Our eye was caught today by this headline in our favourite newsrag, the Daily Mail ...
“Tax chat could land you a £5,000 fine: Big Brother law threatens innocent advice”.
“Ha,” we thought, “bloody Daily Mail going off half-cocked again!” But needless to say we read on ...
Anybody who advises a friend to take out an Isa or gives them a similar tax-saving tip risks a £5,000 fine, experts warned yesterday. They attacked proposed 'Big Brother' powers for HM Revenue and Customs which could ensnare those simply trying to help a friend, relative or colleague to cut their tax bill. Innocent victims could include a person who mentions to a friend in the pub that an Isa is a way of saving £10,200 a year tax-free.
Even a vicar who encourages the congregation to donate money using the Gift Aid envelopes, rather than putting cash straight into the Sunday collection, may fall into the trap. Charities could also be hit by the draconian new 'tax avoidance' law, experts claim. It will make it an offence to hold any conversation - even in private, with friends - if it offers clues on how to pay less tax.
Professor Anne Redston, a tax and legal expert from King's College, London, described the proposed legislation as 'dangerous, disproportionate and an erosion of fundamental freedoms'. She warned: 'It effectively criminalises the provision of ordinary advice on taxation by the man in the street.'
The Chartered Institute of Taxation called for the draft Bill containing the powers to be 'torn up'. Tax policy director John Whiting said the rules are 'patently absurd' and must be rewritten - or risk turning people who are trying to help into criminals.
The proposed rules are contained in the Tax Agents: Deliberate Wrongdoing draft Bill, which is trying to crack down on any 'tax agent' whose advice leads to a 'loss of tax' for HMRC. It is the definition of a 'tax agent' which is fuelling much of the controversy as it includes anybody who gives tax advice 'free of charge' and 'otherwise than in the course of business'. This means it is not just tax professionals, such as accountants and financial advisers, but anybody who suggests ways of cutting a tax bill, even though they are completely legal. Tax evaders such as multi-millionaires who do not pay a penny in income tax are targeted, but so is anybody who tries to make use of legal tax-saving tips. The consequences for offering well-meaning advice such as pointing out that saving into a pension attracts tax relief could be extremely expensive, with fines of up to £5,000.
Victims could also be forced to pay a fine worth 100 per cent of the 'lost revenue' that HMRC would have got if the advice had not been followed. Mike Warburton, of accountants Grant Thornton, said: 'This is really draconian stuff. It is Big Brother. It means everybody will have to tread carefully before they talk to anybody on any financial matter.'
An HMRC spokesman said: 'The draft legislation is not intended to target anyone giving fair and honest tax advice. "Deliberate wrongdoing" means the same as "fraud" or "dishonesty". Providing advice to clients about how they might best order their affairs, including tax planning and tax avoidance, cannot trigger the legislation in the absence of such fraud.'
Methinks he doth protest not only too much, but very disingenuously. The draft legislation makes no mention at all of fraud or dishonesty, only of depriving HMRC of revenue. As www.accountingweb.co.uk points out, “deliberate wrongdoing can be established whether or not there is an actual loss of tax – the requirement is that the act is capable of bringing about a loss of tax”. Nor does the wording of the legislation rule out the prosecution of innocent private citizens: the same website points out that “The decision whether or not to prosecute will shortly pass to the Crown Prosecution Service, so the tax authority will have no control over whether a prosecution is pursued or not”. And we all know that the CPS has a track record of deciding not on the basis of whether a thing is right or wrong, but on the likelihood of a conviction.
The website also says “the consultation indicates that it would be very unusual for friends and family to be affected by the legislation”, but they could be, and that means that sooner or later they will be. The wording of the legislation doesn't rule it out, and we all know that if a law exists, sooner or later some idiot will try and enforce it.
The Institute of Chartered Accountants says “We are very concerned about the draft legislation, in particular because the definitions of “tax agent” and “deliberate wrongdoing” are far too wide – so much so that ordinary tax planning appears to be included in the definition of deliberate wrongdoing”.
The Mail article so intrigued us that we delved deeper. This is from the draft legislation itself ...
(1) A tax agent engages in deliberate wrongdoing if, with respect to the tax affairs of one or more clients –
(a) the tax agent does an act that is capable (directly or indirectly) of bringing about a loss of tax, and
(b) the act is done deliberately, with the intention of bringing about such a loss.
(2) It does not matter whether a loss is actually brought about.
(3) Nor does it matter whether the tax agent does the act alone or on the instruction of the client.
(4)“Loss of tax” means loss of revenue from tax, and includes a loss involving a relief, deduction, repayment or credit of any kind.
(So the crime will be attempting to save yourself any tax at all, or rather telling someone else how to do it. This will include charities who send out Gift Aid forms and urge people to sign them, because this enables the charity to recover the tax the donor has paid on their donation). And this is what the Telegraph had to say ...
Tax advisers are pressing the Government to "tear up" proposed legislation aimed penalising "deliberate wrongdoing" by tax agents and start again
The Chartered Institute of Taxation (CIOT), in its formal submission to an HM Revenue and Customs (HMRC) consultation paper on the planned changes, says the legislation in its present form would lead to "absurd outcomes" with innocent advisers and even HMRC staff being held guilty and facing a £5,000 fine.
HMRC wants to tighten the existing rules because it believes some tax agents are illegally claiming repayments for clients and estimates that questionable practices have cost the Government "at least £25m in recent years."
Professional organisations say they are not challenging the case for change but feel HMRC is being heavy handed in the way it has approached the issue with its plans for fines and "naming and shaming" agents on its website.
HMRC is understood to have already bowed to pressure and shifted ground on some of the conditions surrounding hearings of cases involving agents.
John Whiting, CIOT's tax policy adviser, said HMRC's powers "must be proportionate, properly targeted and potentially effective".
The institute feels the legislation in its current form would apply not just to illegal actions but to any advice that could lead to a tax loss to the Treasury. It could include a financial adviser encouraging investment in an Individual Savings Account, a charity asking a donor to sign a gift aid form and an HMRC official helping with a tax reclaim form.
Some tax experts are even more sweeping in their condemnation. Veteran chartered accountant Chris Try warned “HMRC have declared ‘total warfare’ on the country’s tax agents. I have read the [new] document, and it constitutes a Pearl Harbor moment for all tax agents in the UK; 8 February 2010 is a day of infamy. The taxpayers’ charter is dead. Working Together is dead. The [draft legislation] is a declaration of unrestricted, total warfare against all of those who make the UK tax system work”.
He posited the belief that ‘simple, every day, hitherto uncontroversial situations are now to be formally and officially classed as “deliberate wrongdoing”’, which could lead to ‘a huge swathe of new penalties’ for agents caught in the taxman’s expanded net.
We have all become used to the Labour government's broad stroke, slap-happy approach to legislation by now, and the knowledge that they are about to be booted out (hopefully for ever) hasn't stopped them from doing their best to ensnare innocent people right to the bitter end. Legislation that gives sweeping powers to government officials but assures us that these powers will never be used against ordinary citizens is sloppy, lazy and very dangerous indeed. All our experience has taught us that civil servants and local government officials are not to be trusted to make common-sense decisions, and that the lower they are in the food-chain and therefore the nearer they are to actual enforcement, the more stupid and venal they are.
The GOS says: Recently I've been talking to both my own elderly parents and to my mother-in-law about what they should do to minimise their exposure to Inheritance Tax. If I've advised them correctly, this will certainly result in some tax revenue being lost to HMRC so I imagine I can expect a knock on the door any day now.
Of course, if I've advised them incorrectly, the intention to deprive HMRC will still have been there so that won't make a jot of difference to my guilt.
See you all inside.
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