Schedule 24
Finance Bill
9:45 am
Stephen Timms (Financial Secretary, HM Treasury; East Ham, Labour)
There certainly has been some interest on this point, as the hon. Gentleman says. Tax legislation already uses the words “reasonable to assume” in a wide variety of contexts, and HMRC has taken legal advice on legislation containing those words on several occasions. However, the advice would not have relevance to disguised interest legislation because of the different context.
The words in the schedule are words of limitation and would be interpreted as such by the courts. In practice, “reasonable to assume” will only rarely make a difference to the way in which the test is applied, since an unsupported assertion as to purpose would, in any case, not be accepted by HMRC as establishing true purpose, if objective evidence pointed to the contrary. Any tax avoidance test based on purpose already implicitly contains a reasonable assumption requirement. The wording in the schedule simply makes that fact explicit. We have thought about this point and discussed it with several outside organisations. We think that it is helpful to have the words for clarity.
There has been extensive consultation on that narrow point and also on the wider point of using principles-based legislation to tackle avoidance. The aim of such legislation is to stop avoidance activity in the area concerned and to allow the repeal of traditional legislation that sets out a series of detailed conditions to be met before the legislation can apply.
The traditional approach can, in effect, allow avoidance, because taxpayers can seek to sidestep the detailed conditions. It is much more difficult to sidestep an approach based on a comprehensive principle with exceptions built in. We are turning around the way in which the legislation operates, and we think that that approach will be more effective. There has been a great deal of discussion about it.
The new legislation allows the removal of 30 pages of existing detailed anti-avoidance legislation—it will be replaced with the 11 pages here—and signals that we think that the principles-based approach, which has been widely discussed, can be made to work, and that we will in future consider its use in appropriate areas of legislation as a means of tackling persistent attempts at avoidance.