Meeting Points

Conference

Meeting Points

SIMON McKIE summarises a variety of interesting points from the Keyhaven Tax Avoidance Conference which took place on 30 June 2004.

The new disclosure rules

Robert Venables QC characterised the new disclosure rules as being penal provisions which are therefore to be construed in favour of the taxpayer. He suggested that for a taxpayer to suffer a penalty for non-compliance, mens rea is required. In Robert Venables' view, returns under the new disclosure provisions will not require the return to disclose weaknesses or areas of uncertainty in the taxation scheme concerned.

Section 318, Finance Act 2004 contains a definition of 'tax'. Notably, National Insurance contributions are not included.

VAT disclosure

The new disclosure rules in relation to VAT are more limited and clearer than the equivalent direct tax rules. They distinguish between designated schemes and notifiable schemes and within the designated category there is a further distinction between schemes and elements. A failure to disclose the designated scheme can be penalised with a penalty of 15 per cent of the tax 'expected' to be saved under the scheme. So it is possible for a penalty to arise even where the scheme is entirely ineffective.

Section 703

Richard Bramwell pointed out that a liability under section 703, Taxes Act 1988 can only arise after a precursor notice has been issued. It is not therefore possible to self assess a section 703 liability. Richard thought that this was the only such provision of the Taxes Act. So if there is, for example, an exchange of securities to which section 137, Taxation of Chargeable Gains Act 1992 does not apply, the taxpayer would self assess the resulting capital gains tax liability. If, subsequently, the exchange is the subject of a section 703 income tax assessment, there is no statutory mechanism for giving credit for the capital gains tax previously paid. In practice, the Revenue will usually allow the credit.

Veltema v Langham

Richard Bramwell discussed the case of Veltema v Langham CA [2004] STC 554 which was heard in the Court of Appeal and for which permission to appeal to the House of Lords has been refused. Richard Bramwell suggested that this case is authority for the proposition that disclosure on a tax return will only prevent a discovery assessment where the disclosure has specifically revealed that the return itself is incorrect. Clearly that would make the conditions limiting the application of the discovery provisions entirely without effect.

Legal professional privilege

The case of Interleasing Limited [2002] V & DR 372 suggests that it would be severely anomalous if legal professional privilege were restricted to advice given by lawyers and did not cover legal advice given by other persons.

Although Lord Hoffmann in reaching his decision in the case of ex parte Morgan Grenfell v Special Commissioner of Income Tax [2002] STC 786 was not called upon to consider whether a refusal of legal professional privilege was incompatible with the Human Rights Act, he suggested that there was an issue to be considered here.

Forcing open disclosure by the Revenue

It is interesting that the Special Commissioners (Jurisdiction and Procedure) Regulations 1994 at Regulation 10 (as amended in 2003) provide that a special commissioner may require any party to deliver such particulars as he deems necessary for an appeal.

So an application to a Special Commissioner to exercise this power may be a way of forcing the Inland Revenue to reveal its case before reaching the substantive hearing before the Commissioners.

Fraudulent or negligent?

In Richard Bramwell's view the section 95, Taxes Management Act 1970 penalty for 'fraudently or negligently' delivering an incorrect return does not make the taxpayer vicariously liable for the negligence of his agent. This may be contrasted with section 29(4), Taxes Management Act 1970 (which deals with discovery) which refers to loss of tax attributable to negligent conduct of the taxpayer 'or a person acting on his behalf'.

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