Accelerated Tax Payments – Budget Proposals Challenged

In 2004, The Disclosure of Tax Avoidance Schemes (DOTAS) regime was introduced by the Government, which required the promoters of marketed tax avoidance schemes to register them with HM Revenue and Customs (HMRC). The stated intention behind the DOTAS legislation was to enable HMRC to react quickly to close loopholes by changing the law, and so that they could “….put resources in place to conduct intensive investigations into avoiders’ tax returns”.

HMRC have succeeded in closing down some loopholes but they have certainly failed to deal with the huge backlog of tax enquiries that have built up into various tax schemes. In 2009/10 there were some 13,456 outstanding first tier tax tribunal cases. By 2012/13 this had almost doubled to 26,965. Not all of these are as a result of DOTAS disclosures, however, according to current figures there are some 65,000 taxpayers involved in DOTAS schemes, many of which are held up in the tax tribunal system, and it will take HMRC several years to be able to deal with the backlog.

The Government issued a consultation process in January 2014, in which they proposed that HMRC would be able to assess and collect the tax due on any DOTAS scheme irrespective of whether the scheme had been tested through the courts. They only allowed 4 weeks for consultation (the cynics amongst us might also point out that this was at the busiest time of year for tax practitioners!)

In the 2014 budget the Government then announced new legislation to collect tax on DOTAS schemes exactly in accordance with the consultation document, having ignored all the issues that accountants and our professional organisations raised! One of the main concerns was the apparent retrospective nature of the legislation, as it would be applied to all current, not just future, DOTAS schemes. Not surprisingly many taxpayers and tax advisors were pretty upset by the proposals a glimmer of hope has now appeared on the horizon from the House of Commons Treasury Committee.

It has just released a report into the 2014 Budget, which included the following statement:

“Retrospective tax legislation conflicts with the principles of tax policy recommended by this Committee. In our 2012 Budget Report we recommended that the Government restrict the use of retrospection to wholly exceptional circumstances………..[The accelerated payment proposals]…will retrospectively apply to some of the 65,000 outstanding tax avoidance cases..[and] the Government has yet to explain what is wholly exceptional about these cases that justifies this retrospective measure. It should do so in response to this Report…..” .We’ll have to wait and see what response the Government gives – watch this space!