Philip Hammond, the Chancellor of the Exchequer, created a stir when he appeared before the House of Commons Treasury Committee and said that tax avoidance constitutes “tax evasion.” He made this remark in reference to the 2019 Loan Charge.
As all taxpayers know, tax evasion is illegal, and there is little sympathy for those who engage in it. However, tax avoidance does not receive the same criticisms. David Gauke, who was the Treasury Minister in 2010, said at the time that there is a distinction between tax planning in order to minimise the amount of tax paid and tax evasion. However, he did go on to say that the line between the two can become blurred.
HMRC distinguishes tax avoidance form tax evasion by stating: “Tax avoidance is bending the rules of the tax system to gain a tax advantage that Parliament never intended. It often involves contrived, artificial transactions that serve little or no purpose other than to produce a tax advantage. It involves operating within the letter – but not the spirit – of the law. Tax evasion is when people or businesses deliberately do not pay the taxes that they owe, and it is illegal.”
The Government has tried to use tax laws to close loopholes in a system that permits tax avoidance, resulting in an “arms race” between itself and providers of tax avoidance schemes.
The 2019 Loan Charge’s intent was to capture all such schemes that used loans. One of many observers’ key concerns is the retrospective nature of the law. Its aim is to capture all loan schemes used in the last 20 years, not just those that registered with DOTAS. In total, DOTAS has 5,000 schemes registered, but thousands more were set up so as to avoid registration.