It is impossible now to avoid hearing on the news, or reading in the press, comments about “tax avoidance” and whatever the latest soundbite might be. Today it is the “naming and shaming” of scheme promoters who are “currently winning what appears to be a game of cat and mouse with HMRC” (according to the Public Accounts Committee). Tomorrow, who knows.
I’ve blogged before about the importance of this debate and how unfortunate it is that sensible debate is being stifled by ill conceived and uninformed posturing. However, I’m becoming increasingly concerned that there is evidence of a more serious side effect of all of this. Companies are turning their backs on legitimate tax reliefs, for fear that claiming them might lead to accusations from HMRC (or others) of tax avoidance.
I have been told by company directors that they don’t want to, for example, claim R&D tax relief because they have a good relationship with their Inspector and they don’t want to jeopardise that relationship. Recently, the managing director of a small engineering company asked me if claiming R&D relief would be seen as “aggressive” by HMRC.
It’s not just R&D relief either. I am currently talking with a number of companies and advisers about the new Patent Box regime that comes into effect on 1 April. Sadly, I have to reassure some of them that making a Patent Box election is not “avoidance”. Mind you, headlines such as this one from The New Statesman don’t help: The government’s “patent box” is the tax avoidance package companies have been begging for.
Even long standing reliefs such as capital allowances are being demonised by those who should know better. Businesses that invest in new capital assets are entitled to claim capital allowances (if those assets qualify). Yes, that will reduce the taxable profits below the accounting profits (ignoring other adjustments), but that is what Parliament intended.
If we are not careful, genuine incentives and reliefs designed to encourage investment in certain areas of the economy will be shunned to such an extent that the Government’s policy objectives will be undermined.