The financial planning and tax sectors believe avoidance practices are now less widespread, HM Revenue & Customs (HMRC) has found.
In a survey of market onlookers, advising consultants and tax specialists, the majority claimed that what stands as ‘avoidance’ today is largely promoted by ‘active facilitators’ – a group that did not appear in the taxman’s sample.
The respondents credited the regulation and political actions taken throughout the last decade as having significantly reduced the options available to make tax avoidance possible.
“Despite different levels of exposure and understanding, there was a common perception that the marketplace in avoidance products had peaked in popularity and was now in decline, a change that was dated back to the financial crisis of 2008 and a subsequent shift in the public and political mood,” the taxman said.
Talk to industry
Although HMRC said its actions proved successful in shutting down loopholes and borderline illegal activities, tax and financial planning professionals lamented that they are unsure as to what is now deemed acceptable and lawful and what isn’t, putting their relationship with clients in danger.
Agents have criticised the Revenue for leaving them out when it came to introducing regulation, and for not looking into how their businesses would be affected by them.
HMRC added: “Findings suggest that [our] activity in this area has been successful at shutting down incentives to operate in the marketplace.
“However, this has created the risk of alienating some within the agent community, who would like to see a more consultative approach from HMRC, taking greater account of how agents are affected by changes and making greater use of their expertise.”
Rachael Griffin, tax and financial planning expert at Quilter, said: “There has been a huge amount of publicity in recent years surrounding HMRC’s investigations into evasion and aggressive tax avoidance.
“Since the financial crisis, there has been a growing feeling that the super-wealthy are dodging their taxes unfairly and HMRC has been seen to take an increasingly politicised role in clamping down on bad behaviour.
“We’ve seen the tax authority challenging the arrangements of celebrity figures, and campaigns have raised awareness of HMRC’s powers to look into our tax affairs.
“As a result, it has become a high-profile issue, and this research suggests that there has been a marked impact on attitudes to aggressive tax avoidance schemes which push the envelope.
“People are now more likely to steer clear of schemes that skirt close to the boundaries of what is acceptable for fear that it may be challenged at a later date,” she added.
‘Collateral damage’
While the tax authority shouts ‘success’, Griffin is worried that tax and financial planning will perish as a side effect of the clampdown on avoidance and promoters, which would in return put people off saving.
“It is right for HMRC to challenge aggressive tax avoidance when it breaks the spirit of the law, even if it didn’t technically break the letter,” she continued.
“However, we should be careful that legitimate tax planning doesn’t become collateral damage. Simple things like putting money into an Isa are a way of ‘avoiding’ taxes like capital gains tax (CGT).
“Thankfully, most people can recognise that an Isa is an approved structure designed to incentivise saving.
“But when it comes to something like inheritance tax (IHT), where families often use lifetime gifting allowances to mitigate IHT, some people might be put off entirely legitimate tax planning because they struggle to recognise what is and isn’t acceptable.
“Despite the high-profile clampdown on evasion and aggressive tax avoidance, it is important to remember most tax planning techniques are entirely legitimate and the vast majority of insurance-based schemes are mainstream, vanilla tools that the Revenue are comfortable with.
“The government is focussed on tackling some of the more esoteric tax arrangements, but that should not put people off normal tax planning methods,” Griffin added.
