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Taxing issues

It's the job of the independent financial adviser (IFA) to help offer a productive home for your savings and investments in a secure environment. There are no crystal-ball guarantees but that expert advice and experience can pay real dividends.

Keeping your investments safe used to mean just that; making sure such schemes made financial sense, kept your money secure and hopefully, provided a reasonable return. As the potential rewards increase, so do the risks, normally. It is the IFA's responsibility to make sure investors are aware of what is being taken on. Now the growing powers of Her Majesty's Revenue and Customs mean that keeping your money safe is also making sure it is not being invested in a way that is likely to fall foul of the taxman.

At the same time as taxpayers were celebrating the Budget and the brave new world of pensions, Britain's chancellor George Osborne was announcing several new measures to deal with tax evasion. The first opening shot came in the pre-Budget publicity when it was leaked that those involved in legal battles over tax-avoidance schemes would have to pay the dispute sum before the legal arguments began. Previously, no money went into the treasury coffers until the case was settled - and that could take months, even years. Such changes hardly had any relevance for Joe Public, who have always looked rather enviously and distastefully as the ingenious ways the super-rich think up to avoid paying tax they can well afford.

But the taxman was only flexing his muscles and there was an immediate hostile reaction when the HMRC was given even more sweeping powers. It is proposed that the taxman will have the right to plunder the bank accounts of individuals who are believed to owe more than £1,000. What worries many is that HMRC does not have a great track record in providing the correct tax codes, admitting mistakes and correcting them - claiming it is the individual's responsibility to decipher that tax code and make sure they are paying the correct amount of tax. Often, it is only the intervention of the media and the threat of publicity that gets the taxman to back down.

Many feel that any tussle with the taxman is not a fair fight. You may win the odd battle, but there's only going to be one winner of the war! the Chancellor was not finished.

When George Osborne was in Washington DC for the spring meeting of the International Monetary Fund and World Bank, he declared: "It is totally unacceptable for people not to pay tax that is due and the message will be clear now with this new criminal offence that if you are evading tax offshore, there is no safe haven and we will find you." Previously, to prosecute those hiding money offshore, the taxman had to prove there was an intention to evade paying tax. Under the new criminal standard, all that will be required is prove the money was taxable and undeclared. This less testing requirement is accompanied by harsher fines and increased jail sentences. There is a growing number who feel that natural justice is being overturned in the quest for tax revenue. Much of HMRC's strategy and regulation appears to suggest the individual is guilty until able to prove his or her innocence. The pages and pages of tax rules, combined with HMRC's interpretation of those rules and its official status, tend to put the individual on the back foot. The initial reaction to HMRC's proposed raid on individual's bank accounts was that the move was draconian. The taxman responded by saying it would not withdraw money for anyone's account without making several attempts to contact the debtor - and they would leave a minimum of £5,000 in the account. Oh, that we all have so much money in our bank accounts. "Given the way HMRC continually fails to deal with taxpayers properly or fairly, this provision is hugely worrying. To introduce such draconian measures without proper safeguards could well lead to an abuse of power," insisted the Low Incomes tax Reform Group. "Besides, it would allow HMRC to steal a march on other creditors in the event of a bankruptcy, something which was abandoned long ago with the abolition of the Crown preference in bankruptcy proceedings." The government's period of consultation before these new powers are introduced next year is likely to take note of these concerns. The proposed increased jail sentence is the measure making this a headline issue. The real issue, though, is about HMRC getting its own house in order in the first place, then being more willing to admit that it might have made a mistake and not blaming individuals for failing to understand and correct complex tax calculations. The worry is that the more powers it has, the less likely HMRC will be to take a conciliatory stance in disputes. Of course, individuals and their financial advisers have a duty and responsibility to get it right, but it can be a complex and confusing business, especially with the repeated and regular changes to rules and regulations. "Keeping things simple" would appear to be the answer, but that has never been the way in the financial world.

* Darren McKeever (dmckeever@ wwfp.net) is Northern Ireland adviser of Worldwide Financial Planning, which is authorised and regulated by the Financial Services Authority. For a free, no obligation initial chat about your individual finances, call 028 68632692, e-mail info@wwfp.net or click on www.wwfp.net. Follow us on Twitter: @ WorldwideFP.