Wednesday 17 August 2016 6:45 pm

Will government plans to fine firms who give advice on aggressive tax avoidance backfire?

Mark Davies, managing director of Mark Davies & Associates, says Yes.

HMRC’s proposals will fail because they don’t address the fundamental issues. First, consider motive. Nobody likes to pay tax and it is lawful to arrange our affairs to pay the least amount of tax. Second, there is an opportunity to avoid tax because our tax system is mind-blowingly complicated. Tax avoidance relies on mistakes and gaps in the law, tax reliefs and that different taxes have different tax rates. Simplifying our tax law would do far more to lessen the opportunity to avoid tax and lessen the motive to avoid if the tax payable appears to be fair and reasonable. The ability to penalise anybody who benefits from a tax scheme, from the designer, to anyone who markets it or assists with the implementation, is disproportionate and sloppy law-making when it is the existing tax law at fault. Unacceptable tax avoidance is difficult to define and often determined after years of litigation. Law makers should do more to simplify the tax code, and introduce a system of pre-clearance which would prevent uncertainty.

Tessa Lorimer, special counsel in Withers’ tax investigations team, says No.

Tax avoidance schemes will continue to proliferate until the government holds culpable accountants, lawyers and other intermediaries to account. It is not right that taxpayers (many of whom were not sophisticated investors and ought never to have been targeted by their advisers) should be penalised for their roles, when the people who structure and sell these schemes, and receive sizeable commissions for doing so, get away scot-free. As with everything, the devil is in the detail and a cross-agency approach will be essential. The Financial Services and Markets Act 2000 should have prevented the general marketing and mis-selling of these schemes, but through a lack of proper enforcement, has never acted as a strong deterrent. These proposed penalties could be substantial in many cases and, along with naming and shaming those involved, would serve as a powerful disincentive to professionals and intermediaries who otherwise may be tempted to design, promote and facilitate avoidance schemes.

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