Britain seeks to take the shine off tax-avoidance schemes

by Reuters
Wednesday, 19 March 2014 16:24 GMT

Smiling Union Jack piggy banks are lined up for sale in the window of a souvenir store on Oxford Street in central London January 20, 2014 REUTERS/Andrew Winning

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By Sarah Young

LONDON, March 19 (Reuters) - British individuals and companies involved in legal battles over tax-avoidance schemes will be forced to pay their disputed bills in advance, according to rules which finance minister George Osborne said could boost state coffers by $6.6 billion.

Revelations that wealthy British musicians and footballers have used schemes aimed at reducing tax liabilities has stoked public anger that the tax system allows the rich to pay too little tax.

Under the rules announced by Osborne in his annual budget statement, those who have used tax avoidance schemes will be forced to pay disputed tax bills upfront before they can look to reclaim the monies through a court appeal.

In the past, they could hold onto the cash until a court ruled against them. The new rules will apply retrospectively.

"It will fundamentally reduce the incentive to engage in tax avoidance in the future," Osborne said of the new system, set to be formally introduced in July.

Britain estimates there are around 65,000 tax avoidance scheme cases outstanding. HMRC, Britain's tax authority, has a win rate of around 80 percent of all avoidance cases it takes to court.

"What he's saying is there's quite a lot of cases out there which ultimately Her Majesty's Revenue and Customs (HMRC) believes they're going to win and they're going to accelerate getting that cash," Ernst & Young's head of tax policy Chris Sanger said.

Osborne said the new rules would bring forward 4 billion pounds ($6.6 billion) in tax receipts over the next four years, including 290 million pounds this year, jumping to over 1 billion pounds a piece in the financial years 2015-16 and 2016-17.

He first flagged his plans to crack down on tax avoidance schemes in last year's financial statement in October.

"I just think it's inevitable that something had to be done to remove some of the financial incentive to undertake some of these schemes," said Bill Dodwell, head of tax policy at Deloitte.

"It will reduce the individuals doing these schemes because if you don't get an immediate cash benefit there's nowhere near so many people who will do a scheme."

The new rules will apply retrospectively meaning investors who participated in the schemes in the past and are involved in a dispute with the authorities are likely to be asked to pay their bill come July.

The disputed cases could potentially stretch back over a decade to 2004 when Britain's disclosure of tax avoidance schemes rules were introduced.

($1 = 0.6034 British Pounds)

(Editing by Guy Faulconbridge)

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