Tax avoidance: where are we now?

The Inland Revenue has always taken a dim view of tax avoidance using what it sees as ‘artificial schemes’. Blocking successive schemes became something of a cat and mouse game. Once the Inland Revenue latched on to a particular scheme they could seek to block it either by taking a case through the courts or by introducing amending legislation to render it ineffective. Typically tax planners then sought either to find a loophole in the amending legislation or to move onto ‘mark II’ of the scheme.

Consequently new rules were introduced in 2004 requiring tax scheme promoters to provide details of their schemes to the Inland Revenue. The scheme is then registered and a reference number allocated. Taxpayers using such schemes are required to include the number on their tax returns.

In the government’s words ‘these rules provide early warning of avoidance schemes ….. (and) enable the government ….to respond to tax avoidance’. The result to date has been an apparently much quicker response in introducing specific anti-avoidance measures.

In December 2004 a measure was announced essentially designed to stop avoidance of tax and national insurance on large bonuses paid using specific shares and securities rather than in cash.

In Budget 2005, a whole raft of measures was announced, including a number relating to double tax relief both for companies and individuals. If you were thinking of an extended trip to Belgium to avoid UK capital gains tax, think again!

The disclosure regime originally applied to direct taxes and certain VAT schemes but is being extended in July 2005 to cover schemes to avoid stamp duty land tax on commercial property.

But don’t forget - not all tax avoidance schemes are covered by the new regime and even if they are it doesn’t necessarily render them ineffective!