Pursue relentlessly those that break or bend the rules"Background
I imagine that this line has been included at the direct request of the PM who is known to harbour strong feelings about the level of 'contrived' tax avoidance schemes that 'deprive' the Treasury of tax that ought reasonably to be paid.
Indeed back in 2004 I was invited to 11 Downing Street (in my capacity as the then Chairman of the ICAEW Tax Faculty) to be told as much when the 'Disclosure of Tax Avoidance Schemes' regime was first announced. One official told me that the regime was required to satisfy Mr Brown's personal antipathy for the 'abusive' tax avoidance activities promoted by (so far as he was concerned) the largest accountancy firms. Apparently his first thoughts had been to levy a fine on the firms that had been promoting and profiting from (what was then) the almost ubiquitous 'Gilts Scheme'.
Back to the Charter (which has also featured in previous posts on this blog). I am aware of concerns about the line I have highlighted above. And I understand these. 'Bending' and 'Breaking' the rules are two quite separate concepts. The latter is illegal. The former is presumably intended to refer to what HMRC and Government describe as 'abusive' or 'contrived' tax avoidance schemes. The problem here is that 'bending' the rules could also cover a much wider range of tax planning activities.
Playing with fire
The wording in the draft Charter is presumably intended to act as a warning that 'he who plays with fire should expect to get burned'. The targets being those who set bonfires not those who play with matches. And yet I suspect that most people attempt to bend the rules. No one wants to pay any more tax than they are required to do so by law. And the fact that it's NOT illegal is a key selling point of many a tax scheme.
To take just one example - the Money sections of the national press are often full of tips and advice to reduce your tax bills. Yesterday for example I was reading about how to realise capital losses and yet, effectively, retain the shares by using your SIPP to buy them back. This is similar to the old 'bed and breakfasting' idea of selling and repurchasing shares that used to be a common tool of tax planning. It was outlawed a few years back but variations remain legal as long as it's not you who buys back your own old shares. It's bending the rules though so would be pursued 'relentlessly'?
Employees vs everyone else
Employees (and this would include MPs and HMRC officials) can do very little to reduce the tax payable on their salaries. If they actively undertake tax planning in this regard it's likely to be a 'scheme' of some sort.
I wonder if some MPs think that the same considerations apply to companies, the self employed, partnerships and private investors? Of course they don't. The fact is that they can all undertake tax planning activities and some of these will 'bend' the rules. When such bending becomes unacceptable is a matter of opinion. It's not a simple matter of fact.
Two other related thoughts:
1 - It's also relevant to note that HMRCs resources are being reduced to the position where they are wholly unable to adopt a consistent approach to pursue those taxpayers thought to be bending the rules. So the statement in the Charter is an empty threat;
2 - Note that the sentence refers to bending 'the rules'. Is this deliberate or should it say 'the law'. The former are set by HMRC and the latter is approved (usually with only perfunctory consideration) by Parliament. But there is still a crucial difference.
I've been here before. I can see both sides of the argument. The statement is controversial because it's ambiguous. It's also not going to be applied consistently due to resource constraints.
Should HMRC have the right to 'relentlessly pursue' and close down 'abusive' schemes - yes, but we need greater clarity as to what is and what is not considered 'abusive'. It's not easy to draw a clear dividing line but it's not impossible either.
I'm hoping that the consultation around the draft Charter will result in greater clarity as to how far taxpayers (and their advisers) can bend the rules without risking the wrath of the Revenue.
What do you think?