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DOTAS: Contractors urged to prepare for campaign to oppose anti-avoidance legislation

Contractors need to educate themselves about draconian new anti-avoidance legislation due to come into force during July 2014, and to prepare for a campaign to oppose the new rules, says campaign group DOTAS Scandal. DOTAS is the acronym for the government’s Disclosure of Tax Avoidance Schemes legislation.

DOTAS Scandal spokesperson Chris Robinson fears that up to 65,000 taxpayers, including many contractors, could be adversely affected: “HMRC is being handed sweeping new anti-avoidance powers making the taxman prosecutor, judge and jury.

“The new rules ignore due process and could land many contractors with huge bills from HMRC for back taxes and interest, and all without offering the taxpayer an opportunity to defend themselves.”

Mobilising contractors to contact their MPs

“DOTAS Scandal is mobilising contractors and other taxpayers and has launched a lobbying campaign to change the proposals, or get them dropped. The body says it is targeting constituency MPs and members of the House of Commons Public Bill Committee on the Finance Bill.”

“What we have found from speaking to members of the committee is that many are not aware of the full details of the legislation they are due to review and vote on, and are completely unaware of their implications,” continues Robinson.

HMRC is being handed sweeping new anti-avoidance powers making the taxman prosecutor, judge and jury

Chris Robinson, DOTAS Scandal

“Our objective is to first educate contractors about the dangers that this legislation represents and then federate support from the 65,000 taxpayers the government estimated are affected by DOTAS to lobby their MPs to request the proposals be dropped or amended.”

Why are the proposed new rules so dangerous?

As Robinson explains, there are two new laws that remove all of the protections normally enshrined in UK law: “The first gives HMRC the powers to issue ‘follower notices’. If the taxman defeats one tax avoidance scheme in the courts, it will have the power to decide that similar schemes would also fail and issue notices to the participants of those schemes to pay tax as if the scheme itself was defeated.

“The decision that scheme A that has been defeated is similar to schemes B and C is totally at the discretion of HMRC. The organisation that has the most to gain from this arrangement is HMRC, and this is a power that we believe can and will be abused.”

The second new rule involves ‘accelerated payments’. Basically, what it means is that if someone has engaged in tax planning in the past ten years and uses the DOTAS system to declare their participation, then HMRC can demand up-front payments of any tax it believes would be payable by the scheme participant if the scheme had been defeated.

“HMRC can ask for this money up-front before it even starts work on challenging the scheme through the tax tribunals and courts. There are hundreds of schemes that are registered and that HMRC has been aware of but has taken no action over for many years. Now it can effectively apply retrospective taxation going back many years, and demand the tax and interest from the taxpayer before a tax liability has been established.”

Using avoidance schemes in good faith to avoid IR35

Robinson believes that many taxpayers will now be punished for being open and transparent in their tax affairs, particularly those who joined a scheme to avoid IR35.

“There are many contractors who are concerned about the uncertainty over their tax status as a result of IR35. These contractors left their limited company structure and joined various avoidance schemes that provided a framework that kept them outside of IR35.

“As a result of the new rules, these contractors are once again back in the position of tax uncertainty, where the only thing that it certain is a large tax bill regardless of the exact nature and status of the scheme they joined.”

Government paid ‘lip service’ to the consultation

There was a consultation for the proposed legislation, but according to Robinson it was an exercise in box ticking: “Despite the proposed legislation being far-reaching, only a month was set aside for the consultation.

“There were over 800 responses and the vast majority were against the proposals. These included submissions from all of the UK’s tax and accountancy professional bodies and many other organisations and individuals.”

Even though the proposals were roundly criticised, the government paid no attention to the consultation responses and its response in turn left the proposed legislation unchanged.

Resources available for contractors

Robinson says that the team behind the DOTAS Scandal movement is currently the 300 former participants of one avoidance scheme. His plan is to generate much wider support from the 65,000 taxpayers that the government estimates are affected by the DOTAS legislation.

“We have created the DOTAS Scandal website to provide the facts behind the proposed new rules and to explain what individual contractors can do to try and secure changes to the legislation before it is too late,” says Robinson.

“Within a matter of weeks we will be reaching out to as many contractors as possible to start taking direct action and lobby the members of the Finance Bill committee and their local MP.”

Published: 02 June 2014

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