UPDATE: Please See Below for Response from Mr Pugh MP
We have met before some years ago to discuss tax and the financial situation generally.
I realise you are no longer in power, but I would draw your attention to two of the consultations released by HMRC over the Summer with the following comments:
Strengthening Tax Avoidance Sanctions [HMRC 17 August 2016]
1. I fear the proposals put forward by HMRC are disproportionate, ill-defined, with a gap of potentially years between the behaviour HMRC allege they have a problem with and ‘punishment’. Further the proposed punishment would not necessarily fall on the person who may benefit from the behaviour, which encompasses ‘any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable)’ but, it is proposed by HMRC, would be imposed on an independent advisor.
2. Tax rules are incredibly complicated. Surely it is not in the public interest to discourage a market for independent, professional advice?
3. The above definition would seem to encompass every commercial action, unless I am mistaken? Can you think of anything not caught in the proposed rules. Thus, under these proposals, every commercial action appears to be within the scope, if (probably many years later litigation finds they have been caught by a technicality). This means what amounts to an offence would only be determined ‘ex post facto’? Surely, wrong in principle, constitutionally. How can any responsible person act professionally and be sure they are compliant?
4. The proposal from HMRC is that an advisor would have a defence if they followed the opinion of HMRC(!) How is that ‘independent advice’? What about the occasions when HMRC are proven wrong by the Courts?
5. In addition to the proposed penalties being wrong in principle, the level suggested is such that an individual advisor could be made bankrupt and thus losing their professional membership and livelihood without actually performing nor even suggesting any action with illegal intent. Surely, this is disproportionate?
The HMRC consultative document actually says that it does not expect those devising what they see as ‘artificial schemes’ to be caught by the penalties. Apparently they ate typically companies based offshore. Is it fair to punish UK professionals when the authorities believe that the true problems lie elsewhere?
It seems to me to be a much simpler and more equitable system to be to allow a ‘reasonable defence’ for both taxpayers and advisors that they had received/given independent advice (with appropriate professional qualification/experience) without that advice being in any way compromised by being rewarded as to results.
If desired, this could be combined with professional rules to prohibit fees being linked to outcome. That way there would be no incentive to bias any advice towards ‘aggressive’ behaviour.
Making Tax Digital
This sounds as though it might be a good idea. Certainly, it has some sound points in terms of efficiency. However, there is an underlying principle of compulsion which is disturbing, especially when the computer systems referred to do not yet seem to exist, have not been fully tested, and seem to anticipate that all businesses will have to pay for them.
a) A big concern is the idea that businesses will have to file every 3 months in ‘real time’. The current requirement is that businesses have to file an annual return within 10 months of the year end. The new proposal represents an enormous extra burden, which in practice would fall particularly hard on small businesses many of whom are currently not even aware of the consultation.
b) As an accountant, I would generally encourage keeping good management accounts. This though should not be compulsory, nor be State monitored. The idea seems to come from someone with no empathy for the pressures on running a small business. No lack of work/sickness benefits for the owner, etc. etc. Compulsion on this scale would have to cover such items as:-
- Serious business disruption through unanticipated economic events
- Illness, death of a parent/spouse/child.
- Emotional/financial impact of divorce.
- Internal commercial problems, such as management disputes, employee problems, fraud etc.
These are serious issues which can hit everyone, and create further potential for subjective interpretation and ultimately undesirable court cases. HMRC suggest the 3 month filings may not be used for anything as this stage. If so, why impose an unnecessary burden?
There are a number of points of detail which need to be addressed, but fundamentally, with such huge powers on their side already I do not believe HMRC are short of powers. Giving arbitrary powers such as suggested would be counter-productive. Not everyone has access to/is comfortable with a computer, perhaps especially the elderly. Suggesting family help may seem good as a ‘sound-bite’, but then how much family tension/concern may it give rise to, particularly in cases where family finances are a sore subject?
I realise some of the points above are probably somewhat deliberately provocative. I believe the process though is important. Key issues as far as I am concerned is that the proposals are too vague to enable honest compliance and in addition risk stilting economic progress by imposing State burdens for no benefit and (according to the HMRC commentary on the 3 month reporting) to no required end.
I look forward to your considered reply.
cc Consultation body
Response from John Pugh MP:
Thank you for your email regarding the two recent consultations launched by HMRC.
The proposals on strengthening tax avoidance do seem broad and vague. It appears that the punishment for avoidance would fall not on the person who is benefitting from tax avoidance but on those who facilitate it. Moreover, the Government is not at all specific on what constitutes avoidance. I hope that the Government’s response to the consultation will define what constitutes facilitating tax avoidance more clearly in order to give firms such as yours better guidance on how the law will change.
On quarterly reporting, I have had a number of Southport businesses and accountancy firms contact me in recent weeks who are concerned about the increased administrative burden this will have on them. They are also worried about reporting their accounts incorrectly under this new system.
I accept that quarterly reporting may make it easier for HMRC to identify accounting errors, ensuring that businesses pay the taxes they owe. However, I do not think that the benefits it provides are enough to justify the extra administrative burden it places on companies, independent of the requirement to keep records digitally. It seems to run against the Government’s stated aim of “putting people and profit, not paperwork, first”.
The Government must ensure that companies pay the tax they owe, but their approach must recognise two things. First, it must minimise the additional burden placed on businesses. Second, the enforcement of new regulations should not be a cash cow for HMRC.
Because of the large number of companies who have contacted me on this issue, I will be raising my concerns with the Minister in the next few weeks, and I will let you know what response I receive.
Many thanks and best wishes,
Thank you for your response.