Out-Law / Your Daily Need-To-Know

Taxpayers using high risk tax avoidance schemes to be targeted

31 May 2011, 3:43 pm

Taxpayers will have to disclose the use of high risk tax avoidance schemes and will be subject to an additional charge on underpaid tax in plans announced by HM Revenue and Customs (HMRC).

HMRC is consulting on proposals to list certain high risk avoidance schemes. Taxpayers will have to disclose the use of listed schemes to HMRC or face a penalty.

A high-risk scheme is one which uses contrived arrangements to seek tax advantages in circumstances where they are not intended to be available. HMRC believes that such schemes do not deliver the advertised tax advantages, the consultation document says (23-page, 97KB PDF).

If HMRC discovers that a listed tax avoidance scheme does not work, then the taxpayer will have to pay an additional charge reflecting the amount of underpaid tax and the time over which it is underpaid. Taxpayers will be able to protect themselves from this additional charge by making a payment which they think is sufficient to cover the risk.

The vast majority of taxpayers, who do not use such schemes, will be unaffected by the proposals.

"If these proposals become law much more care will be needed over the use of legitimate tax planning arrangements to make sure they do not fall foul of the new rules," said Janet Hoskin, a tax expert at Pinsent Masons, the law firm behind OUT-LAW.COM.

Tackling tax avoidance has been on HMRC's agenda for some time now. It has periodically issued its 'Spotlights' online newsletter to make taxpayers aware of certain generic avoidance schemes that will likely be challenged.

However, taxpayers were not always deterred from using these schemes as by retaining the use of the money throughout the period of challenge by HMRC, there was a cash flow advantage in doing so. This advantage would be removed under the new plans.

"These are highly aggressive and artificial tax avoidance schemes which we want to stop. For too long, wealthy taxpayers were using these schemes as a cheap loan from government. Our proposals would stop this practice, reducing the cost of HMRC's interventions and ensuring a fairer tax system," David Gauke, Exchequer Secretary to the Treasury, said in a statement.

Comments can be made on the proposals until 31 August 2011.