As an influential report criticises the taxman’s track record of tackling aggressive tax avoidance schemes, HMRC has stepped up its game by sending letters to 1,500 users of one particular scheme, in a ‘pre-emptive strike’.
The political and public mood has increasingly turned against people and corporations who have not paid a ‘fair’ amount of tax. Over the past year, tax avoidance has been referred to as ‘morally repugnant’ by the most senior members of the Government, and HMRC has been tasked with frightening various groups of individuals and business owners into calculating their tax liabilities correctly.
HMRC’s anti-avoidance efforts inadequate
Despite the current anti-avoidance culture, a new report by the National Audit Office (NAO) found that HMRC’s efforts to clamp down on aggressive tax avoidance schemes have been inadequate.
Under the DOTAS (Disclosure of Tax Avoidance Schemes) regime, promoters of tax avoidance vehicles have been forced to disclose details relating to any new schemes that come on the market. The DOTAS remit has been expanded since its creation in 2004 to include a wide variety of schemes.
However, despite such disclosure requirements, and over 90 changes to tax legislation over the past 8 years, the number of new tax avoidance schemes keeps on growing – with over 100 new schemes coming to the market in each of the past 4 years, according to DOTAS statistics.
The NAO says that HMRC must “push harder to find an effective way to tackle the promoters and users of the most aggressive tax avoidance schemes. ”
New methods to discourage tax avoidance
The tax authorities do face one fundamental hurdle when attempting to litigate against such schemes: tax avoidance is perfectly legal. As a result, the HMRC is now turning to other measures to discourage the use of tax avoidance vehicles.
According to a BBC news report, the members of one particular scheme are to receive a ‘warning shot’ from HMRC in the form of a pre-litigation letter, which will outline the taxman’s intention to investigate both the scheme itself and the tax affairs of all participants.
This type of scare tactic is being used more and more by HMRC, from targeting eBay sellers to plumbers and businesses who have failed to register for VAT.
However, the tax authorities face an uphill struggle. Of the 2,300 new schemes revealed under the DOTAS regime since 2004, only 40 have been successfully challenged.