Under rules announced by Chancellor George Osborne in his budget statement in March, people who have used tax avoidance schemes will be forced to pay their tax up-front while HMRC and the courts decide whether their arrangements are legal. (In the past, people could keep the money until a court had ruled against them).
Mr Osborne said: ‘If people feel they have been wronged, they can of course go to court. If they win, they get their money back with interest. We have already consulted on this idea; now we will implement it.
‘The OBR [Office for Budget Responsibility] confirms that this will bring forward £4bn of tax receipts and it will fundamentally reduce the incentive to engage in tax avoidance in the future.’
The new rules will apply retrospectively, and are due to be introduced in July. It is estimated that there are around 65,000 tax-avoidance scheme cases outstanding. It is said that HMRC has a success rate of about 80% of all the avoidance cases it takes to court.
The disputed cases could potentially stretch back to 2004 – when the rules for the disclosure of tax-avoidance schemes were introduced.
Possible impact on your clients…
Anyone who has been involved in a tax-avoidance scheme should be concerned about the impact these changes could have on them and their business.
As well as the general stress of the matter, cashflow problems are likely to be their most serious concern.
A court case to appeal any ruling is likely to be very costly both in terms of the legal expenses and the general distraction from running their business.
Even if they successfully win their case and get their money back, the court process is still likely to have an adverse effect on their business.
What should Accountants be doing now?
Some Accountants are already talking to their clients, and to us, about what they should be doing now.
As with most things in life, it is better to be prepared.
So if you have any clients who have been involved in a tax-avoidance scheme, you should speak to them now.
Then, if you feel that they might have cashflow problems coming their way, we can help you to help them.