Posted: 04 June 2008
Authors: JIM GREENWOOD, J D NIGHTINGIRL
Issue: Vol 159, Issue 4102
Categories: Comment, Admin

...and repent at leisure. This may be the new proverb, especially if the act is a Finance Act, say JIM GREENWOOD and J D NIGHTINGIRL

KEY POINTS

• Should tax professionals be concerned at the policy or the standard of tax legislation?
• Is there a place for 'morality' in tax?
• Is it moral to have to rely on guidance rather than the law?
• Can the profession speak with power and authority?
• The need for persuasive opposition.

The Government's approach to the development of new tax legislation and HMRC's role in this seems to have engaged readers to a greater degree in 2008 than in previous years.

Although the administrative practicalities of matters such as the proposed advancement of the tax return filing date to November have exercised tax minds in the past, these seem to have paled into relative insignificance by comparison with the flurry of changes — the end of taper relief, the introduction, or should we say re-introduction, of entrepreneurs' relief, and the non-dom changes — that this year has seen.

This is without mention of, for example, the earlier changes to the trust regime or the current 10% 'fiasco'. The profession is becoming more and more concerned at the 'surprise' introduction of tax legislation without adequate consultation.

Should tax advisers now become more active in making their voices heard and how can the formulation of effective legislation be squared with the increasing attempts of the Government to introduce the concept of mortality into the tax code?

Here, we have combined comments from two readers. In the second part of this article, J D Nightingirl says 'let's not be hasty' when it comes to the formulation of tax legislation; but first, Jim Greenwood asks…

Who has the moral high ground?

Over the past few months one could be forgiven for thinking that many people believe that the Government should not be allowed to change the tax legislation. There has been the furore over income shifting, the taxation of non-domiciled individuals, the loss of business asset taper relief and others.

Personally, I thought that the Government was there to govern by implementing legislation that is designed to carry out the policy that the Government was elected for. I should really say implementing good legislation that is… etc.

In this context, the fuss over income shifting is instructive. We were encouraged to ask our MPs to sign the early day motion asking for the income shifting legislation to be withdrawn.

However, the motion asked for the legislation to be withdrawn because the policy was misguided. The motion also mentioned that the legislation was incapable of being applied.

These comments meant that those who agreed with the policy, but thought that the legislation was bad, could not sign the motion. I did write to my local MP. I did not ask him to sign the motion, but asked him to consider the badly drafted legislation.

He forwarded my letter to the relevant minister and I received a reply from Angela Eagle. I had already made my own submission to the consultation process pointing out that the legislation was dangerously unfit for anything.

In fact, I have been instrumental in drafting several submissions for a professional body. I always made sure that we pointed out where we thought that the legislation was at fault or where it produced unfortunate results. However, I am not always confident that HMRC listen to the submissions to consultation documents.

Daniel Selwood's article Rabbit redux has examples of good and not so good consultations.

Policy and practicality

I always made sure that we left policy issues to the Government. After all, if it is thought that HMRC should be given legislation to stop income shifting, that is a policy issue. What we had to do was make sure that the legislation could work in practice and that the taxpayer would have sufficient certainty and safeguards.

Whether the policy is correct or not is a question for my conscience and the ballot box. I am not quite sure where morality comes into implementing tax legislation for clients. I certainly know where ethics appear, but then I do not think that ethics and morality are one and the same thing.

If anyone wants to read a summary of a discussion on morality and tax they should look at Tax and morality, the report of the 2003 Wyman debate by Richard Curtis.

Within the context of that debate, I approved of the fact that Philip Fisher's open letter to Dave Hartnett (Dear Dave) pointed out that he was not considering the moral question of the non-domiciled regime.

After all, when Dave Hartnett, Dawn Primarolo and now Angela Eagle talk about the immorality of tax advisers and tax avoidance I feel that that they have lost the argument. The result of the approach that says apply morals first and rules later produces the targeted anti-avoidance rules of TCGA 1992, s 16A.

This piece of legislation is not to be applied as it stands, but by reference to HMRC guidance, the same guidance that is heavily criticised by the Chartered Institute of Taxation. How moral is that?

Clarity or morality

Unlike Philip Fisher, but like HMRC, Brian Palmer in Simplification, but at what cost? adopts a different approach. He was unhappy that he had to undertake a flurry of planning in the last couple of weeks of the tax year.

He then suggests that it is immoral that those who can afford timely advice are able to avoid tax even though he was helping them to do that very thing.

Rather than complaining that the legislation has changed, would we not all be better employed in pointing out the very severe restrictions in the associated disposals rules for entrepreneurs' relief?

There are issues over rents being charged (as Brian Palmer points out), but there are also issues of timing and the fact that the disposal must accompany a withdrawal from the business.

Since the asset must have been used for the business during the period of ownership, what happens if it was used in a sole trade that is subsequently incorporated? If the property is left outside the company it will have been used in the same business, but not the business of the company for the entire period of ownership.

Does that mean that there will be a restriction? As I see the position, there are many instances where there will be no relief for what would otherwise be an associated disposal.

We need to work at producing clear and logical legislation rather than accuse the Government of immorality in changing the legislation.

Jim Greenwood

Let's not be hasty!

I think Philip Fisher's editorial letter to Dave Hartnett (see Dear Dave) was very timely. The proposed non-domicile legislation meant, amongst other things, that tax professionals had to take action on the question of pre-5 April or post-5 April transactions without the proposed governing law having actually been passed. Mike Truman has also aptly commented on relations with HMRC.

But I fear they may probably be rather lone voices, so is it not time that the tax profession got together and stood up to publicly contest hasty and questionable legislation such as that concerning non-doms and overseas corporate profits? HMRC may well be acting upon Government instructions, but it is unlikely that the Government would override the expert view of the department on tax legislation.

But is the profession able to speak with power and authority? Not in my view when it comes to strident opposition to hastily conceived revenue law and practice. The profession is inevitably dominated by the Big Four.

Equally inevitably, the Big Four probably get the bulk of the tax and other work that is given by the Government to the profession. Not surprisingly, the Big Four may also dominate the councils of the professional bodies directly or indirectly involved with taxation.

It may therefore be that they are not necessarily the ideal leaders of opposition to government legislation, albeit certainly not of their own doing or choosing.

Let's work together

So who might be the ideal leaders of opposition to ill-considered revenue law and practice?

May I suggest that the clinical ability of tax counsel to tear draft legislation apart and advocate technical amendments or cancellation should put them ahead of members of the profession who basically have to practice the law as it is and work out how properly to get round it rather than amend it.

I would submit that a committee that would consist of, say, three 'tax silks', one or two representatives from the three major institutions concerned with taxation and a businessman would become a much more powerful public opposition to the unwise rushed and voluminous taxation that is now increasingly a feature of the Government and HMRC.

Obviously, counsel are not going to spend much time for nothing, so the three bodies should undertake financial support to the project, which might in any case save some specialist in-house costs.

In conclusion, it is my view that without some major action being taken with regard to the profession's relationships with HMRC, these will only deteriorate further, notwithstanding — and regardless of the misguided public image — the helpfulness and efforts of the vast majority of HMRC tax staff who I believe do an excellent job without thanks, and usually for far less reward than they would get in outside practice.

J D Nightingirl

 

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