Over recent years there has been a continued focus by Government and HMRC on combatting artificial tax avoidance and filling in the 'gap' in expected tax revenues. In 2004, legislation was introduced requiring promoters of tax avoidance schemes to notify HMRC of any new arrangements which has enabled HMRC to take early counter-action.
During this time the tax courts have found new ways to interpret the legislation in the way 'that Government intended' or rather would have intended if it had realised that taxpayers would exploit a loophole.
In addition, HMRC has started to work in a smarter manner by marshalling its human and technological resources to find funds hidden in foreign bank accounts, seek out traders evading tax on their business profits and to investigate the fine details of complex schemes designed to mitigate tax, such as film finance schemes.
There is a clear distinction between tax evasion, which is illegal, and planning so as to avoid paying more tax than is required. Old tax case law had established that taxpayers are entitled to take action to minimise their contributions to the state and, in an often quoted 1929 judgement, Lord Clyde said the taxpayer was "entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue".
Over recent months the morality of both contrived and standard planning has come under scrutiny in the media, with the inference that anyone who pays less than the potential maximum is failing to do their bit for society. This has to perhaps be taken into account in tax planning as well as the technical basis for any tax computation.
So where do we go to from here?
On the one hand George Osborne said in the 2012 Budget that he regards tax evasion and aggressive tax avoidance as 'morally repugnant' and announced that the war against contrived avoidance will step up a gear next year with the introduction of the general anti-abuse rule (GAAR). In addition, new SDLT charges on expensive properties purchased by offshore companies have been introduced and a consultation is due shortly on the prospect of restricting tax reliefs.
On the other hand Government continues to offer tax advantages to selected investments like ISAs, EISs and VCTs and it gives special reliefs for worthy causes like R&D and business property renovation etc. There has also been much talk of giving support through the tax system to smaller businesses. Acceptable planning opportunities remain for the well advised client.
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