Is this the end for tax avoidance schemes?

Tax avoidance schemes have been around for years. The schemes are essentially ways for individuals and businesses to reduce or even eliminate completely any tax liabilities using various loopholes in the UK tax system. In contrast to tax evasion, tax avoidance is currently legal.

For each tax avoidance scheme, HMRC provide a scheme reference number (SRN). This SRN must be disclosed to HMRC when it has been used. This is required under the disclosure of tax avoidance schemes (DOTAS) rules. A list of tax avoidance schemes can be found here.

In the 2014 budget, Chancellor George Osborne proposed plans that would allow HMRC to request tax upfront for any tax avoidance schemes where the legitimacy of the scheme is in doubt.

This proposal has now become law. Tax payers who use tax avoidance schemes that have a SRN, or those that fall under the general anti-abuse rules, can now expect to receive a demand from HMRC for the tax that HMRC thinks is due. For certain taxpayers, this could result in quite a significant liability.

Once HMRC have issued the demand, the tax payer will have 90 days to make payment of the tax unless the demand is appealed. Should it be appealed and the appeal fails, the taxpayer will then have 30 days to pay the tax due.

This means that the taxpayer needs to react quickly.

This could place significant pressures on the taxpayer’s cash flow. They could have to borrow funds or sell assets in order to pay the tax upfront. If pressures are too great, this could result in liquidations and personal bankruptcies.

HMRC has published a list of tax avoidance schemes that they will be pursuing in the first instance.

With these new rules in force the use of, and the willingness to participate in, tax avoidance schemes will significantly reduce. Could this mean the end of tax avoidance schemes? Maybe not, but it is definitely a step in the right direction from HMRC’s point of view.

Pointers

  • HMRC can now demand payment upfront from taxpayers it believes are using illegitimate avoidance schemes
  • Taxpayers using these schemes must be ready to pay what could be a significant amount

Apr 16, 2015