Fleet News

Will disclosure scheme threaten cash-for-car?

A GOVERNMENT report last week announced changes that could have a seismic effect on the cash-for-car market and provoked a string of investigations

Cash-for-car has been a buzzword in the fleet industry in the past few years, even prompting claims that the company car is dead.

But critics have long argued that the relatively basic offering of a company car is a virtual oasis compared to the desert of red tape and bureaucracy involved in provision of cash for car.

The latest announcement of Government plans to tackle tax avoidance schemes – which could include various cash-for-car plans – with a new disclosure system has certainly added fuel to the fire.

New Inland Revenue disclosure rules targeting schemes based on financial and employment products came into force at the start of this month.

As part of the Tax Avoidance Schemes Regulations 2004, the rules require disclosure of transactions which are expected to obtain a tax advantage as a main benefit and involve certain employment and financial products.

The problem is, the Government has yet to decide exactly what these products are, leaving fleets in fear that alternative car schemes will be in the firing line when the final blueprint is finished.

The idea behind the scheme is simple. Any company that creates a product to avoid tax has to disclose the full details of the scheme to the Inland Revenue. Details of current schemes also have to be provided.

Civil servants can then assess the impact of the scheme on the Government coffers and decide whether it is a fair scheme or just blatantly bending the rules.

Then, if necessary, they can set the wheels in motion to ensure the scheme in question is blocked. However, the Inland Revenue also points out it could decide to do nothing.

This process can be completed in a matter of weeks under the new legislation, whereas it used to take months or years to identify and close loopholes that were proving costly to the Exchequer.

Although senior tax experts admit they aren’t sure which schemes will be affected, they are already changing their approach.

One said: ‘We already have a team working full time on this legislation. Already, we have simply decided some schemes are just not worth doing and scrapped them.

‘There used to be a period of time when a tax-saving scheme was of value before the Inland Revenue decided to investigate it and it was potentially closed down, but now the timescales involved are much shorter.

‘Therefore, it is not worth a company investing significant amounts of time and money in a scheme that is potentially liable to be investigated, because by the time it is launched, the Inland Revenue could be aware of it and ask for legislation to be changed to block the scheme.’

For Paymaster General Dawn Primarolo, this is exactly what the new guidance is intended to achieve.

The disclosure rules, announced earlier this year in the Budget will, according to the Inland Revenue, provide earlier information about potential tax avoidance schemes, enable the Government to make a swifter and better-targeted response and deter the creation of contrived and artificial schemes whose main purpose is to avoid tax.

Primarolo said: ‘The disclosure rules are a vital part of the battle against tax avoidance and will help stop the small minority of individuals and businesses who abuse the tax system at the expense of those who pay their fair share.

‘The guidelines have been developed in consultation with business and tax advisers and will make it easier for them to comply with the new rules.’

Put simply, there are areas where experience shows the Exchequer to be at greatest risk of serious tax avoidance and the rules have been developed to tackle them. The disclosure rules are contained in sections 306-319 of the Finance Act 2004, with further detailed rules in:

  • The Tax Avoidance Schemes (Information) Regulations 2004;
  • The Tax Avoidance Schemes (Promoter and Prescribed Circumstances) Regulations 2004; and
  • The Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2004.
  • The guidance is available on the Inland Revenue website at www.inlandrevenue.gov.uk/aiu/index.htm

    Disclosure Q & A

    Full details that will confirm whether personal leasing schemes are affected by the new rule are expected to be issued later this year, but there are already some indications:

    What is covered

    The rules apply to arrangements which have as a main benefit the gaining of a tax advantage.

    The tax advantage referred to must be in respect of Income Tax, Corporation Tax or Capital Gains Tax. There are separate disclosure rules concerning VAT avoidance. These are not covered by this guidance.

    Only arrangements that involve certain products require disclosure. They are:

    Financial Products.

    The financial products included in arrangements that need to be disclosed are:

  • A loan
  • A derivative
  • A stock loan
  • A share
  • Anything that in accordance with UK accounting practice is in substance a loan or lending of money

    Products Excluded

  • Assets held within an ISA account
  • Assets held within a PEP
  • Anything accounted for as a finance lease

    Employment Products

    Arrangements Included:

    Notifiable proposals or arrangements will involve one or more of the following:

  • Securities or associated rights
  • Payments to trustees and intermediaries
  • Loans

    Arrangements are notifiable even if any payments within them are to a person other than the employee. Payments for this purpose have a wide definition and include transfers of assets and anything which increases the value of an asset or reduces a liability.

    Securities and associated rights include:

  • Securities
  • Interests in securities
  • Securities options
  • Any right derived from securities
  • Anything whose value or amount is calculated by reference to one or more of the above

    Specific Exclusions

  • Approved share schemes and EMI
  • Payments to trusts established for the purpose of approved pension schemes, share incentive plans, SAYE schemes or CSOPs

  • For further details, visit: www.inlandrevenue.gov.uk
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