This short analysis piece first appeared in The Scotsman, 22 June 2012
There is a lot that HMRC is already doing to shut down tax avoidance schemes. Every year the Government passes a Finance Bill packed with anti-avoidance measures. Since 2004 we've had a rule which requires anyone promoting an arrangement designed to give a tax advantage to tell HMRC about it. If HMRC think it falls foul of existing rules they might take it to a tribunal. If the promoter has found a loophole HMRC can introduce new legislation to block it.
So why are schemes like those in the news this week still operating?
First of all, it is time consuming for HMRC to take a scheme to a tribunal. The music industry investment scheme publicised this week is due to go before a tribunal in November. It may go to appeal after that. If HMRC are successful they will eventually get the tax due. If they are unsuccessful we may see new legislation in this area.
Second, it is very difficult to make the system water-tight. Last year 59 pages of legislation was passed on ‘disguised remuneration’ (roundabout ways of paying people that try to avoid tax). However those running the K2 scheme clearly think they have found a way round this.
Third, HMRC are under-resourced and getting to grips with complex schemes can take a lot of time and effort.
What more can the Government do?
The general anti-abuse rule announced in the Budget is an attempt to get a step ahead of anti-avoidance schemes. But many worry that the proposal is too imprecise and will create uncertainty, while not catching many of the headline-grabbing cases.
Resourcing HMRC properly would be more productive. In austerity times, making cuts in the department which brings in the money seems a strange thing to do.
The wrong answer is to pile new laws on top of the existing ones. More laws creates more complexity creates more loopholes.
The long-term answer is simplicity. We need a grown-up debate about what the tax system should look like in 20 years' time coupled with a rule that no tax changes can be made which don't move towards that end goal.
John Barnett is Chairman of the CIOT's Capital Gains Tax and Investment Income Technical Sub-Committee, and a Tax Partner at solicitors Burges Salmon
Posted Monday 25 June 2012