HMRC To Soften Stance On Tax Avoidance
Aug
23
Written by:
23/08/2010 08:48
HMRC To Soften Stance On Tax Avoidance
In an interview with the Financial Times, Dave Hartnett, the Permanent Secretary for Tax at HMRC and self-proclaimed scourge of tax avoidance, has announced that HMRC has been "too tough" in tax disputes with business. Hartnett tacitly recognises that HMRC's Litigation and Settlement Strategy, under which it vowed to litigate all cases where it believed it had a more than 50% chance of success, has not worked. There is a clear signal that HMRC will depart from the previous "all or nothing" strategy and will be prepared to settle on a compromise basis where that can be justified as an alternative to its preferred tax treatment.
What we won't see is any return to a number being agreed without any justification for it other than it being acceptable to both sides. However, experience tells us that if there is a will on both sides to be imaginative about alternative tax treatments and settle, then this can often be a useful starting point to reach the end goal of mutually acceptable financial settlement. It would be naive to believe that HMRC's move is entirely of its own volition; it seems almost certain that the new Government's need for cash has driven the policy change and Hartnett himself has predicted a surge in tax revenues because of the change.
It will be interesting to see how Hartnett's remarks are received by HMRC staff. It wouldn't be surprising if many felt they were being used as scapegoats for the failure of the Litigation and Settlement Strategy in light of his comment that "We got it a bit wrong in the way we explained it to our people. They thought it was a great sword of justice."
Although we continue to read reports that a General Anti Avoidance Rule (GAAR) is being discussed this doesn't present any real change from the position that has existed over this issue for the last 12 years: it would be extremely difficult to make such a rule work in practice, there is widespread opposition in the profession and HMRC itself is not pushing for a GAAR.
Overall, this change of approach by HMRC is very good news indeed for both advisers and clients. The logical outcome in situations where HMRC does not have a particularly strong case and there aren't alternative "middle ground" tax treatments on which a compromise could be made is that HMRC will need to capitulate. We have always believed that a change in policy would be required to break the log jam of cases in the queue for litigation and we have now seen this happen.
As ever with HMRC, it will take some time for the new approach to emerge in practice and there may well be inconsistencies in how it is applied across the country. We will update you as we learn more of these developments and would encourage you to share your experiences with us. If you would like to explore how you may be able to take advantage of HMRC's new approach in a particular case please contact our Tax Resolutions team:
Alan Kennedy Tel: 0203 468 5210 Mob: 07900 678541
alank@blackstar.eu.com