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Enabling tax avoidance

Enabling tax avoidance

According to the ‘Gazette’, solicitors, with the exception of those in-house, are among the main losers from last week’s spring budget. A combination of higher national insurance contributions and increased taxes on dividends will hit self-employed practitioners, partners and director shareholders.

In addition, accountants, lawyers, tax planners and advisers who provide advice on how to avoid tax will face tough penalties under new proposals being consulted on by the government. Under the plans set out in an HMRC consultation document enablers of tax avoidance could have to pay a fine of up to 100 per cent of the tax the scheme’s user underpaid. The fines are designed to be levied against accountants and lawyers who create tax avoidance schemes of the kind used by celebrities.

Theresa May pledged during her leadership campaign to pursue companies over tax avoidance. “It doesn’t matter to me whether you’re Amazon, Google or Starbucks: you have a duty to put something back, you have a debt to fellow citizens and you have a responsibility to pay your taxes,” she said at the time.

Currently tax avoiders face significant financial costs when HMRC defeats them in court. However, those who advised on, or facilitated, the avoidance bear little risk. The government is acting to make sure that tax avoidance is rooted out at source and this action will target all those in the supply chain of tax avoidance arrangements.

The chancellor confirmed in his budget speech that professional enablers will be fined up to 100% of the tax their client avoided if an HMRC investigation finds the scheme they helped create falls foul of the rules. The new fine is designed to put extra pressure on accountants and lawyers not to create elaborate schemes to help wealthy people avoid tax. At present, while their clients can fall foul of HMRC, there is little redress against the professionals who design and sell the schemes.

“People who peddle tax avoidance schemes deny the country of vital tax revenue and this government is determined to make sure they pay,” Jane Ellison, financial secretary to the Treasury, said introducing consultation on the new penalty. “The vast majority of their schemes don’t work and can land their users in court facing large tax bills and other costs. These tough new sanctions will make would-be enablers think twice and in turn reduce the number of schemes on the market.”

Graeme Robb, of Prudential, said Hammond’s crackdown on accountants and lawyers “continues the theme of previous budgets and reinforces the government’s desire to clamp down on often complex tax avoidance strategies.”

As reported in the ‘Gazette’, on solicitors’ personal tax liabilities, Peter Noyce, business services partner at professional services firm Menzies, said the announced reduction in dividend tax allowance from £5,000 to £2,000 would increase liability by only £225 a year, “but when you add last year’s tax increase of 7.5% on dividend income at all levels this is painful”

The Law Society also raised concerns about the new tax avoidance penalty regime, which the chancellor said would come into effect in July. President Robert Bourns said: “The Law Society understands the government’s desire to prevent people abusing the tax system through tax evasion and aggressive tax avoidance. However, everyone loses if these measures stop taxpayers receiving proper legal advice on their tax obligations.”

The Society did welcome the chancellor’s announcement of support for new technologies. “Solicitors are embracing technology as it fundamentally reshapes the way the legal sector works,” Bourns said.

This post was written by:

- who has written 462 posts on Upper Case – The Anya Legal Journal.

Mike Gribbin is a retired Civil Servant with wide experience, including the drafting and implementation of Parliamentary legislation and regulations. He is the editor of “Criminal Offences Handbook”, a uniquely comprehensive guide to more than one thousand ways to fall foul of UK criminal law. He is Editor of the Upper Case Legal Journal and has been writing blog posts for the past eight years.

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