Opinion Former Article

CIOT President suggests targeting promoters of dodgy tax schemes under mis-selling laws

The President of the Chartered Institute of Taxation (CIOT) has suggested there may be a need to consider toughening up financial services mis-selling rules to attack the promoters and sellers of tax schemes that have no real prospect of working.

Speaking last night at the CIOT’s annual parliamentary reception, CIOT President Patrick Stevens said:

“We need to consider the nature of the schemes that claim to wipe out income tax. Many people in my profession believe that most of them simply do not work – and indeed that they shouldn’t work. In due course the judiciary may well agree. But in the meantime you still have pushy salesmen persuading people to buy schemes that are probably too good to be true because they really want to believe they don't have to pay tax.

“I hesitate to suggest we need more laws to stop this sort of thing – with the GAAR and existing rule book we have enough – but one wonders if we will need to look at rules like those in the United States where they have laws relating to abusive tax schemes. These won’t be right as they stand because we have a very different legal system. But if we built on the financial services mis-selling rules they would attack the promoters and sellers of schemes that have no real prospect of working, who are the ones who really make the money from such arrangements.

“Of course you will need plenty of safeguards to ensure that normal efficient ordering of your affairs is not inhibited. But it may lead to our tax system, so crucial to both our public services and our economic competitiveness, being treated with more respect.”

Exchequer Secretary David Gauke also spoke at the event, and said the Government was grateful for the advice and guidance provided by the CIOT and other professional bodies during the tax law-making process.

Full text of the tax avoidance section of Patrick Stevens’ speech

We think it is essential that we maintain the integrity and perceived integrity of the tax system in the UK. Every time the person on the Clapham omnibus reads that high earners are paying little or no tax it encourages them to believe that our tax system is broken and they are foolish to be stuck paying tax when others are not. This could lead not just to anger but to increasing non-compliance – of both the avoidance and evasion kinds. If we look at some of our fellow EU members you can see where that gets us.

But suggesting that the answer is an appeal to a moral judgment, or is down to deciding Parliament’s intention only gets us so far. Fundamentally, tax bills must be based on the law, not on a possibly arbitrary view or decision.

A general anti-abuse rule is already on the table. If a GAAR can stop abusive practices without preventing legitimate tax planning or introducing damaging uncertainty that will be a positive step. If the GAAR can allow the UK to dispense with some of the forest of anti-avoidance rules that clutter our tax code, then the Aaronson group will have rendered the UK a valuable service.

I have three further thoughts.

First, we need to make better (and preferably simpler) tax law. We are improving but as we have seen time after time, it is really difficult to write simple law and be fair to everyone. The good work of the Office of Tax Simplification – with the CIOT’s John Whiting at the helm – needs to be built on. And we need to keep moving in the direction of better consultation, possibly even when trying to make the VAT rules more sensible.

Second, properly resource HMRC to track down and deal with schemers and evaders quickly and efficiently. We’ve been pleased at the way HMRC have been perceptibly increasing the focus on evaders – we have worried of late that they seemed to have been forgotten in the pursuit of avoiders. Of course the quest for efficiency improvements should continue. But I think the vast majority of people in the tax profession would agree that the HMRC cutbacks risk damaging their ability to run the tax system properly.

Thirdly, we need to consider the nature of the schemes that claim to wipe out income tax. Many people in my profession believe that most of them simply do not work – and indeed that they shouldn’t work. In due course the judiciary may well agree. But in the meantime you still have pushy salesmen persuading people to buy schemes that are probably too good to be true because they really want to believe they don't have to pay tax. I hesitate to suggest we need more laws to stop this sort of thing – with the GAAR and existing rule book we have enough – but one wonders if we will need to look at rules like those in the United States where they have laws relating to abusive tax schemes. These won’t be right as they stand because we have a very different legal system. But if we built on the financial services mis-selling rules they would attack the promoters and sellers of schemes that have no real prospect of working, who are the ones who really make the money from such arrangements. Of course you will need plenty of safeguards to ensure that normal efficient ordering of your affairs is not inhibited. But it may lead to our tax system, so crucial to both our public services and our economic competitiveness, being treated with more respect.

Notes to editors

The CIOT’s parliamentary reception is an annual event held by the CIOT as part of its mission to build links between politicians and the tax profession, and to improve understanding of the tax system among politicians and their advisers. This year’s reception was hosted by Stephen Williams MP and held at the House of Commons Terrace Pavilion.

The Chartered Institute of Taxation (CIOT) is a charity and the leading professional body in the United Kingdom concerned solely with taxation. The CIOT’s primary purpose is to promote education and study of the administration and practice of taxation. One of the key aims is to achieve a better, more efficient, tax system for all affected by it – taxpayers, advisers and the authorities.

The CIOT’s comments and recommendations on tax issues are made solely in order to achieve its primary purpose: it is politically neutral in its work. The CIOT will seek to draw on its members’ experience in private practice, government, commerce and industry and academia to argue and explain how public policy objectives (to the extent that these are clearly stated or can be discerned) can most effectively be achieved.

The CIOT’s 16,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’.


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George Crozier
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