The measure is aimed at disputes that involve an avoidance scheme that HMRC considers to be the same as one it has already defeated in a tribunal or court hearing.
Traditionally, any tax that the UK Government has said it was owed but which claim was disputed has not been payable until the matter has been formally ruled on. However, HMRC is currently seeking to, in its words, "rebalance the economics of entering into avoidance schemes" through the use of "accelerated payments", which it defines as the requiring of taxpayers "to pay disputed tax earlier in the process".
HMRC claims to win more than 80% of the avoidance cases that it litigates, which, it is arguing, means that those involved in a dispute who hold onto the disputed tax while their case is being investigated and litigated enjoy a significant "cashflow advantage".
Although the Tackling Marketed Tax Avoidance consultation, as it is called, has received little publicity until now, it was launched in the wake of a Government announcement in the Autumn Statement on 5 December that it was planning to crack down on schemes that are the same or similar to ones that have already been defeated in the courts.
Explaining the thinking behind the proposed measure, Treasury Secretary David Gauke said in an introduction to the consultation document that it would "change the economics" of tax avoidance, as it is practised by "some advisers".
At present, Gauke noted, "when an avoidance scheme is challenged in court, the tax system currently allows taxpayers to hold on to the disputed tax, no matter how tenuous their scheme and how unlikely the are to succeed".
As a result, "taxpayers and scheme promoters are incentivised to sit back and delay as long as possible – despite evidence that in the vast majority of cases, when the dispute is resolved, tax is due", he said.
Taxpayers that are currently being investigated under the new General Anti-Abuse Rule (GAAR) may also be affected by the new rules, if approved.
The consultation was published on 24 January, giving industry stakeholders a month to file their comments.
'Bolt from the blue'
Jason Collins, a partner and tax expert with Pinsent Masons, said that although HMRC has been engaged in a long-running effort to "clean up how tax schemes are marketed", the idea of changing the law to require users of schemes to pay the disputed tax up front was a "bolt from the blue".
"This proposal, if implemented, has the potential to be a 'game-changer'," he added.
"Taking away the cash flow advantage won't stop all forms of tax planning, but many prospective users will question having to lay out substantial sums paying the promoter its fee in the hope of getting money back from HMRC five years or more down the line."
Prudential Technical manager Gerry Brown saw the HMRC plan to demand up-front payment of tax in some situations as part of a package of related anti-avoidance measures the Government is keen to see implemented without delay, and said that if it is enacted, it would "help speed up the resolution of cases while preserving each individual's right of appeal".
“ There are least 65,000 individuals whose tax affairs are under review by HMRC because they used marketed avoidance schemes," he noted. "The vast majority of these relate to events occurring more than four years ago. It is in everyone’s interest to get tax disputes settled as quickly as possible – “certainty” is a desirable feature in any tax system."
To see and download the 57-page consultation document, click here.
To see an outline on HMRC's website of the proposed changes to the UK's tax regime outlined in the Autumn Statement, click here.
