UK businesses across the South call for clarity over tax avoidance vs. tax planning

• 61% of businesses unclear as to what is classed as legitimate tax planning and what constitutes tax avoidance • A third of businesses feel HMRC treat them as guilty until proven innocent

Nearly two thirds of businesses feel that the current tax framework is so complex that they are not clear as to what constitutes legitimate tax planning or whether they will be accused of tax avoidance. This is exacerbated by HMRC appearing, on occasions, to take an aggressive stance towards some commercially driven business transactions, with many feeling as though they are being treated as guilty until proven innocent, according to new research out today by accountants and business advisors BDO LLP. The research, supplemented by a YouGovStone survey of UK’s business decision makers, found that increasingly complex tax rules have resulted in businesses prioritising their tax affairs over focusing on growth. Over the last five years, 65% of businesses leaders polled claimed that they had found dealing with HMRC more burdensome. While nearly nine in 10 (88%) of business leaders polled believe that dealing with HMRC would be much easier if Government were to make tax rules simpler. Furthermore, many businesses feel that the complex tax framework is exacerbated by a lack of commercial understanding by HMRC advisers. Nearly half (44%) of business leaders polled believe HMRC staff possess inadequate or poor commercial knowledge and understanding when dealing with their tax affairs. While more than half of business leaders (56%) believe that too many of the questions that HMRC asks about business tax affairs are superfluous. UK businesses appreciate the need for HMRC to question transactions tax, but nearly two thirds (62%) believe that HMRC should spend more of its time challenging or investigating artificial pre-packaged tax schemes designed to avoid taxation, rather than justifiable tax planning. Paul Duckworth, Tax Director at BDO LLP in Southampton commented: “UK businesses often feel confused and accused by HMRC’s approach to challenging commercially driven transactions. Current legislation is viewed as being unfriendly for both publically owned and entrepreneurial businesses but a start has been made in reforming the tax code. These reforms need to be matched by a more selective and discriminating approach by HMRC, particularly when it becomes clear that their initial questions concern bona fide, commercially driven events. If this is not addressed, we will see fewer businesses established in the UK, leading to the erosion of the tax base, thereby reducing the prospects for cuts in corporation tax and income tax rates in the medium term. “Both HMRC and UK businesses will save time, resources and money if the current tax framework is both clarified and appropriately enforced. The Chancellor of the Exchequer should use his forthcoming Budget on 23 March to set out a clear overarching framework for HMRC’s approach to business that is fit for purpose and clarifies what they consider to be meant by unacceptable artificial tax avoidance and what they accept to be legitimate tax planning.” BDO LLP has today published its report ‘Tax challenges: An imperative to discriminate A call for more focus and understanding in HMRC’s approach to business tax reviews.’ - Ends –

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