HMRC to continue tax avoidance clampdown

The government expects to raise £3.1bn by closing tax avoidance loopholes and further utilising legislation already in place.

The diverted profits tax (dubbed the Google tax) which George Osborne expects to come into effect next month, changes to the corporation tax rules which will prevent contrived loss arrangements and 21,000 more accelerated payment notices than planned, are all expected to contribute.

Osborne added in his budget speech that a review on the avoidance of inheritance tax through the use of deeds of variation will also contribute to raising the £3.1bn target.

The continued tax avoidance clampdown is an expected continuation of the government's strategy, but a review of the use of deeds of variation to avoid inheritance tax has raised some eyebrows.

James Ward, a private client partner at the law firm Seddons, thinks that the review is nothing more than an election ploy.

'The proposed review of deeds of variation in relation to inheritance tax is a surprise, but may simply be an electioneering proposal following admission by Ed Miliband that he used one on his father's estate,' he said.

'The immediate tax advantages of using such a deed are minimal, especially following the introduction of the transferable nil-rate band and, in practice they are mostly used to rectify omission or inequality in a will or skip a generation.'

James Hender, partner and head of the private wealth group at Saffery Champness, agrees. Hender feels that the review is nothing than a piece of electioneering.

'It would be shame if this useful tool is abolished just so that the chancellor can embarrass the Opposition,' he said.

Annual tax returns abolished

Meanwhile the chancellor also announced that the annual tax return for individuals and small businesses will be scrapped by 2020 and be replaced by 'digital tax accounts', which he called 'a revolutionary simplification of tax collection'.

The change means that tax payers will be able to view their tax information in real time throughout the year, as well as being able to pay their tax in small instalments and not be forced to pay in a lump sum.

Osborne said in his speech: 'We will abolish the annual tax return altogether. Millions of individuals will have the information the revenue needs automatically uploaded into new digital tax accounts.

'A minority with the most complex tax affairs will be able to manage their account on-line.'

Any simplification of tax matters is always welcome but there is concern about HMRC's ability to handle the move to a digital platform.

James Ward commented: 'There is some risk involved in relying solely on HMRC to be responsible for the calculation and resolution of tax, particularly when we're talking about millions of tax payers. In addition, HMRC doesn't have the most flawless record when it comes to deploying IT solutions on a large scale.'

However certain individuals and company types will still need to submit tax information manually, as HMRC will not be able to calculate the amount of tax due from informal businesses.

Binyamin Ali is assistant editor of Private Client Adviser