The Revenue has been criticised for strong yet ambiguous words that could pave the way for a highly aggressive, even retrospective, stance towards legal tax planning.
Advisors said the clause in the taxpayers’ charter, the first of its kind to have the force of law, threatens those who legitimately arrange their affairs to minimise their tax bill.
The charter, which sets out the rights and responsibilities of HMRC and taxpayers, states that the authority will “pursue relentlessly” those who “bend the rules.”
This clause is “highly ambiguous” and undermines the charter, which is open for taxpayers’ comments, because it is meant to be clear and balanced, said McGrigors.
The law firm explained that part of the problem is that it can be “very unclear in practice” whether tax rules were “bent” or applied legally when the planning took place.
“HMRC often sees apparently normal tax planning as ‘bending the rules’,” said Rupert Shiers, a partner at McGrigors, which specialises in commercial law.
“And if parliament approves this charter we could see far more extensive challenges launched against innocent taxpayers.”
The firm also questioned whether Revenue & Customs could actually stick to its tougher stance, pointing out that it has legal duties from public law not to behave unreasonably.
HMRC also has no powers to impose penalties on taxpayers for arranging their affairs in ways that minimise their tax liabilities as long as they did not break any rules.
“Everyone wants HMRC to have the power to deal with the minority of taxpayers who break the rules,” Shiers said.
“But there are many more taxpayers who arrange their affairs to minimise the amount of tax they have to pay, and do so legitimately.”
He urged the state not to use the charter to make it practically impossible for such taxpayers to defend themselves if HMRC decides - “several years later” - that it dislikes what they did.
Separately, Britain’s leading body of chartered accountants is unhappy with the implied proposal to call the taxpayers’ charter, ‘HM Revenue & Customs Charter.’
“We do not think that is right because the charter is principally produced for the benefit of taxpayers and their advisers, although we also hope that it will have a beneficially impact of HMRC”, said the ICAEW.
The draft taxpayers’ charter, which is now open to consultation until May 12, will form the basis of the final charter which is due to be published some time in the summer.
Feb 16, 2009
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