Under Treasury Minister David Gauke, HMRC’s single departmental plan has become a document of serious intent, and one which those interested in taxes ignore at their peril. The big picture continues to evolve steadily: record amount of taxes collected – more being invested in tackling evasion and non-compliance – more prosecutions – improved customer services – better use of resources – you get the picture.
The updated report published on 24th May 2016 contains something new: it promises to raise an extra £5bn a year by 2019/20 by tackling tax avoidance, evasion, compliance issues (all of that we might reasonably expect to happen) and by tackling tax planning (emphasis added). This marks a sea-change in HMRC’s approach.
For years, it has been established through the courts that nobody is required to pay the maximum amount of tax in any particular set of circumstances. Far from it. Everybody is entitled to organise their affairs to legitimately reduce their tax liabilities, subject to not falling foul of the General Anti-Abuse rule. Of course, tax evasion remains wholly illegal, separated from tax avoidance by the thickness of a prison wall. Tax avoidance, particularly artificial tax avoidance, has been the subject of a successful and sustained attack by HMRC for many years now. But the threat to tackle routine tax planning is completely new.
Without a doubt, the squeeze on tax planning has been there for some time. The Chancellor’s Budget speech 2015, for example, had a section on combatting evasion, avoidance and aggressive tax planning. What’s new and significant is that the word ‘aggressive’ seems to have been dropped.
So what exactly is meant by tax planning? Most of the tax planning we see involves individuals and companies doing no more than claiming the tax reliefs to which they are entitled, for purposes specifically intended by Parliament. Here are some examples:
- wills – making use of the spouse exemption for inheritance tax;
- structuring investments to secure entitlement to entrepreneur’s relief (capital gains tax), business property relief (inheritance tax) and also enterprise investment scheme (EIS relief) and seed enterprise investment scheme (SEIS relief); and
- retirement income – using spouses pension allowance to provide joint income in retirement.
Make no mistake, an attack on routine tax planning would be a major shift in HMRC’s approach and would seem to pit the Administration (in the form of HMRC) against the Legislature (Parliament) which has enacted specific legislation for specific purposes. With the prospect of HMRC imposing a requirement for individuals and companies to pay the maximum amount of tax in any particular set of circumstances, we asked HMRC to indicate exactly what they intend to do. At the time of pressing the ‘send’ button, they have failed to do so.
Watch this space – but if the plain words of the HMRC single departmental plan are to be taken at face value, it looks as though we can expect a seismic shift in the way taxes are dealt with in the UK.
For more information please get in touch with George Bull, or your usual RSM contact.