"Raise the white flag" - Are tax schemes worth the effort any more?

I believe the sentiment of this week's Accountancy Age Comment piece deserves a wider audience. It was penned by Lynton Stock, of accountants Shelley Stock Hutter. They were Accountancy Age medium sized firm of the year in 2008.

Regular readers will know that I agree with his views. Do you?
Lynton starts by stating:

"I'm not a quitter. I have never run away from a fight of any sort. However when it comes to tax avoidance schemes, the anti-avoidance legislation is no so onerous (and the interpretation of that legislation by the courts seems so weighted against the taxpayer) that the days of artificial tax schemes succeeding seem to be over."

Lynton goes on to refer to the Disclosure of Tax Avoidance Schemes (DOTAS) legislation - which we now know is to be tightened even further. By way of example he recalls reading Counsel's opinion about a tax scheme where it seemed certain that the taxpayer was bound to win a case going through the Courts. In the event however, not for the first time in such circumstances, the Revenue won.

"Then there is the case of Drummond v HMRC. This related to a tax avoidance scheme in which an artificial capital loss was claimed. Again, some of the largest accountancy firms were promoting this scheme and the tax opinions that I read would have made you think it was game, set and match to the taxpayer before the first ball was struck. Again the taxpayer lost all the way to the Court of Appeal."

Next Lynton highlights the Government's willingness to introduce retrospective tax legislation to counter tax avoidance schemes.

He also reluctantly accepts that "tax schemes are here to stay" and references the new 50% income tax rate and clients' requirement for what, is inevitably, "more and more aggressive" tax planning. By way of example he quotes a typical conversation:

Client: "I want to save tax and I want you to come up with a tax scheme to help me"
Adviser: "In all honesty, from my experience, the tax schemes I have seen don't work. They are expensive, there are no guarantees as to success and you will have no certainty for many years in view of HMRC's stated policy that they are willing to litigate."
Client: "If you can't help me - I'll go to somewhere else to someone who can."

Lynton concludes by suggesting that:

"The real problem, however, is that when the dust actually settles and the tax scheme undoubtedly fails, it really doesn't help to say to your irate client: 'I told you so'."

When I was in practice I was conscious of three further related problems:

1. The accountant wants to charge fees for his related time commitment. This starts with discussing the idea with the client and includes trying to ensure that the client's eyes are fully open. Clients do not however take kindly to being charged fees for their accountant discouraging them from trying to save tax! I developed such a talent for this that it contributed to my decision to stop giving tax advice myself!
   
2. Assuming the client goes ahead anyway the accountant has further time costs related to his involvement - however peripherally - in reporting the transactions on the client's tax return and for liaising with the promoters. However the client is only inclined to pay the latter for their advice and intellectual property re the scheme. And a hefty fee that is too (a substantial proportion of the tax saved/avoided). The client is not inclined to pay his adviser for anything related to this especially as he was not supportive of the client's involvement.
3. The relationship with the client will invariably worsen as the promoter's approach differs from that of the accountant. This will start by reference to their alleged naivety and inability to understand why the scheme is the best thing since sliced bread. It will continue if there is any disagreement as to how the scheme transactions and additional information are disclosed on the client's tax return. And eventually it will spill over into frustration when preparing the client for a Tribunal hearing and any subsequent court case.

What are your experiences and views on this type of situation?

Previous relevant posts:

• Give me pure tax evasion any day
• Discovery assessments issued re film schemes in 2003-04
  
• HMRC challenge sideways loss relief tax avoidance
• HMRC confuse tax avoidance and tax evasion again
• Beware of HMRC spotlights - EBTs now included
• Were you wasting time advocating this tax scheme?
• The beginning of the end for structured tax avoidance schemes?
• Bending vs breaking tax rules

Which Budget proposals will make it into the Finance Bill?

After the Budget announcements, everyone poured over the related Budget Notes which give a better indication of what will appear in the Finance Bill. And all Budget commentaries faithfully reported such additional details.

This year however there is barely any time for parliament to debate and consider the Finance Bill because of the forthcoming General Election. So we know that the Bill will only contain some of the proposed changes. What few commentators seem to have noted is that the Government has already determined certain changes which will be held back for a second post-Election Finance Bill. Twenty of the 71 Budget Notes contain the phrase:

"The Government intends to legislate these changes in a Finance Bill to be introduced as soon as possible in the next Parliament".

I am indebted to my colleague Ian Young at the ICAEW Tax Faculty who has noted that this phrase appears in the following Budget Notes:

6,8,12,13,19,20,22,30,35-37,46-48,50,57,65-67 and 69.

This leaves 51 of the 71 provisions that could appear in the first Finance Bill. This is far more than is likely to be acceptable to other main parties so some of the 51 will also be held over.

You might think that the list represents those clauses that are party political or last minute additions to the Budget. A quick review reveals this is not the case and that there is no obvious distinguishing factor.

I can only assume that this list represents the items in respect of which Parliamentary Counsel had not yet started to draft the related legislation. And that would support the argument that Counsel is given insufficient time and resources to draft tax legislation generally. Is it any wonder that so much of it is unduly complex? Or have I missed something?

It was a Giveaway Budget for Getaway MPs

Little attention has so far been focused on the main beneficiaries of the pre-election Budget. I've identified 8 measures that will evidently help MPs who lose their seats, as many are bound to do following the expenses scandal.

Many ex MPs will struggle to get 'proper' jobs and will instead tout themselves as consultants or 'cabs for hire'. The rest will have to try start new small businesses.
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1. Remember the Chancellor talked about doing "more to combat financial exclusion, through a guarantee that everyone can have a basic bank account"? [Even MPs who have become pariahs]
2. And we were told that "Budget 2010 also announces a package of measures to help people make the transition back to work" [Departing MPs will need as much help as anyone]. One of these measures will ensure "the eligibility of the Working Tax Credit to people aged 60+ if they work at least 16 hours a week, rather than 30 as currently." [Of particular value to ex MPs who can't get that much work]
3. What about "ensuring that the supply of lending to the economy supports the recovery [of MPs after they stand down/lose their seats]"? Of the new money that Lloyds and RBS must lend, "£41 billion of this total being lent to small businesses [many to be run by ex MPs].
4. There's to be a 'small business credit adjudicator' to help "ensure that small businesses [run by MPs] are treated fairly when applying to their bank for finance. [Who'd want to lend to them otherwise?]
5. The Budget announced "an increase in the threshold of the Annual Investment Allowance to £100,000 for qualifying expenditure incurred from April 2010." [Should be very useful for ex MP's kitting out their new offices as the old limit of £50k would not have been enough given their past experience of and preference for expensive taxpayer funded items].
6. Another measure that will help ex MPs is the the small business rate relief whereby "eligible small businesses occupying properties with rateable values up to £6,000 will pay no business rates for one year from October 2010."
7. Older MPs will be pleased to note that they may be allowed to continue working outside the House beyond the "default retirement age" of 65 as "the Government intends shortly to launch a formal consultation on reforms to the Default Retirement Age."
8. The Chancellor said he was "relocating civil servants from expensive London offices to elsewhere in the country." What he didn't say but may have been thinking was that this should be another way to help MPs who lose their seats. It will be much easier for them to do their lobbying locally.

I could go on.
The one Budget announcement that is so evidently NOT intended to benefit departing MPs is the "two-year stamp duty land tax relief for first-time buyers for residential property purchases up to £250,000". Everyone knows most ex MPs would be at least third-time buyers given they already have two homes!

What did I miss? Which other measures may have been selected, designed or intended to benefit the MPs who lose their seats or who are not standing in the General Election?

Tax tweets: Budget 2010

Regular readers will know I'm not a fan of instant Budget analysis. We can pick up on what the Chancellor says, but it takes time to work through the Red Book, Press Notices, Budget notes, supporting docs and draft legislation that are all published after he sits down.

Today, for example, there were 71 Budget Notices alone. I'm happy to leave it to others to rush out their summaries. For the moment then here is a selection of my contributions to the twitter talk during the Budget speech.

Missing from #ukBudget speech: Equalising the rules for tax free expenses as between MPs and all other executives/workers

Missing from #ukBudget speech: New rules to abolish inequitable exemption from tax of MPs' payoffs when they stand down. Limit is £30k for us.

Few smaller and start up biz will really benefit from facility to offset a further £50k of capital exp (AIA) against profits #ukbudget

Official definition of 'small' business is one with a turnover of upto £6.5m. "Fledgling?" #ukbudget

The official definition of SME is one with a turnover of upto £25.9Million. Covers >99% of all UK biz. Targetted help? #ukbudget

All those refs to SMEs - Is he ill-informed or does he really mean the >99% of UK biz that satisfy that official definition? #ukbudget

"Access to finance is vital for small biz" - Very pleased to hear the ref to only those who are "Viable" A critical distinction #ukbudget

Relocation of civil servants out of London - another way to help MPs who lose their seats? => lobby more effectively around UK #ukbudget

Many of the 'higher than expected' tax receipts are due to poor forecasting by Treasury not due to better performance #ukbudget

Extending support for those losing a job especially all those older MPs who will not have to work long hours to benefit (ROFL) #ukbudget

New bank accounts for the financially impoverished - intended to help MPs who lose their seats and can't get 'proper jobs'? #ukbudget

Remember that many tax announcements in #ukbudget today will be simply confirming tax changes announced in Budget09 and in PBR.

Have you been subject to 50% tax since May 2009?

The Chancellor announced the introduction of a new top rate of 50% income tax during his 2009 Budget statement. It will apply to incomes above £150,000 with effect from 6 April 2010. So it only applies to taxable earnings and profits after that date?

To be precise, it applies to all earnings and profits that are taxable after 6 April 2010. Bonuses earned by and paid to employees beforehand will only be subject to 40% tax.

What about the self employed and those in partnerships?

They will be subject to 50% tax if their taxable earnings in 2010-11 are above £150,000. For the self employed and those in partnerships this affects the profits of accounting periods ending after 5 April 2010. Thus, anyone with an accounting date of, say, 30 April will be subject to the 50% rate as regards their taxable profits in the accounting period that started on 1 May 2009 and which ends on 30 April 2010.

I would suggest that any appropriate action will depend upon current and future cashflow and profit projections. Rash changes to accounting year ends should be resisted to avoid losing more than the hoped for gains in the long run.