top stories

Comments from ACCA
June 2004

The consultation period on the draft regulations of six weeks is unnecessarily short and the acknowledgement that the consultation period contravenes the Government's own guidelines is not good enough. If the disclosure requirements had actually been thought through properly then the regulations could have been published at the same time as the Budget or at least when the Finance Bill was published.

Due to the very compressed consultation process on a key piece of legislation ACCA has taken a proactive approach to communicating its views on the issues surrounding the draft regulations. To this end we appeared before the Lords Select Committee on Economic Affairs and gave extensive evidence on the regulations at that time. The comments we made before the select committee are available in Hansard and it would be appropriate for the Inland Revenue to take them in to account as a part of the consultation process. Some of our points are encompassed in the committee's report which was published on 25 June 2004 .

Without going over the same ground again in detail we set out some of our key concerns below:

1. Even after the recent concessions announced by the Paymaster General, the definition of �promoter' is capable of applying too widely. Parties who are involved in the design or organisation or management of arrangements could be caught, irrespective of whether they are involved in the tax structuring, simply because someone elsewhere in their organisation provides tax services.
   
   Similarly, it is possible to be caught if someone were involved in a transaction, where a party other than a client was, perhaps unknown to the accountant, seeking to secure a tax advantage.
   
2. Paragraph 3 says that �sufficient information� must be provided to enable an officer of the Board to comprehend the manner of operation. What does this mean? What one person thinks is sufficient will be very different from what another person thinks. The legislation must be prescriptive over what it wants, especially where the penalties for incorrect reporting could be significant. If not then how will someone know if they have met the requirements?
   
3. It does say something about the expected knowledge of the recipients of the information when the information to be provided has to identify under which provision of the regulations the proposal is notifiable. It suggests that the Inland Revenue does not expect to be able to work that out.
   
4. Could having to explain the significance of each step be treated as self-incrimination? The term �significance� also needs to be clarified.
   
   We are not talking about the lack of full disclosure. The arrangements that are put in place should be subject to full disclosure in the tax returns etc. What is objectionable is that before we get to the position of debating the relative merits of each side of the argument on a particular arrangement, all of the points to be relied upon by the client will have to be provided to the Inland Revenue, giving them potentially a couple of years to formulate a rebuttal i.e. by the time the Corporation Tax return is filed. Will the promoters of the schemes get a similar length of time to reply to opening enquiry letters?
   
5. In general it seems that the information provisions are badly defined and open to the Inland Revenue coming back and claiming they have not been met because the Board cannot understand them. Surely the Government and Inland Revenue should be capable of tightly defining what is required. It looks as though the provisions have been rushed through without any thought as to how they will operate in practice.
   
6. With regards to the time limits in para 4, if the time limit for providing the information is so short then surely the response from the Inland Revenue to what is simply issuing a number should also be equally short or more appropriately both should be 30 days. Our understanding is that this is not a clearance process (whether it should be is a point to debate) and therefore a mirror image response deadline is appropriate.
   
7. We question the rationale for the 5 day time limit. Even if the limit is not extended to 30 days, as we have suggested at point 6 above, a reasonable time limit should be provided, especially given the imprecise drafting of the information requirements. An extended time limit for reporting will also reduce multiple reporting and help in cases where identifying the relevant date is not straight forward especially where the adviser is not the scheme deviser.
   
   Descriptions of arrangements
   
   Introductory Comment
   
   We are pleased that the Government intends to withdraw the tax advantage formula. We would however like to see clarity on the issue of the two year reporting time horizon, for tax planning options, which only materialised on 9 June 2004 . The formula actually made the reporting period explicit hence with its withdrawal the period needs to be written in to the regulations or statement of practice.
   
8. Until we are able to see the redrafted regulations the definition of arrangements lacks any precision. It could include everything from reviewing bonus versus dividends up through a group. If these definitions are enacted as currently drafted our members will be spending vast amounts of time informing the Inland Revenue of standard planning scenarios. If the idea is to target highly aggressive schemes, then clearly these will not be the only ones which will be caught. The IR will be inundated with information which, we assume they do not need and will be unable to handle.
   
9. As above there needs to be far greater clarity in the drafting to enable both the Inland Revenue and the �promoters' to be able to operate the disclosure programme.
   
10. Arrangements involving securities, SAYE, CSOP and SIP have been exempted. There are numerous provisions of shares to employees where a tax advantage can accrue i.e. restricted shares, which operate exactly as the legislation prescribes. Are these going to have to be disclosed as well? If this is correct then it cannot be a sensible way to carry on with the administration of the tax system. Most of these uses of shares or securities are not designed to use narrow or aggressive interpretations of the legislation.
    
11. With regard to arrangements involving loans, if the parties change their intentions so that the loan is written off does this become a matter to be disclosed? It is not clear if it is the intention at the outset or not that is important.
    
    Guidance Notes
    
12. There is too much information in the guidance notes which needs to be relied upon in determining how to operate the legislation. If the required clarity could be achieved by incorporating the key points of the guidance notes into the legislation then shouldn't this be the way to proceed.
    
13. There are sweeping statements in the notes such as at 8.16 in the last sentence. The attempt to capture information about virtually everything relating to tax is meant to be looked at in the redrafted guidance and regulations. We await to see how the revisions look.
    
14. Paragraph 8.21 does not make it clear that loans below the £5,000 income tax exemption will be outside the disclosure rules. They are neither taxable or covered by the bridging exemption.
    
    Concluding Comments
    
    We were disappointed with the ill thought out and very poorly drafted regulations. There seems to have been no thought given as to the practical implications of what is proposed to the majority of tax advisers and clients. We can only hope that the redrafted regulations go through a root and branch redrafting process.

Back to top