Over the last couple of years, there has been a massive shift in the public’s attitude towards tax avoidance. James Bailey wonders if things have now gone too far in the anti-avoidance direction.
The campaign against tax avoidance by HMRC, politicians, and the media sometimes reminds me of the campaign against GM crops. In both cases, those taking part in the debate are largely ignorant of the technicalities involved, but do not allow this to prevent them from having very strong views and acting on them. Margaret Hodge’s aggressive and discourteous exchanges with tax experts when she was chairing the Public Accounts Committee rather reminded me of those white-overalled protestors ripping up cornfields – though to do Mrs Hodge justice, at least she didn’t wear a balaclava while she was having her fun.
Fewer ‘schemes’
Recent legislation has made the use of the more aggressive type of ‘scheme’ largely impractical. The accelerated payment rules (which mean you still have to pay the tax that is in dispute while you argue with HMRC through the courts) have accounted for the more disreputable avoidance schemes, which advertised as a selling point that even if you eventually lost the argument with HMRC you would have delayed paying the tax by several years. The general anti-abuse rule (GAAR) may be a powerful weapon against novel new avoidance schemes, though so far it is too early to tell as it has only been on the statute books for a short while.
I hold no brief for the more artificial type of tax avoidance scheme, and whilst I saw it as my duty to my clients to make them aware that such schemes were available, I did not recommend them, and was careful to warn clients of the likely costs and stress of a prolonged argument with HMRC. I am pleased that the new rules have greatly reduced the effectiveness of such schemes, and that fewer of them are around these days.
Fee protection insurance problems
I am however worried by an unexpected side effect that the media hysteria and the general climate of opinion has had.
This concerns fee protection insurance. Most accountants offer their clients the ability to insure against the cost of HMRC enquiries, and this is a sensible thing to do.
Certain types of enquiry are excluded from cover, including enquiries into tax fraud and into tax avoidance schemes that have been declared to HMRC under the disclosure of tax avoidance schemes (DOTAS) rules. This is fair enough – DOTAS schemes are generally aggressive and artificial tax avoidance schemes, and if you use one you should not expect the insurers to pay for the resulting argument, but the problem comes when the insurer uses the wording of the policy to refuse to cover far more innocent tax planning.
In the case I have seen (which I fear is going to be the first of many), the wording of the policy excludes cover for DOTAS schemes and also ‘any matter relating to marketed or bespoke tax planning arrangements outside of the normal trade (regardless of whether a DOTAS disclosure is applicable)’.
This wording is vague to the point of being meaningless, but the insurer concerned (one of the leading providers of this type of insurance) is using it to justify not paying for any enquiry into a very simple and perfectly respectable type of investment designed to qualify for business property relief and so reduce inheritance tax.
It is as if your car insurance policy contained a clause voiding the cover in a case where in the insurer’s opinion you could have been driving more carefully.
Practical Tip :
If you have fee protection insurance, check what it covers, and whether (as I suspect they all have) the insurer has inserted a ‘catch-all’ clause like the one quoted above.
