Taxing Times.....

Nobody likes paying tax. There it is. A bald statement. Oh people will tell opinion pollsters that they would happily pay more tax to improve services that they value, but in reality anybody fighting an election based on a message that more tax is a good thing is not likely to be holding the keys to No.10 Downing Street any time soon.

Yet like it or not, and regardless of who wins the next election, we are all likely to end up paying a lot more tax. National Insurance is due to go up in April 2011. It is highly likely that VAT will increase. There is also talk that Capital Gains Tax (CGT) will have to go up as well due to the disparity between the new higher rates of tax and the current 18% level of CGT. This will no doubt fall disproportionately on entrepreneurs, and provoke an outcry similar to that which followed the curtailment of the 10% taper relief for business assets a couple of years ago.

The Tax Advice industry is currently in overdrive finding ways of mitigating the impact on their clients of the new 50% rate which is being introduced from April 2010. And yet the retrospective nature of a recent court case relating to the reclassification of a long time “non dom” has caused many advisors to wonder whether even giving solid advice based on how tax law is currently being applied will be of any use if the Revenue decides that its own interpretation at the time was wrong and seeks to go back and correct matters.

It would appear that even with frighteningly detailed tax legislation in place, court cases will turn on specific facts, and the current HMRC view of those facts, and there is no guarantee that this view will be consistent.

HMRC are effectively operating as if there is a general anti avoidance provision in place, having cleverly blurred the boundaries between legitimate and legal tax avoidance and illegal tax evasion. Not only are they challenging the more imaginative schemes that have been specifically devised to avoid tax, but they are also looking to attack what was hitherto regarded as sensible tax planning.

Added to all this is the argument that the Directors’ Duties under the Companies Act 2006 require them to minimise their tax liabilities where possible which will make taxation issues even more of a burden for company directors and owners to deal with.

The UK already has a horrendously complex tax code with pitfalls galore even for those who do their very best to comply. Throw in the impact of uncertainty generated by HMRC’s attacks on tax avoidance, which could then potentially be applied retrospectively, and you are setting the scene for an era in which the tax lawyers are likely to be the main winners.

Taxing times indeed……