HMRC has today published an open consultation document which outlines plans to enforce tougher penalties on the small minority of tax agents, intermediaries and others who continue to enable tax avoidance via the promotion of schemes. The publication of this consultation document follows Prime Minster Theresa May’s recent promise to reduce tax avoidance.
The new rules proposed could bring a wide range of individuals and companies involved in the avoidance supply chain, who currently face little risk, into the scope of a sizeable penalty if HMRC ‘defeat’ the scheme they were enabling.
A fine of up to 100% of the tax understated by the user to whom the enabler has provided the services could be levied by HMRC. Where an avoidance scheme has been marketed to a wide population HMRC is considering introducing a maximum, or a cap, on the penalty enablers involved could receive.
HMRC’s ‘defeat’ of the avoidance scheme the enabler is involved in will be the trigger for applying the proposed penalties.
HMRC has suggested that a relevant ‘defeat’ of a tax avoidance scheme occurs when:
- There is a final determination by a tribunal or court that the arrangements do not achieve their purported tax advantage, or, in the absence of such a decision there is agreement between the taxpayer and HMRC that the arrangements do not work
- The arrangement has been counteracted by the General Anti-Abuse Rule in FA 2013
- The arrangement has been given a Follower Notice under Part 4 of the Finance Act 2014
- The arrangement is notifiable under the Disclosure of Tax Avoidance Schemes regime (DOTAS) or VAT disclosure regimes
- The arrangement has been the subject of a targeted avoidance-related rule or unallowable purpose test contained within a specific piece of legislation or regime.
The Government has also suggested including the option of ‘naming and shaming’ enablers who are subject to the new planned penalty in the interest of ‘alerting and protecting taxpayers who play by the rules’.
HMRC has proposed to broadly base the definition of what constitutes an enabler on the criteria outlined within the 2015 consultation ‘Tackling offshore tax evasion: Civil sanctions for enablers of offshore evasion’, specifically tailored to tax avoidance. Included in the definition are the below:
- Acting as a ‘middleman’
- Providing planning and bespoke advice
- Delivery of infrastructure
- Maintenance of infrastructure
- Financial assistance
A number of safeguards have also been suggested within the consultation document to protect those who are ‘unwittingly party’ to enabling avoidance, but would be included in the wide scope of the definition outlined above. HMRC has suggested that the approach taken in the DOTAS legislation provide a model for ensuring that the new proposed rules only apply in appropriate cases.
The open consultation closes on 12 October 2016, following this HMRC will publish a response document and any legislation proposed to be introduced on this topic in future finance bills.
Edwin Coe will be contributing to the consultation process, primarily to seek to ensure the safeguards suggested are fit for purpose and that the new proposed sanctions are not abused by HMRC.
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