Anti-tax avoidance rules will 'swamp' Revenue

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The "Big Four" accountancy firms have warned that the Inland Revenue will be swamped by planned regulations unveiled last week to crack down on tax- avoidance schemes.

The Revenue has underestimated the workload the new rules will create when they come into force on 1 August, they say.

Chancellor Gordon Brown wants to boost tax revenues by closing loopholes used by accoun- tancy firms to help their clients save billions of pounds in tax.

The Revenue is setting up a new tax-avoidance unit, made up of existing employees and external appointments, to track these company schemes. But a spokeswoman admitted that it had not recruited anyone yet.

Under the draft regulations, accountancy firms will have to declare any new scheme they have devised for clients within five days, or be fined. But accountancy firms say the regulations do not make it clear what they must disclose.

John Whiting, a tax partner at PricewaterhouseCoopers, said: "If there is any doubt, we will send the plans to the Inland Revenue. We will be sending a haystack of disclosures, leaving them looking for a needle."

Another tax partner said the Revenue won't be ready for the workload and that it could cause tensions. "The Inland Revenue will believe accountants and lawyers are trying to conceal things when they submit so much information," he commented.

Partners in the accountancy firms estimate that it will cost each of the Big Four £1m extra a year to comply with the new regulations.

The rules on disclosure will help the Government identify which tax schemes it should close down. But accountants have accused it of using "naming and shaming" tactics by leaking names of targeted companies - such as Vodafone and Ernst & Young - to the media.

Loughlin Hickey, KPMG's head of tax, said that aggressive and burdensome tax-compliance rules could hit investment in the UK.

"It's a bit like Chinese water torture. After a while, people might say their head hurts and they can't be bothered. Wealth creation might start to move elsewhere. Naming and shaming by the Inland Revenue is worrying if it represents a deliberate policy."