Lifting the Lid on Tax Avoidance Schemes – HMRC Consultation

“Lifting the Lid on Tax Avoidance Schemes” is HMRC’s most recent consultation coming as part of the barrage of media coverage and HMRC comments that have been circulating in recent weeks, contributing to the apparent crackdown on tax avoidance. We at C3Tax, a tax advisory boutique based in Leeds, blogged on various related topics over the past few weeks, particularly about the difference between avoidance and evasion, which appears relevant again with this consultation, but we won’t stir that particular debate up any further!

We thought it might be useful to summarise how HMRC are proposing to take action, other than commenting for the purposes of the media and turning the majority of the population against the supposedly small minority that avoid tax. You might say that this is the first step of HMRC putting their money where their mouth is.

Broadly, the consultation is focused on two areas. Firstly, the way in which HMRC is able to improve information provided to the public, and secondly the information that HMRC collect through, and the general effectiveness of, the disclosure of tax avoidance schemes (DOTAS) regime.

In order to achieve the former, HMRC are proposing a number of potential options, some more reasonable than others. One notable option being the introduction of rules similar to the mis-selling rules seen in the financial services industry, which most would agree seems very sensible. This might go some way toward preventing HMRC and the media from ostracising all those in the tax and accounting profession based on the actions of a small few that do indeed mis-sell.

The less sensible options include raising the profile of the almost propaganda like HMRC “Spotlights”, in which HMRC utilise some rather suspect scare tactics to guide ill informed individuals away from tax avoidance.

The second area of proposal within HMRC’s consultation is perhaps inappropriately named, “Enhancing DOTAS”. The proposals mainly involve expanding the level of detail required to be provided by promoters of disclosable schemes, and increasing the powers that HMRC may exercise in obtaining the information deemed necessary.

Increasing the information required to be submitted by promoters as part of the client lists requirement is a particular element of the proposals that the media have revelled in, claiming that this information will be used to “name and shame” users of tax avoidance schemes, but unsurprisingly the consultation doesn’t seem to back up this claim.

Lastly, amendments to the hallmarks that HMRC use to identify schemes that require disclosure will be amended and added to as a way of casting the net wider, and catching schemes that may not have previously required disclosure, no doubt stretching the limited staff at HMRC even further!

Clearly these proposals are still at the consultation stage, so may change, depending on the feedback that HMRC receive. The final form that they take and the effect that they have will not be seen for some time, but given the favourably drafted GAAR, and these limited proposals, tax avoidance is unlikely to be going anywhere soon.