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UK: Budget 2014: Tax avoidance - pay the outstanding now, appeal later

24 March 2014   (0 Comments)
Posted by: Author: Jim Armitage
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Author: Jim Armitage

People using Jimmy Carr-style schemes will be forced to pay their tax up-front while HMRC and the courts decide whether or not the arrangements are legal, under a host of measures to combat tax avoidance announced today.

The move left accountants arguing that – in breach of the "innocent until proven guilty" principle – it effectively forces tens of thousands of British citizens to pay their taxes before they are even due.

The Chancellor declared: "If people feel they've been wronged, they can, of course, go to court. If they win, they get their money back with interest."

Although such schemes are out of the reach of the vast majority of taxpayers, the amount of revenue the Chancellor will bring forward from the change – some £4bn – makes the measure one of the biggest earners in the entire Budget. There are currently around 65,000 disputed tax avoidance scheme cases waiting to be judged.

Cormac Marum, an accountant with Harwood Hutton, said: "George Osborne is trying to commemorate the 800th anniversary of the Magna Carta by introducing the principle that the taxpayer is guilty until proven innocent. It is unfair to make a taxpayer pay a tax that has not been proven to be due."

Others said that many of those having to pay up would now give up on their appeals.

Aidan Sutton, tax director at PricewaterhouseCoopers, said: "Many will worry this measure sets a concerning precedent that taxpayers can't pursue their legitimate cases through the courts."

In reality, there is nothing stopping the tax avoiders from continuing to appeal their cases, although many, having already paid out a big tax bill, may decide not to risk the additional legal expenses.

Mr Osborne said of the new approach: "It will fundamentally reduce the incentive to engage in tax avoidance in the future.

"The public tolerance for those who do not pay their fair share evaporated long ago – but we've had to wait for this Government before there was proper action."

Other anti-avoidance measures included a clampdown on companies using complex derivatives to shift corporate profits from one subsidiary of their group to another.

In a tax on so-called "buy to leave" foreign billionaires and millionaires in London, the Chancellor also went after those using specially formed companies to buy residential properties in the UK to avoid paying stamp duty.

Previous clampdowns have made the duty applicable on properties of £2m or more. But the Chancellor slashed that to £500,000 from midnight last night on all properties not being rented out or operating under any other commercial use.

That will mean that practically every property in London that was bought for investment purposes by the international rich through companies will fall into the 15 per cent tax bracket.

"Many of these are empty properties held in corporate envelopes to avoid stamp duty," Mr Osborne said.

The Chancellor also said he was increasing HMRC's budget in order for it to carry out its new powers, and also increasing its targets for tax yields from closing loopholes by £1.6bn to £24.5bn in 2014-15, and £26.3bn in 2015-16.

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