Budget 2014 – Tax Avoidance

There is always “devil in the detail” in a Budget and this is definitely this year’s – at least for the 33,000 individuals and 10,000 companies that are affected.

The backdrop to today’s Budget announcement is that HMRC recently issued a consultation document indicating that they were thinking of introducing a new measure whereby anyone entering into a DOTAS (Disclosure of Tax Avoidance Scheme) arrangement would have to effectively pay the “tax at stake” to HMRC when entering into the arrangement (and the tax would be held by HMRC until such time that the courts had ruled on whether the tax is actually payable or not, which typically can take between 5 and 10 years).  The intention behind this idea is that if taxpayers have to pay the tax up-front when entering into the DOTAS arrangement, this will probably deter many taxpayers from entering into DOTAS arrangements and consequently deliver a significant blow to the tax avoidance industry.  The Chancellor has today announced that he will now go ahead with this new measure and this in itself is not particularly controversial.

The controversial element of today’s announcement is that the change is to apply retrospectively.  This is because anyone who has previously entered into a DOTAS arrangement (and the arrangement is still undecided in terms of whether it is successful or not) will now have to pay the “tax at stake” over to HMRC.  This will affect a large number of taxpayers (estimated to be 33,000 individuals and 10,000 companies), who will now have to find £7.3 billion to pay over to HMRC.  It is proposed that HMRC will collect this tax by way of issuing “notices to pay” later this year.  The notices will require the taxpayer to pay the tax in dispute within 90 days, or a further 30 days where the taxpayer requests that HMRC should reconsider the amount of the payment notice.

Retrospective tax changes are extremely rare and we anticipate that there will be lobbying against this retrospective element of the proposed change and it will be very interesting to see if this element is ultimately enacted when the Finance Bill goes through the parliamentary process in the coming months.

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May 20

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