Revenue Turn the Big Guns on “Tax Avoidance”

Since the Entrepreneur’s Tax Guide was published, there has been a continuing, you might almost say relentless, public hue and cry against tax “avoidance”, in particular what I refer to as the “aggressive” type of planning, or the “brick through Somerset House window”.  And this is where there have been some quite important, even sinister, developments that I really ought to discuss by way of update to what the book says.

The big change is that HMRC have got tired of endless wrangling with taxpayers who use aggressive schemes, and have awarded themselves (via a completely acquiescent Parliament) powers to sidestep the usual rule.  The usual rule says that HMRC have to establish that tax is due and payable before they send the boys round.  No more, if you are a high level tax planner.  HMRC have got you where they want you if you are in any one of the following three situations:

A.        You have used a DOTAS scheme;

B.        Your planning is within GAAR;  or

C.        Someone else using the scheme has lost their case, and HMRC issue a “follower notice”.

We live in an increasingly acronym ridden world – one of the more annoying imports from the USA – and so I need to give a little time to explaining what the above sets of initials mean.

DOTAS stands for disclosure of tax avoidance schemes, and is another import from the States, effectively, where they have had a similar system for some time.  Where most sorts of “high level” or “aggressive” tax planning schemes are promoted by promoters and put in place by their clients, there has been, for a few years now, a statutory requirement for the details of those schemes to be notified to HMRC.  DOTAS doesn’t apply to all tax planning, or even all aggressive planning, as some advisers, who are clever at finding loopholes in the tax law, are also clever at finding loopholes in the DOTAS regulations.  However, if you are in DOTAS, you’re a sitting duck for the Revenue sending you an “accelerated payment notice”: a piece of paper which basically says “pay the tax now, and then we’ll argue about it”.  Hence the advantage of some schemes, even those that don’t work, of at least deferring the tax payments (usually for years) whilst the recondite technical arguments flow to and fro, has been whipped away from under the taxpayers’ feet.

GAAR stands for General Anti-Abuse Rule, which is a relatively more recent bit of kit in the HMRC armoury.

I have to say that, because this rule was actually written by people who know something about tax, and whose knowledge of tax isn’t purely the “bull in a china shop” attitude of the bureaucrats in Somerset House, the rule is actually quite well balanced and sensible – aiming to counteract schemes which are nothing but smoke and mirrors.  For the Revenue to be able to get accelerated tax payments out of you under the GAAR rule, though, they have to both issue a GAAR counteraction notice and get this approved by at least two members of the sub panel of the GAAR advisory panel.

The follower notice regime is probably the most sinister part of these new rules, because it virtually appoints HMRC as judge and jury in its own cause.  (This is something they are also trying to do in the proposed new rules which will enable the taxman to help himself out of your bank account, neatly side-stepping the justice system which applies to everybody else.)

In order to issue a follower notice, some bureaucrat just has to be of the “opinion” that your case is the same as some other case that has been decided against the tax payer.  It’s obviously aimed at marketed and off the peg schemes, where the Revenue don’t want to be having to pursue every single user of that scheme in a separate set of judicial proceedings.  One suspects they haven’t got the manpower, for a start.  For this reason, no doubt, there is no appeal against the issue of a follower notice although you can make written representations to the taxman.

All those who have ever asked for a different HMRC officer to “review” the decision of one of his colleagues will give a hollow laugh at this point.

In fact, the only remedy against an obviously unfair follower notice is to apply for judicial review of HMRC’s decision.  Judicial review, actually, now seems a little bit easier than it used to be, because it used to be a very cumbersome and expensive process.  Now, the indications are that judicial review, which is now before the tribunal rather than the high court, might be easier.

So HMRC may find that trying to steam roller through follower notices without appeal isn’t such an easy task as it appears on first, appalled, glance of the reader of the Finance Act 2014.