The latest consultation considers granting additional powers to HMRC to tackle tax avoidance. The effects will be wide ranging and are designed to change attitudes towards tax avoidance so significantly that it will become a thing of the past.
HMRC has already been given significant powers that are making tax avoidance schemes an unattractive prospect. The last 12 years has seen the introduction of DOTAS, POTAS, the GAAR, Follower Notices and Accelerated Payment Notices amongst others. However, HMRC has identified a ‘persistent minority of promoters, advisors and other intermediaries’, who continue to make avoidance schemes available. The consultation contains ideas that will target both the enablers of tax avoidance and its habitual users.
The Government argues in the consultation that whilst the DOTAS and POTAS legislation places some burden on promoters of tax schemes, there are others such as financial advisors, introducers, agents, etc., who benefit from the sale of tax schemes but bear limited risk (eg accountants who receive introducer fees).
The Government is looking to introduce the notion of ‘an enabler of tax avoidance’, which can be described broadly as anybody in the supply chain that helps make the avoidance scheme happen. It includes middlemen who in some way assist with the delivery or maintenance of the planning, or provide financial assistance necessary for the scheme to work. For example, an accountant who introduces a client to a scheme promoter and receives a commission will be considered an enabler.
The wider definition of enabler is accompanied by proposals for new penalties that will apply to enablers. The consultation looks at when such penalties should be charged but the Government favours the defeat of a tax scheme as the trigger point.
There are two suggestions as to the amount of the proposed penalty: an amount equivalent to the financial benefit received by the enabler, or the amount of tax saved by the users of the scheme. The penalty will be charged on every enabler and so, if the amount of the penalty is the tax saved, the penalty would potentially be worth many times more than the loss to the Exchequer caused by the scheme. The suggestion is that an overall cap on the penalties that can be charged may be needed to counter this.
The consultation suggests that the new penalty provisions may need specific stand-alone information powers to aid enforcement.
The approach to charging penalties also looks to extend penalties against current users. At the moment, when HMRC successfully defeats a tax avoidance scheme, it has the effect of making the end user’s relevant tax return incorrect. The tax legislation provides for penalties to be charged for incorrect tax returns that result from careless or deliberate error but not where the taxpayer has taken reasonable care.
HMRC must show that a taxpayer has failed to take reasonable care before a penalty can be charged. In the past, users of avoidance schemes have argued that they took reasonable care by quoting the advice and information provided to them by the promoter. HMRC does not accept that reliance on such advice shows reasonable care but it remains difficult for HMRC to meet the burden of proof and show a lack of reasonable care in order to charge penalties. The Government is seeking to shift the burden of proof here to the taxpayer.
The net has been closing in on mass-marketed schemes for a long time. Here at Forbes Dawson we only provide bespoke tax advice driven by commercial considerations and have never peddled mass marketed schemes or taken commission from scheme providers. In cases where clients have approached us with schemes that they have become aware of we have generally steered them away from proceeding on the basis that they usually end up being very expensive – both in light of high fees on set up and to unwind the unsuccessful arrangements.
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