The government has in recent weeks announced plans to demand any tax owed upfront by users of tax avoidance schemes ahead of HMRC taking the necessary steps to investigate, and ultimately; challenge, the tax owed in the courts.
This hasn’t come as a shock to observers, with Chancellor of the Exchequer George Osborne touching upon these plans moving forwards as part of his Autumn Statement in December of last year (2013).
The upfront payments in question will only be required from taxpayers who have disclosed to be using tax avoidance schemes (as they are legally obliged) that have already been defeated in the courts, or indeed similar-looking schemes bearing the same hallmarks. In the case that a cash payment is not easily available to the taxpayer in question, HMRC will actively seize assets in place of a monetary payment.
Speaking on these changes, Exchequer Secretary to the Treasury David Gauke noted:
“The government has been absolutely clear that we will not tolerate aggressive tax avoidance and will take action to make sure people pay the taxes that are due. While the vast majority of taxpayers play by the rules, there is still a minority who will engage in artificial schemes as a way to avoid their responsibilities.”
The Exchequer Secretary continues:
“The consultation we are publishing today will not only seek to remove the advantage that tax avoidance schemes users have; it will send a clear message to anyone thinking of using these schemes to avoid paying the tax that is due – tax avoidance doesn’t pay.”
Current Disclosure Legislation
It’s reported that these new rules will ‘significantly shift the economic balance’ and in turn help HMRC to resolve approximately 65,000 cases involving the use of tax avoidance schemes of which it’s currently investigating.
In this manner, taxpayers under dispute will no longer be able to employ tactics to hold onto what HMRC considers to be disputed tax, often for a number of years, while the investigation and subsequent case against them is being pieced together.
The government notes that HMRC eventually win over eighty percent of all cases it litigates of taxpayers avoiding paying their tax owed (through avoidance schemes). Under these new rules, should a taxpayer wish to take their case to a tribunal and win, these upfront payments will be returned to them with interest.
IR35 is incredibly complex, and with HMRC opting to clamp down even harder on potential tax avoidance it’s in your best interest to ensure you’re compliant with IR35 rules at all times to avoid falling foul of a potential upfront payment.
Professional Advice on Your Tax Situation
To speak with a professional to discuss your current tax situation, and whether or not you may be penalised with an upfront payment going forward, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.
This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.