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  • In defence of Theresa May: Not avoiding tax avoidance

    It won’t come as a surprise to learn that the essence of a headline is to provide indication as to an article’s content.

    Therefore, it might possibly surprise some readers that there is an individual – me – other than Theresa May’s husband willing to offer her some support at what must be a terribly trying time.

    Her critics – and there are plenty of them – maintain that the reasons for her unpopularity can be reduced to several key elements.

    She is the woman in charge of efforts to navigate Britain to a prosperous future through the exceedingly choppy waters of the Brexit negotiations.

    If the EU referendum wasn’t divisive enough, Mrs May fought off bitter challenges from colleagues and internecine strife to take the reins of the Conservative Party when David Cameron stood aside.

    Not content with that, her reputation sustained a further battering during and after a General Election campaign in which she was mocked for favouring all things “strong and stable”.

    For any occupant of Number 10 Downing Street, Prime Minister’s Question Time offers no sanctuary, only the prospect of more abuse.

    Today’s PMQs has seen Labour leader Jeremy Corbyn accuse Mrs May of not doing enough to tackle tax avoidance.

    In particular, he reckoned that the Tories had been protecting the country’s wealthiest citizens meaning that there was now “one rule for the rich and another for the rest of us”

    To determine whether his remarks carry any weight, it’s necessary to set aside the politically pugilistic context in which Mr Corbyn was speaking and how – particularly since the advent of parliament first being televised 28 years ago this month – conduct in the House of Commons involve playing not just to the crowd of MPs but a watching audience.

    With that in mind and with no wish to display party allegiances of any colour, I have to say that I think Mr Corbyn is just plain wrong.

    Any informed objective observer – not just a tax professional like myself – would reasonably conclude that Theresa May’s administration and its immediate predecessors have arguably done far more than many other governments to resolve this issue.

    They have expanded and reinforced the Disclosure of Tax Avoidance Schemes (DOTAS) regime, introduced by the Labour government in the first part of the last decade, requiring most marketed tax avoidance schemes to be revealed to the authorities, with users having to provide an identifying ‘serial number’ on their tax returns. This indelible stamp of tax avoidance now having significant consequences, as detailed below.

    The coalition also introduced the General Anti-Abuse Rule (GAAR), an initiative explicitly rejected by the previous Government.

    However, more significantly, was the introduction of Accelerated Payment Notices (or APNs, for short) which, in relation to DOTAS schemes means that those individual users with these ‘serial numbers’ on their returns need to pay tax ahead of any dispute with HMRC being resolved. The combination of the two has effectively killed the marketed scheme market stone dead.

    APNs have proved not only effective for the Revenue but lucrative too. One report suggested that they had brought in £1.3 billion in the last financial year – up 21 per cent on the previous 12 months

    In addition, the Diverted Profits Tax (DPT) or so-called ‘Google Tax’, aimed at taking a larger taxable chunk from the turnover generated by multi-nationals is regarded as something of a success, has reaped £281 million in the last financial year alone.

    Let’s not forget the measures which have caused some well-heeled foreign citizens to think twice about maintaining a home in London whether as a result of eye-watering Stamp Duty (SDLT) rates, the Annual Tax on Enveloped Dwellings (ATED) or the recent Non-Resident Capital Gains Tax regime (NRCGT).

    The drive to increase the tax ‘take’ doesn’t end there either. There is a new provision contained in the second iteration of the Finance Bill which targets ‘enablers of defeated tax avoidance schemes’ and is intended to sit shoulder to shouler with the GAAR.

    It is a significant advance because, up to now, if GAAR is said to apply, it’s only been the taxpayer who has suffered the consequences (including the new 60% GAAR penalty). The new powers will allow HMRC to demand 100% of the fees made by those designing, marketing or otherwise facilitating avoidance schemes.

    There are also important changes to the disguised remuneration rules, widening their scope considerably. Furthermore, we have what, in my opinion, is a rather pernicious loan charge which will see employers who have used disguised remuneration arrangements, such as Employee Benefit Trusts (EBTs), since 1999 hit with retrospective tax bills.

    For good measure, HMRC is also looking for the right to transfer the charge to those employees who received the payments.

    Finally, the Government has seen through an overhaul of the non-dom rules. Although someone can be classed as a non-dom under general law in perpetuity, the tax benefits of doing so now essentially cease after 15 years of UK residence. Again, an overhaul was undertaken by the Labour Government in 2008 but no long stop date was introduced at that stage, allowing a non-dom to benefit from the income tax and CGT benefits for as long as he or she had not formed the intention to stay in the UK.

    A recent investment in personnel and systems has made HMRC bigger and more menacing for those tempted to cut corners on their tax returns, regardless of size or reputation. Consider, for instance, the bold comments made in its investigation into alleged avoidance by some of the country’s best-known football clubs.

    Yes, there have certainly been difficulties. Stories of ‘sweetheart’ deals and tax avoidance on a large international (and ‘industrial’) scale continue to abound. However, this is more than a matter for Mrs May and her colleagues to take on but something which requires international co-operation. Indeed, the UK had previously been regarded as a loose cannon for trying to address such issues unilaterally. Now, the OECD does so via a project to tackle what it has entitled as Base Erosion and Profit Shifting (BEPS).

    Such is the span of corporate and personal taxation that other tax avoidance stories will come to light suggesting that loopholes exist. For example, we’ve seen such criticism of the non-dom reforms at the Finance Bill committee stage, that protections have been provided for non-UK trusts set up by those affected by the newly-deemed domicile status.

    We have also heard suggestions from one Labour MP that the NRCGT scheme provides an “egregious loophole” because a non-UK resident can acquire UK commercial property without having to pay CGT on an eventual disposal.

    Without wishing to be disrespectful, it’s one of the strangest claims which I’ve heard. It smacks of someone who has little understanding of how the law has evolved (perhaps simply taken from a briefing note… or cereal packet).

    It’s a fundamental rule of domestic CGT that a non-resident person doesn’t pay CGT and is one which was only narrowed by the inclusion of UK residential property held by non-UK residents in April 2015. All other assets held as investments – not just commercial property – fall outside the scope of CGT.

    HMRC is keen to boast that the entire package of measures which I’ve described have helped bring about the lowest tax gap for a decade.

    Against that backdrop, to take aim at Theresa May is not just unfair, given that she has been so much under fire of late that she should probably be listed as an endangered parliamentary species. It is woefully wide of the mark.

    If you have any queries on this article, or on tax avoidance in general, then we would be delighted to hear from you