BUDGET MARCH 2010: Tax Avoidance – Complexity is not the answer

The Chancellor announced a raft of measures with the stated aim of protecting the tax system. In addition to further measures targeting failures to declare offshore income, there is a package of new rules to close loopholes and tackle arguably aggressive tax planning which HMRC perceive to be abusive. Stuart Lisle, Tax Partner at BDO LLP in Southampton commented: "All Budgets, whatever the political colour of the Chancellor, contain a swathe of so-called anti-avoidance provisions recommended by HMRC and this year proved no exception. Despite the stress Alistair Darling placed upon these measures in his Budget speech, the fine print of the Treasury papers show that less than £400 million is expected to be raised and past experience suggests this estimate may prove to be optimistic. Whilst it is understandable that the Treasury are anxious to clamp down on contrived pre-packaged arrangements that have been mass marketed, the collateral damage is the ever increasing size and complexity of Finance Acts. We have now reached the stage where the intricacy of the UK's tax system represents a substantial burden on businesses. Unfortunately, these measures almost invariably impact adversely on many genuine commercial transactions as well as their intended targets. The impending 50 per cent income tax rate has inevitably been seen by many taxpayers as the tipping point. We face a vicious circle of increasing levels of aggressive tax planning followed by ever more stringent measures prompted by the Treasury and HMRC in response. In my view, the way to cut this tangled web is for Government to embrace a flatter but broader tax system with much lower rates financed by fewer targeted complex tax reliefs." The proposals include:- • In recognition of the inevitable focus of tax planning to mitigate the 50 per cent income tax rate, consultation has been announced to consider how to extend the existing rules that tax returns from shares received from employers at income tax rates of up to 50 per cent as opposed to the flat 18 per cent capital gains tax rate. In a similar vein, further steps will be taken to prevent perceived tax avoidance involving certain employment benefit trusts • One notable measure is a clamp down on the use of special partnership rules that have been used to structure the acquisition of certain large commercial real estate transactions without stamp duty land tax arising. Other examples include targeted rules to prevent banks and other financial institutions from seeking to obtain tax benefits from certain loan or derivative arrangements and complex hedging arrangements. • These measures are underpinned by an increase in the scope of the requirement for tax advisers to disclose defined "Tax Avoidance Schemes" to HMRC in advance of implementation and higher penalties for those falling foul of the regime. -Ends-

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