force of nature, it’s a wholly manufactured (to coin a phrase) object, and we as citizens own its existence and – in the persons of our elected government – determine its design.  So a “trend” isn’t a reason to change.

Doing away with complexity is the only plausible reason given for change, and you might think that doing away with 100 pages of tax legislation was a desirable objective in itself.

But if that’s the case, then how much will it cost to do it?  What is the cost/benefit analysis of the change?

There must be some clue of what’s at stake if we don’t do anything at all, surely?  And there must be some idea of how much it costs to bring a piece of legislation before Parliament?  Maybe we should compare one with the other and see if the game is worth the candle?

Here’s the formal response I sent:

This is an individual’s response and is also posted online (with commentary) on my blog at https://tiintax.com/.
1.  The TIA begins its consideration with 2011-12 which is of course already in the past.  Surely the five year period under consideration should begin when the legislation is expected to be introduced, ie 2013-14 or at the earliest the current tax year, 2012-13?
2. There is no reasonable cost/benefit analysis in the TIA or elsewhere in the consultation document.  It is asserted that abolition of 100 pages of legislation will ease the administrative burden on affected businesses but the number of businesses affected is not given, nor is the administrative burden (measured by the standard cost model) calculated.  There are several forms and records listed for abolition and my understanding is that they should easily be capable of look up in the SCM and I am curious why this has not been done.
3.  Nor is there any reasonable consideration of the comparative costs of undertaking this change (the costs of the consultation itself and of the Parliamentary and other time required to pass the necessary legislation) as against the costs (the risks of tax avoidance) which would apply if there were no change.
4.  I can only therefore conclude that either this consultation document is seriously defective in its failure to present the cost/benefit analysis of making the change, or else the case for change is not made and the proposals should therefore be dropped.
5.  Sorry to give you what may seem an unhelpful reply but I would also be grateful if the consultation coordinator would look at this as a complaint at the failure to conduct a consultation in accordance with the government’s Code of Practice on consultations.  This says that “Estimates of the costs and benefits of the policy options under consideration should normally form an integral part of consultation exercises, setting out the Government’s current understanding of these costs and benefits.” and the Tax Consultation Framework additionally promises that, at each stage of the consultation, government will set out “its current assessment of the impacts of the proposed change and seek to engage with interested parties on this analysis.”  I cannot see that this has been done in this case.

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