Shadow chancellor John McDonnell has vowed to clamp down on City advisers engaged in promoting tax avoidance schemes, calling for hefty fines and even jail terms under a future Labour government.
McDonnell directed his fire at “big accountancy firms” which he called “enablers” of tax avoidance, the term used to describe legal efforts to minimise tax liabilities.
In an interview with the Sunday Times, McDonnell said he also wanted to tear up rules of confidentiality between clients and their financial advisers that “prevent them being open and transparent about the advice and activities they are undertaking”.
However, Dan Neidle, a partner at law firm Clifford Chance who specialises in UK finance and tax, said accountants have never had legal privilege, the mechanism that protects the confidentiality of information shared between clients and their advisers.
He said McDonnell was “attacking a world that…no longer exists”.
“Tax avoidance schemes have to be disclosed to HMRC and tax paid up front,” he said.
“The courts have struck down just about every scheme they’ve seen in the last 15 years.”
He added: “McDonnell is fighting the last war. The tax avoidance schemes of the 1990s and 2000s were rightly killed off by successive governments.”
One such avoidance case to grab the headlines was a film partnership scheme promoted by Ingenious Media, a firm that funded films including Avatar and Brooklyn and which saw celebrities dragged to the dock to defend their tax affairs.
Neidle said the real challenge now, however, was taxing multinational firms and tackling the black market.
Business groups said they supported efforts to clamp down on tax evasion and avoidance but that greater clarity on the rules is needed.
A spokesperson for the Institute of Directors said: “Successive governments have rightly sought to clamp down on tax evasion and aggressive avoidance. However, just as important as enforcement is clarity in the rules themselves, and there should be a firmer line where authentic tax planning ends and abuse of the system begins.”
Suren Thiru, head of economics at the British Chambers of Commerce, said “addressing unfairness” in the tax system also meant improving HMRC’s service to smaller businesses.
McDonnell also confirmed over the weekend that under a Labour government, the 45p rate of income tax would kick in at £80,000, rather than the current £150,000.