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  • Editorial

    HMRC v An Army of Tax Avoiders

    This week, we are delighted that James Bullock of Pinsent Masons has some sympathy for HMRC, dealing with the Tax Tribunal backlog, but reckons they could have done more to help themselves - and taxpayers.

    We recently announced that the backlog of tax disputes waiting to be heard has reached a new record high with a particular surge in the number of high value cases lodged with the Upper Tribunal. 27,246 cases were waiting to be heard in the Tax tribunals in the year ended 31 March 2014. This is an increase on the 26,965 cases outstanding at 31 March 2013 and more than double the 13,456 outstanding at 31 March 2010. 

    The knowledge that taxpayers do not have to pay the disputed tax until their appeal has been determined by the First-tier Tribunal (assuming that the FTT finds against them) has, in HMRC's mind, long served to fuel the demand for tax avoidance schemes which HMRC considers abusive. The fact that general interest rates have been at such a low level for a long time has arguably served as an incentive for taxpayers to enter into what HMRC perceive to be "tax avoidance arrangements" because it gave taxpayers the ability to hang onto the disputed tax for potentially very long periods whilst their dispute was resolved. As we are aware, some of the schemes HMRC is targeting were implemented ten years or more ago - and in some cases enquiries into such schemes have not even been closed, let alone litigated. If interest rates had been higher, taxpayers might have focused more on the interest required to be paid (in addition to the tax) in circumstances where a Tribunal found against them and in favour of HMRC. Instead, taxpayers have had the ability to invest the money - in some cases in property, which in London in particular has soared in value in that period - and have thus done very well, almost certainly better than they would have done if they had not embarked on the tax scheme in the first place. HMRC therefore perceives the use of the money by taxpayers as constituting a tax advantage of itself, irrespective of the merits of the "avoidance" arrangements that are the subject of the dispute. However, a long wait for a tribunal case to be heard is not as much of a problem for HMRC as it is for a taxpayer, who will now have had to pay up front the tax which is in dispute. And now as regards interest, the shoe is on the other foot: if the taxpayer wins, any interest HMRC pays is unlikely to be enough to compensate the taxpayer for what they could have earned if they had had the full use of the money throughout, even in relatively low-risk products with guaranteed yields. 
    One can have some sympathy with HMRC's desire to make the entering into of "abusive" arrangements less attractive and closing down the cashflow advantage referred to above is arguably "fair game", having regard to the Government's deficit reduction programme and the public mood against "egregious" tax schemes available only to the very wealthy. However, there would have been considerably more sympathy - and indeed support - for the APN and "Follower Notices" regime had HMRC applied these prospectively, as opposed to applying them retrospectively, to taxpayers who had complied with HMRC's DOTAS regime. That the APN approach is retrospective has undoubtedly galvanised the determination of many taxpayers who consider that their tax planning was lawful. This can only make the process of reducing the backlog of cases more complex.
    To see the rest of the article, please use the following link - HMRC v An Army of Tax Avoiders


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