Feature

posted 29 Jul 2004 in Volume 9 Issue 5

New disclosure duties

Controversial proposals, which could add to the bureaucratic burden already placed upon busy practitioners, leads to the question of when it will all end? Simon McKie and Sharon Anstey, designated members of McKie & Co LLP, examine the structure of the Finance Bill provisions, together with new disclosure requirements. Readers should also refer to the editor’s foreword for an update on these proposals.

In his Budget speech, the chancellor said: “It has been put to me that we should now introduce a general anti-avoidance rule. I do not at this stage intend to introduce this, but I will today close loopholes in partnerships, finance leasing and VAT and make it a requirement – as in the USA – that accountancy firms and those promoting schemes register them with the Inland Revenue.”

The chancellor seems to have been having trouble with his grammar. The Budget Day press release (Rev BN 28) makes it clear that “tax scheme promoters” will have to provide details of “certain defined schemes and arrangements to Inland Revenue [sic]”, where the main benefit of the scheme or arrangement concerned is the obtaining of a tax advantage. Yet, in the passage quoted, “them” can only refer to “loopholes in partnership, finance leasing and VAT”.

The press release was too vague to be of much use to tax advisers who were worried that a costly new beaureaucratic procedure was to be imposed upon them. The day after Budget Day, a meeting was held at Downing Street at which some further information was given about the shape of the new charge. Oddly, it was held under conditions of secrecy, although the Treasury put out a press release reporting some of the matters discussed at it. Since then, the Revenue has held meetings with representatives of various parties, including two major taxation bodies, but, again, under conditions of secrecy so that the matters discussed at them could not be shared with others, nor, indeed, referred to in this article. Provisions have duly appeared in clauses 290-303 of the Finance Bill 2004, although, as will become apparent, much of this legislation is dependent upon regulations that are yet to be published in draft.

In this article, we examine the structure of the Finance Bill provisions, before discussing some wider questions in relation to these new disclosure requirements.

Persons with a duty to make disclosure

The legislation imposes duties on three classes of person:

Promoters;
Persons dealing with a promoter outside the UK;
Other persons¹.

The key concepts

In imposing these duties the legislation makes use of two key concepts.

1. Notifiable arrangements

First, there is the phrase “notifiable arrangements”, which are any arrangements that:

Fall within any description prescribed by the Treasury by regulations;
Enable any person to obtain an advantage in relation to any tax that is so prescribed in relation to arrangements of that description;
Are such that the main benefit, or one of the main benefits, that might be expected to arise from the arrangements is the obtaining of that advantage².

On 8 April 2004, when the Finance Bill was published, a Regulatory Impact Assessment (RIA) of these new rules was also published. It said that: “As a first step the rules will apply to schemes intended to reward directors, employees and their associates in ways that avoid tax or result in artificially low effective rates of tax or in payments being made outside of the PAYE and other tax-collection systems. Rules will also apply to certain kinds of financial products.”

Perhaps that indicates that the description prescribed by regulations under Section 290 (1) (a) will restrict the rules to arrangements that fall within the description given in the RIA.

The RIA expands on the comment in Rev BN28 that the disclosure rules will include conditions that “are designed to target schemes and arrangements based on financial products, and employment-based products. Full details of these conditions will be published in the Finance Bill.” In fact, the only further details published at the time of the publication of the Finance Bill are contained in the short paragraph in the RIA quoted above.

Nothing that has been published has indicated which taxes are to be prescribed under clause 290 (1) (b).

2. Notifiable proposals

The second key concept is that of a notifiable proposal. That is a proposal for arrangements, which, if entered into, would be notifiable arrangements (whether the proposal relates to a particular person or to any person who may seek to take advantage of it³).

3. Tax advantage

An advantage in relation to any tax is defined in Clause 301 as meaning:

Relief or increased relief from, or repayment or increased repayment of, that tax, or the avoidance or reduction of a charge to that tax or an assessment to that tax or the avoidance of a possible assessment to that tax;
The deferral of any payment of tax or the advancement of any repayment of tax;
The avoidance of any obligation to deduct or account for any tax.

This definition is based on that found in ICTA 1988 Section 709 in relation to the transactions in securities rules. Notoriously, the Section 709 definition is uncertain in scope but is certainly extremely broad. In the case of Emery and CIR ChD [1981] STC 150, it was held that a tax advantage is obtained where a person receives something in a non-taxable form, which, if received in another way, would have been taxable, even though it might also have been received in a third way that was non-taxable. What is more, the courts apply wide latitude in identifying a hypothetical receipt that would have been the same receipt as the actual one with which a comparison is to be made. In Cleary and IRC HL 1967 44 TC 399, a company repurchased its shares and a Section 709 comparison was made with the situation, which would have ruled if the company had paid a cash dividend equal to the purchase consideration. Of course, a shareholder who sells shares suffers a diminution in his rights over the company, whereas one who receives a dividend does not. In spite of that, the court was able to regard the receipt-of-sale proceeds as being the same receipt for the purpose of this comparison as a hypothetical receipt of a dividend.

Clause 301 actually extends the definition of a tax advantage beyond that found in Section 709. Sub-clause (c) of the Clause 301 definition has no counterpart in Section 709.

Promoters

Definition of a promoter

Notifiable proposals

A person is a promoter in relation to a notifiable proposal, if, in the course of a trade, profession or business, which involves the provision to other persons of services relating to taxation:

He is to any extent responsible for the design of the proposed arrangements;
He makes a notifiable proposal available for implementation by other persons⁴.

Notifiable transactions

A person is a promoter in relation to notifiable arrangements if he is a promoter in relation to a notifiable proposal that the arrangements implement by virtue of making it available for implementation by other persons or, if in the course of a trade, profession or business that involves the provision to other persons of services relating to taxation, he is to any extent responsible for:

The design of the arrangement;
The organisation or management of the arrangements⁵.

Certain ‘prescribed circumstances’ are ignored in determining whether a person is a promoter. The prescribed circumstances are to be set out in regulations, which are yet to be published.

The promoter’s duties

The promoter must make a return in two circumstances.

Notifiable proposals

First, under sub-clause (1) of clause 292, he must make a return where he is a promoter in relation to a notifiable proposal within the prescribed period after the relevant date. The relevant date is the earlier of:

The date on which the promoter makes a notifiable proposal available for implementation by any other person;
The date on which the promoter first becomes aware of any transaction forming part of the proposed arrangements.

Notifiable arrangements

Second, under Section 292 (3) he must make a return within the prescribed period after the date on which he first becomes aware of any transaction forming part of any notifiable arrangements, unless those arrangements implement a proposal in respect of which a notice has been given under sub-clause 1. The periods have not yet been prescribed.

Proposals that are the same

No return of a later proposal or arrangement is required where a person is a promoter in relation to two or more notifiable proposals or sets of notifiable arrangements that are substantially the same (whether they relate to the same parties or to different parties⁶) if returns have already been made of the other proposals or arrangements.

Information required

When a return is required, the promoter must provide the Board of the Inland Revenue with the prescribed information in a prescribed manner⁷. Neither the information, nor the manner of its provisions, has yet been prescribed.

The RIA explains that: “Promoters will be expected to comply by providing plain English [sic] description of the scheme etc.”

That can itself hardly be said to be plain English and many practitioners will have to go back to school if they are to comply. The RIA goes on to explain: “This does not mean that appropriate technical language cannot be used and it will not be necessary to provide explanation of common technical and legal terms.”

Arrangements to be given reference number

Where a promoter makes a return under clause 292, or returns are made under clauses 293 or 294 (see below), the board may allocate a reference number to the proposal arrangements and notify the promoter of that number.

Duty of promoter to notify client of number

Where a promoter is providing services to any person in connection with notifiable arrangements, he must, within thirty days of the relevant date, provide the client in a prescribed form with prescribed information relating to any reference number that has been notified to him by the board in relation to those arrangements or to arrangements that are substantially the same as those arrangements. The relevant date is the later of:

The date on which the promoter first becomes aware of any transaction forming part of the notifiable arrangements;
The date on which the number is notified to him⁸.

Notice that it is not every promoter that must provide this information, but only promoters who are providing services to the person concerned.

The effective date

How these rules apply before the effective date of the legislation is interesting. Clause 302 (2) provides that clause 292 is not to apply to a promoter in the case of:

Any notifiable proposal the relevant date of which fell before 18 March 2004;
Any notifiable arrangements that implement such a proposal;
Any notifiable arrangements that include any transaction entered into before 18 March 2004.

Subject to this, and to certain other minor exceptions, these new rules “come into force on 1 August 2004”. (This is now delayed – see editor’s foreword for further details.)

It is not clear how this applies to a tax strategy that was designed in a generic form before 18 March 2004, but which is implemented for clients who are first advised after that date. In applying the strategy to an individual client, there will usually be some variations between the generic pattern and the actual transactions implemented. How great must those variations be for there to be a new notifiable proposal, rather than merely the implementation of an existing one?

If there are two proposals, it will be necessary to make a return in relation to the later proposal. Sub-clause 292 (5) will not help because no return will have been made in relation to the first proposal.

This is not an area that is subject to regulations that are still to be published and therefore this is an area of substantial uncertainty in this legislation. A statement of the Revenue’s practice would therefore be welcome.

Another interesting question is how these provisions apply to proposals made and implemented between the 14 March and 31 July 2004?

What is the effect of the provisions coming into force on 1 August? Consider, for example, a tax-planning strategy that is designed and suggested to a client in a period before the 1 August 2004, which is longer than the prescribed period and is implemented after that date.

Surely, the legislation cannot impose a duty to make a return of the proposal. If it did, the promoter would have a duty to make a return within the prescribed period after the relevant date that is before the new rules come into effect on 1 August. In relation to the implementation of the proposal, however, the transactions taking place will be transactions forming part of a notifiable arrangement. The promoter must make a return in relation to those arrangements within the prescribed period after the date on which he becomes aware of any such transaction. Even though the transactions have been planned beforehand, he cannot become aware of something before it takes place and therefore it appears that the promoter will have a reporting requirement in relation to the implementation of the transactions. It therefore appears that where proposals are made after Budget Day 2004, they will be reportable when they are implemented if they are implemented at a time later than the prescribed period before the 1 August, even if the proposal is made earlier than a date that is a period before the 1 August 2004 equal to the prescribed period.

It is now time to see how these rules might actually apply in practice.

An example

Mr Brown, who is 65, owns the entire issued share capital of Spin Limited. His shareholdings have the indexed base cost and current market values as shown below.

Shareholdings

Ordinary shares: Indexed base cost =25, Market value = 100,000

Preference shares: Indexed base cost = 20,000, Market value = 150,000

The company owns a commercial property that requires considerable day-to-day management. Mr Brown determines to give the shares to his son, Damian, who is to take on the day-to-day management of the properties.

Mr Brown’s accountants, however, Messrs Hie, Strete & Sons advise him to settle the shares on discretionary trusts for the benefit of a class of discretionary objects consisting of Mr Brown’s issue, so that the transfer can receive holdover relief under TCGA 1992 Section 260. The trustees are his son and his daughter-in-law Hecate Brown.

Messrs Hie, Strete & Sons are extremely cautious and suggest that Mr Thomas, a young tax counsel, is instructed to give an opinion on the strategy and to draft the trust deed. This is done. The registered books of the company are maintained by Mr Brown’s solicitors, Messrs Routine, Conveyancing & Co, who complete the stock transfer form for Mr Brown’s signature and write up the company books. Messrs Hie, Strete & Sons are also concerned about giving investment advice and therefore suggest that a financial advisor, Mr Levitt, should advise the trustees on their acquisition of the shares. Mr Levitt does so and makes a suggestion as to the organisation of the trustees’ bank account, which is accepted. Mr Levitt introduces Damian and Hecate to Old Bank Plc.

Does the settlement of the trust constitute “notifiable arrangements9”?

We do not yet know whether or not it will fall within the description of “arrangements”, which is to be prescribed by the Treasury. It would be surprising, however, if some forms of shares do not fall within the category of financial products that the RIA indicates will be one category of arrangements falling within the prescribed description.

Mr Brown undoubtedly has obtained a tax advantage within the definition in clause 301 assuming that the courts apply the same approach as to the Section 709 definition¹⁰. He could have made an outright gift of the shares to his son but instead settled them on trust with the result that he obtained holdover relief from capital gains tax. The purpose of creating the trust was to obtain that advantage so that it seems that the main benefit that might be expected to arise from the arrangements is the obtaining of the tax advantage.

The proposal to make the settlement that was made by Messrs Hie, Strete & Sons and arguably also by Mr Thomas is a proposal for arrangements, which if entered into would be notifiable arrangements and it is therefore a notifiable proposal¹¹.

So we have both notifiable arrangements and a notifiable proposal. Who is a promoter in relation to these? Arguably, all of the suppliers of services involved supply those services in the course of a trade profession or business that involves the provision in other persons of services relating to taxation¹². Messrs Hie, Strete & Sons give basic tax advice as part of their accountancy practice. Mr Thomas is a junior member of the Revenue bar. Messrs Routine, Conveyancing & Co regularly provide small pieces of advice on the incidence of inheritance tax and of stamp duty land tax. Mr Levitt provides advice on, and executes investments in pension policies, insurance policies, enterprise-investment-scheme shares and national-savings products in all of which, the incidence of tax relief is an important element. Old Bank’s Plc business includes deducting tax at source on interest and accounting for the tax deducted and for the tax credits arising on dividends and the provision of basic trust administration services, including the making of trust returns.

Messrs Hie, Strete & Sons are promoters in relation to the notifiable proposal because to an extent they are responsible for the design of the proposed arrangements and because they have made the notifiable proposal available for implementation by other persons¹³.

For the same reason, they are promoters in relation to the notifiable arrangements. Mr Thomas has also been responsible for the design of the proposed arrangements in drafting the trust deed. He is also a promoter¹⁴.

Messrs Routine, Conveyancing & Co might arguably be regarded as promoters in relation to the notifiable arrangements because they have been responsible to a small extent for the organisation of the arrangements in drafting the share-transfer document¹⁵. Similarly, it is arguable that Mr Levitt is a promoter in relation to the arrangements in organising the Trustees’ banking arrangements and in facilitating those arrangements by making an introduction to Old Bank Plc because he might be described as being responsible to an extent for the organisation of the arrangements¹⁶. It is probably going too far to say that Old Bank Plc is a promoter by virtue of providing the bank account to the trustees¹⁷, but its compliance department may well wish to spend time considering the matter.

All the promoters will have a duty to make a return of the settlement of the trust¹⁸. Where more than one person are promoters in relation to the same notifiable proposal and notifiable arrangements, compliance by any of them, with the requirement to make a return, discharges the duty of the other or others¹⁹. The difficulty for any individual promoter is to know whether the others have complied with the requirements or not. Even if another promoter confirms the return has been made, they will not know that it has been made in a fashion that complies with the prescribed manner and contains the prescribed information²⁰. Indeed, it is not necessary for a promoter to know that there are notifiable arrangements or notifiable proposals, or that he is a promoter in relation to them for him to be under a duty to make a return. The promoter, for example, may be unaware that the transactions that he has helped to design confer a tax advantage and therefore that they are notifiable transactions and that he is the promoter.

It may be that some of the persons in our example will be excluded from being promoters in such a situation by reason of Clause 291 (2), under which a person is not a promoter by reason of things done in prescribed circumstances. We shall not know until the prescribed circumstances are published.

Duty of person dealing with promoter outside the UK

Any person who enters into any transaction forming part of any notifiable arrangements in relation to which:

A promoter is resident outside the UK;
No promoter is resident in the UK, must make a return within the prescribed period²¹ except that if any promoter makes a return under Section 292 (1) this duty to make a return under Clause 293 is discharged.

As has been said above, this exclusion is almost worthless to the taxpayer. As a protective measure, he will want to make a return himself.

Parties to notifiable arrangements not involving a promoter

This provision is aimed at self-generated strategies. Primarily, it seems to be aimed at situations where an in-house corporate-tax department designs a tax-planning strategy. The provision is much wider than this, however, and includes strategies designed by individuals for themselves. Any person who enters into a transaction forming part of a notifiable arrangement where there is no person who is liable to make a return as a promoter and there is no offshore promoter, is liable to make a return of the transaction under this provision²².

That is an extraordinarily wide imposition. Any transaction entered into as part of arrangements, which confer a tax advantage, the only or main benefit of which is that the advantage will arise, must be the subject of a return unless the arrangements do not fall within the prescribed description that is yet to be published. Unless that description, when it is published, is drawn with sufficient precision, the danger is that all taxpayers planning their affairs by reference to taxation will be at risk of suffering a penalty unless they make a return at the time of the first transaction implementing their plans.

Duty to notify board of number etc.

Any person who is a party to any notifiable arrangements must at the prescribed time or times provide the board with prescribed information in a prescribed form and manner relating to:

Any reference number notified to him;
The time when he obtains or expects to obtain, by virtue of the arrangements, advantage in relation to any relevant tax^23.

It should be appreciated that several persons may be parties to the notifiable arrangements and that these persons are not confined to persons who obtain tax advantages from the arrangements. The requirement to provide information under (b) above would require such persons to understand the tax affects of the arrangements that they may not have the necessary information to do.

Penalties

A failure to deliver a notice under Clause 292, 293 or 294 incurs a penalty of £5,000. If the failure continues after this penalty is imposed, a further penalty or penalties of up to £600 a day can be imposed thereafter. Considering the great breadth of the reporting requirements and their uncertainty, that is a potentially ruinous cost for many advisers. It will force advisers to make protective returns in relation to the provision of tax-planning advice, which, under any ordinary use of English, would not be characterised as a tax-avoidance scheme.

Legal professional privilege

The almost unprecedented imposition of a requirement to provide details of the advice given to clients by tax advisers, before it has resulted in any transaction being undertaken, raises the question as to what extent it is compatible with legal-professional privilege. Clause 298 provides that the provisions do not require any person to disclose to the board any privileged information that is information with respect to which a claim to legal professional privilege, or the Scottish equivalent, could be maintained in legal proceedings²⁴. Taking account of recent arguments over the extent of the protection offered by legal-professional privilege that will introduce yet another area of uncertainty in the application of these rules.

Areas of uncertainty and difficulty

This legislation consists of many areas where its application is very uncertain, which will cause great difficulty to tax advisers. It is unclear at the moment what taxes are to be covered by these rules. One hopes that they will be restricted to the main direct taxes, income tax, capital gains tax and corporation tax, but nothing has yet been published to say so.

The transactions in securities provisions from which the definition of a tax advantage has been adopted are notorious for catching many quite ordinary transactions. It is unfortunate that clause 301, having adopted that definition, does not also reproduce the “main objects” test found in Section 703 (1). Instead, clause 290 (1) (c) provides a test that is neither objective, looking at whether a tax advantage is in fact a main benefit of the arrangements, nor subjective, looking at the intentions of the persons implementing the arrangements, but is partially subjective in looking at the expectations of an unnamed person, presumably a hypothetical reasonable man, of what tax advantage might be obtained from the arrangements. That in itself will make the scope of new rules uncertain.

Another area of difficulty is that it is not clear whether the formulation of a generic scheme, which is then applied to the circumstances of specific taxpayers is a single proposal for the purposes of these rules or is a series of separate proposals. If it is a single proposal, it is not clear what level of variation in the application of the proposal there may be without there being a multiplicity of proposals.

The tests to determine whether or not a person is a promoter are not restricted to situations where the actions that result in the person concerned being a promoter are undertaken as part of the supply of a taxation service or are undertaken for remuneration. The result is that these are extraordinarily wide tests. For example, it is arguable that a person lecturing at a tax conference upon a tax-planning scheme where members of his audience then utilise his ideas in relation to specific clients will be a promoter in relation to the arrangements made for those clients.

It is also clear, unless the point is dealt with under secondary legislation, that a person may be a promoter in relation to a scheme (being involved in the organisational management of the arrangements for implementing the scheme) without any knowledge that the transactions in which he is involved are taking place for tax-planning reasons. In our example, Messrs Levitt and Routine, Conveyancing & Co may not know that the trust is being established in order to obtain holdover relief. It may not occur to them, therefore, that they would have any duty to make a return under these provisions.

It appears quite likely, therefore, that single proposals or arrangements will prompt multiple returns. Although clause 292 (4) discharges promoters from the duty to make a return where another promoter has already made it, it is extremely unlikely that any individual person will wish to rely on that provision because he will not know whether or not the other promoter has provided the board with the prescribed information in the prescribed manner, without conducting a certain amount of due-diligence work.

It is clear, therefore, that even when the regulations are published, however tightly they may be drawn, significant areas of uncertainty will remain with the result that tax advisers will make returns in relation to matters that would not be characterised as ‘tax avoidance schemes’ in any ordinary use of that phrase. That will impose considerable costs on those advisers, which will be passed on to the taxpayer. So, there will be a real financial cost to the British economy of introducing these provisions.

There will also be a more intangible cost. Advisers have not previously been required to disclose details of the advice that they give to their clients in relation to the transaction ahead of the transactions actually being implemented. That imposition will change the relationship of clients and their advisers and will also change the relationship between tax advisers and the taxpayer on the one hand and the Government on the other.

There is one specific issue that has the capacity to be very significant. Most of the largest professional firms provide advice on the type of arrangements that are the target of these provisions. In the past, UK tax advisers have taken the view that duties imposed by law should be complied with, regardless of whether or not there is a penalty imposed for non-compliance. A failure to make a return incurs a civil penalty and is not a criminal act. If the Inland Revenue exploits the disclosure made under these rules to make quick changes in the law to frustrate tax-planning strategies, as is presumably their intention, tax advisers may regard paying a £5,000 penalty as a reasonable cost for delaying the law changes. It would be difficult to criticise such behaviour, but if it were to be adopted it would represent a significant shift in the attitude of advisers towards compliance with their disclosure obligations. In my view, that would be a very unwelcome and unfortunate shift indeed.

When one considers the possibility of these financial and non-financial costs of the new rules, it is very surprising that the Regulatory Impact Assessment (RIA) does not contain any attempt to quantify the cost to the taxpayer of these measures and refers throughout to returns made by ‘promoters’, without any real consideration of the extent to which compliance burdens will be placed on advisers who are not promoters of the schemes in the ordinary sense. It would be extraordinary if such a fundamental change to our tax system should have been introduced without any attempt to quantify the costs to taxpayers of the change.

In reaching its decision to proceed with these provisions, the Government surely needed to balance the benefits of the change against these potential costs. That surely required the Government to have quantified the tax at risk from arrangements that it regards as tax-avoidance arrangements and the extent to which these new rules will allow it to frustrate those arrangements and therefore increase the Government’s tax yield. Indeed, the RIA does assert that “tax avoidance costs the exchequer substantial sums in lost taxes each year” yet the financial statement and Budget report, which in Table A1 attempts to quantify the effect on Government revenues of the various “anti-avoidance” measures announced in the chancellor’s Budget speech, contains no estimates in relation to these disclosure provisions. Surely, before making such a fundamental change to the tax system, the Government must have quantified the benefit to the Exchequer of the change?

The Inland Revenue seems to believe that there is a problem of non-disclosure in relation to tax-avoidance planning rather than just a time lag in disclosure between the tax-planning arrangements being implemented and their being disclosed on the return of the taxpayer concerned. The RIA asserts that “those who design new schemes go to considerable lengths to ensure that the scheme is not detected by the Revenue and indeed in some cases, a tax advantage may depend on the scheme being successfully hidden”. That is clearly nonsense. Tax avoidance is by definition avoiding incurring a tax penalty within the law. If the liability is legally avoided, its disclosure cannot prevent it from being effective.

Tax planning in the UK is primarily undertaken by those who belong to professional bodies who impose onerous ethical rules on their members backed by disciplinary procedures. A client who fails to make full and proper disclosure of his transactions in his tax return will expose himself to the risk of substantial penalties under TMA 1970 Section 95. No responsible professional advisers can advise his client to do anything other than make full disclosure of his transactions. Those who do not do so at the moment are a tiny minority who are either not subject to professional discipline or who deliberately breach the rules of their professional bodies and, it may be surmised, the criminal law, and have managed to remain undetected. Such persons are unlikely to comply with these new disclosure requirements. So the likely result of the new rules is to provide a competitive advantage to the dishonest, many of whom will be based in jurisdictions outside the UK stimulating an offshore ‘tax avoidance’ industry directed at the UK, which is not subject to professional ethical disciplines or effective legal restraints.

Human rights

The RIA contains a statement that “leading counsel is of the opinion that the proposed rules do not conflict with human-rights legislation”. It has been persuasively argued, however, that they conflict with both Article Eight and Article Ten of the European Convention on Human Rights.

Conclusion

A regrettable decision

For these reasons, I think the Inland Revenue is likely to regret its decision to introduce these provisions. Not only is the policy behind these rules flawed, however, but so too is the manner of their introduction. Such a fundamental change to the tax-compliance system required proper debate. The changes, however, have been made without consultation on the excuse that being anti-avoidance legislation, secrecy was needed to prevent forestalling; a doubtful claim when the legislation was announced on Budget Day, but is only to come into force primarily on the 1 August 2004.

Unnecessary secondary legislation

The legislation also makes excessive use of a power to make legislation under regulation. Use of such a power to make significant changes to the tax system is objectionable because it does not provide for the proper level of parliamentary scrutiny. Most of the matters that are to be prescribed by regulation could have been included in the primary legislation had sufficient time been allowed for the system to be formulated and the legislation to be drafted properly.

As has become regrettably common, the Government has rushed to introduce a new concept without proper care for the quality of the legislation that it produces.

References

Finance Bill 2004, Clauses 291, 293 and 294. All references in the article are in the Finance Bill unless otherwise stated.
Cl. 290 (1)
Cl. 290 (2)
Cl. 291 (1) (a)
Cl. 291 (1) (b)
Cl. 292 (5)
Cl. 292 (1)
Cl. 295 and 296
Cl. 290 (1)
Cl. 301 (1)
Cl. 290 (2)
Cl. 291 (1)
Cl. 291 (1) (a)
Cl. 291 (1) (a)
Cl. 291 (1) (b)
Cl. 291
Cl. 291
Cl. 292 (1)
Cl. 292 (4)
Cl. 292 (1)
Cl. 293
Cl. 290 (1) and 294
Cl. 297
Cl. 298

This article first appeared in Taxation magazine – www.taxation.co.uk.

Simon McKie and Sharon Anstey are designated members of Mckie & Co (Advisory Services) LLP, which provides specialist taxation advice to the advisers of private clients. They may be contacted at simonandsharon@mckieandco.com.