As published on step.org/industry-news, Thursday 22 July, 2021.
HMRC has published further proposals designed to clamp down on promoters of tax avoidance arrangements, as part of a series of announcements of legislative measures to be included in Finance Bill 2021-22.
The measures were outlined in a consultation held earlier this year, to which STEP responded. Now HMRC has published the detailed legislation to implement its plans, subject to technical consultation.
HMRC is to be granted four new powers under the proposals. First, it would be given the ability to seek freezing orders where HMRC is about to issue or apply for a penalty under anti-avoidance legislation, to prevent promoters from dissipating or hiding their assets before paying.
Second, it would be able to impose significant additional penalties on UK entities that act on behalf of offshore promoters. The proposed changes would create a liability on promoters' UK associates, to penalise them for assisting or facilitating the offshore promoters' activities. Some stakeholders expressed concerns about the disproportionate effect of smaller penalties under the promoters/disclosure of tax avoidance schemes regimes, which could potentially lead to a much higher penalty: up to the total fees earned by the scheme. To address this, the new legislation adds the extra condition that the UK entity must have incurred total anti-avoidance penalties of at least GBP100,000 before being liable to an additional penalty. This threshold would not apply to 'enabler' penalties.
Third, HMRC would have powers to present winding-up petitions to the courts for companies 'operating against the public interest.' This could include companies that do not comply with their obligations under the anti-avoidance regimes or that sell tax avoidance schemes that do not deliver the tax benefits promised and that leave scheme users with large additional tax bills.
Finally, HMRC would be able to name promoters and give details of the way they promote tax avoidance and the schemes they promote, to warn taxpayers of the risks and help those already involved to get out of avoidance arrangements. The entities being named would be given 30 days’ notice to make representations about why they should not be named. After this point, there would be no appeal against this power and promoters who feel they or their schemes have been wrongly named will have to use judicial review to challenge HMRC.
In the consultation outcome document, Financial Secretary to the Treasury Jesse Norman says the new powers are not designed to target 'the majority of tax advisers, who adhere to high professional standards'. Instead, they will be 'tightly focused on the most egregious promoters of tax avoidance schemes'.
According to Norman, HMRC's 'vigorous' activity has forced about 25 significant such promoters to exit the business since 2014. HMRC now estimates that only 20 to 30 promoters remain, often based offshore and primarily focused on mass-market avoidance schemes.
Responding to the consultation outcome, Emily Deane TEP, STEP Technical Counsel, says: ‘STEP welcomes the new measures and supports HMRC targeting the most persistent and determined promoters and enablers of tax avoidance who cause significant damage to the economy.’
However, Deane also recommends ‘caution over the scope of the measures’ and says, ‘STEP would urge that the powers only be used to target those deemed as “promotors” rather than also including other individuals involved in the supply of arrangements. STEP will be commenting on the proposed legislation and looks forward to working with HMRC on this issue.’