HMRC has published a new consultation, running until 12 March, which sets out proposals to tackle the "serial use" of tax avoidance schemes.
Strengthening Sanctions for Tax Avoidance proposes additional financial costs such as a surcharge for repeated use of schemes that fail, and additional reporting requirements on users of multiple schemes that fail.
The government admits to having changed the tax legislation on 42 occasions since June 2010 to deter tax avoidance.
Those changes included the introduction of: accelerated payment notices (APNs), follower notices, expanded DOTAS regulations, the promoters of tax avoidance schemes (POTAS) regime and the general anti-abuse rule (the GAAR).
In spite of this huge pile of anti-avoidance provisions, many of which HMRC has only recently started to use, such as the APNs sent to footballers, the government has proposed yet more in its latest policy publication.
This consultation, ending on 12 March, suggests increasing the penalties associated with “serial tax avoidance” and introducing a specific GAAR-related penalty. It is also plans to allow the publication of the names of serial tax avoiders who have repeatedly used tax schemes that fail, in a similar manner to the publication of details of deliberate defaulters.
In addition the government wants to change the thresholds at which the POTAS rules start to bite. If the promoter sells a significant number of schemes which are found by the courts to impose higher tax liabilities on the scheme user than expected, the promoter will fall within POTAS.
But the POTAS rules only came into effect from 17 July 2014 (FA 2014, Schs 34-36). HMRC has hardly had time to use them yet. In fact HMRC is still consulting on regulations relating to the POTAS regime.
Let’s have a quick look at the powers HMRC already has regarding tax evasion (failed tax avoidance schemes):
- Taxpayers who use DOTAS registered tax avoidance schemes must declare the DOTAS number for the tax scheme on their tax return
- If a DOTAS number has been declared and the tax return is under enquiry, HMRC can send the taxpayer an APN to demand payment of the avoided tax
- Where HMRC win a tax case (at any level of the courts including first-tier tribunal), and that case has become final (won’t be appealed), HMRC can rely on that case decision to issue Follower Notices to taxpayers who have used “similar” tax schemes to avoid tax
- Once a taxpayer has received a Follower Notice, HMRC can issue an APN to demand the tax avoided.
There are penalties for failing to comply with the APN or for failing to declare a DOTAS number when required.
Where HMRC can’t pin the taxpayer down with a follower notice or an APN, it can use the GAAR to challenge the tax arrangements. If those arrangements are found to be “abusive”, the taxpayer has to pay the tax due plus interest. There are no specific penalties attached to the GAAR as the taxpayer can be penalised under the normal penalty regime for errors in the return.
Note the GAAR regime only came into effect on 17 July 2013, and to my knowledge no cases have been considered by the GAAR panel, and hence no tax arrangements have been judged to be abusive under those rules. In fact HMRC has just issued revised guidance for the GAAR, so it really hasn’t bedded in yet.
So do we really need more penalties and more tax avoidance laws? Should HMRC not first learn to use the tools they have?
You can send your views on this consultation email to: firstname.lastname@example.org before 12 March 2015.
Rebecca Cave is the author Tax Rates and Tables 2014/15 published by Bloomsbury Professional.