Tax campaigners against Barclays are misinformed
ON MONDAY, David Gauke, exchequer secretary to the Treasury, told a stunned House of Commons that a bank had attempted to use a tax avoidance scheme to reduce its tax bill by £0.3bn. The government would act swiftly to close this loophole. As other banks are also understood to have used this dodge, it’s hoped this will secure an additional £500m of tax revenues.
We now know that the bank in question is Barclays. And the media response has been brutal, focusing on the fact that Barclays is a signatory to the Treasury’s code of practice on taxation. This means that, while it can undertake tax planning in support of its business operations, tax schemes should not be used to achieve tax benefits that are contrary to the intentions of parliament. Tax campaigner Richard Murphy has commented that it proves the need for a general anti-avoidance rule (GAAR) on tax, to prevent tax benefits being obtained from pre-ordained, artificial schemes like this.
Unfortunately, in their rush to pass judgment on Barclays, nearly all commentators have missed the two most important parts of Gauke’s announcement.
Firstly, the scheme came to light because Barclays disclosed it to HMRC. Under the Disclosure of Tax Avoidance Scheme (DOTAS) rules, introduced by the Labour government in 2004, tax scheme promoters must disclose any scheme to HMRC that provides, as one of the main benefits of the scheme, a tax advantage. However, in some circumstances, the taxpayer using the scheme must make the disclosure to HMRC. And Barclays did tell HMRC about its use of the scheme.
Secondly, the government will be taking action to close the loophole retrospectively. While retrospective legislation is, generally speaking, a bad thing, government has reserved the right to use it in the most egregious cases of aggressive tax avoidance. That means that Barclays and other banks won’t benefit from this scheme. However, the need for retrospective legislation proves that the scheme was legal at the time it was entered into.
The government is contemplating whether to introduce a general anti-avoidance rule, following the study by Graham Aaronson QC late last year on its feasibility. It’s now likely that the government will consult on introducing one. A GAAR could reduce the need for such wide-reaching retrospective powers. It’s hoped that, should a GAAR be brought into law, government will relinquish some or all of its retrospective power-making, to the extent that it’s no longer necessary. In any case, it’s essential that taxpayers are given adequate protections from this power being used too widely or too often. The lack of clarity over these protections continues to be troubling.
Honest taxpayers should take heart from the Barclays episode. It shows us not only that DOTAS works, but also that companies that use aggressive tax avoidance schemes can’t expect to benefit from them. That means any further change in the law on tax avoidance, either to introduce a GAAR or to widen the use of retrospective legislation, needs to be proportionate and fair.
Christie Malry is a pseudonym. The author is a chartered accountant. He blogs at www.fcablog.org.uk.