Government's plans for tax avoidance penalties are 'premature'

HMRC is not giving the anti-tax avoidance measures it has already put in place sufficient time to take effect, and is pushing through new and 'unnecessary' changes prematurely, according to the Law Society.

Gary Richards, committee chair of tax law at the Law Society has commented on HMRC's plans to introduce new penalties for 'serial users of tax avoidance schemes'.

'The government's proposals are premature,' said Richards. 'HMRC's legislation on follower notices and accelerated payments has only recently been introduced. If these measures meet their objectives, and it is too early to assess this, HMRC's latest proposals on serial users will be unnecessary.'

'We are concerned that HMRC is not using its existing powers to litigate, instead wasting resources by attempting to introduce new legislation at a time when the deterrent effect of the general anti-abuse rule has yet to be established,' he added.

Follower notices require taxpayers to accept judgments made in tax avoidance cases involving similar schemes and amend their returns, or risk penalties for continuing to contest tax assessments.

Accelerated payment notices require taxpayers to pay money upfront, pending a decision on whether tax is actually due. If tax is not due, HMRC will return the money, plus interest.

Both policies were only introduced in the Finance Act 2014 and the general anti-abuse rule was introduced in 2013.

Accelerated payment notices suspended

Lending weight to Richards' argument is the fact that earlier this year, film scheme investors who were issued with accelerated payments notices won the right to challenge the validity of the policy in the courts.

Their case is expected to be heard in the High Court at some point this summer.

Accelerated payment notices have been suspended until a judgment has been reached.

Meanwhile, the Law Society's tax law committee has called for the new proposals which will allow HMRC to apply for early resolution on tax enquiries, to be extended to tax payers too.

Under current proposals, only HMRC would be able to refer matters to a tribunal to achieve early resolution of one or more aspects of an enquiry into a tax return.

Richards commented: 'We agree that closure notices on aspects of an open enquiry could result in enquiries on tax returns being resolved faster. However, HMRC sometimes delays issuing closure notices pending the outcome of other taxpayers' cases.

'Taxpayers and HMRC would benefit if both were able to apply to a tribunal to issue a closure notice on one or more aspects of an enquiry, rather than only HMRC being able to apply as is being proposed by the government.'

Binyamin Ali is assistant editor of Private Client Adviser