HMRC consults on 'serial' avoidance penalties

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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: [email protected] before 12 March 2015.

Rebecca Cave is the author Tax Rates and Tables 2014/15 published by Bloomsbury Professional.

Rebecca Cave
Tax Writer
Taxwriter Ltd
Columnist
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02nd Feb 2015 10:11

I wonder if they will actually listen to our responses this time...

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02nd Feb 2015 10:53

Joint and several

The issue has always been that those involved in selling tax avoidance schemes get away scot free with their fat fees regardless of whether the scheme works or not, leaving the client holding the baby.  The law needs to be changed to make all persons involved in the selling of schemes jointly liable for the tax when it all goes wrong.

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02nd Feb 2015 11:03

Tax Schemes

Yet more complication in the tax system.

It's about time that a flat tax system was put in place and then severe penalties for not complying.

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By MH
02nd Feb 2015 11:13

The author's use of the term "tax evasion" to describe a failed tax avoidance scheme is disappointingly inaccurate.  How can the public, or politicians, be expected to appreciate the difference if the technical press does not. 

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02nd Feb 2015 11:21

What was the point

of HMRC asking for the disclosure of tax avoidance schemes, saying yes that is ok then using the media to discredit the people using them.

This all smacks of HMRC can't be bothered to use the law as it stands. It wants CE powers to do whatever it likes when it likes. Unfortunately HMRC haven't got the staff to be able to handlle those sort powers.

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02nd Feb 2015 11:27

Do taxpayers, advisers & HMRC need them?

In short, no.  Does our current government?  Yes as they want to try refuting the opposition claim that they are soft on tax avoidance.

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02nd Feb 2015 16:39

Investment in UK PLC? not any more.....

This further legislation runs the real risk of serial entrepreneurs and HNWI not putting investment into UK businesses where there are "legitimate" tax breaks as set out in the tax legislation but which are then attacked under the anti-avoidance legislation. This latest proposal could spell the end of any investment into tax efficient investments which are legal but by the very careful media manipulation is now treated as "evasion" which is illegal.

The latest round of APN notices currently being issued in BPRA property investments serves to highlight this very issue. This will result in some investors being made bankrupt because they took advantage of a legitimate tax relief. 

What next? Tax relief on pension contributions, investments into EIS and SEIS companies. The feedback from clients is that they no longer trust the policies that have been put in place for legitimate tax breaks in the UK.

This is a sorry erosion of the legal rights in the UK and I feel this will not be the last on this witch hunt into tax efficient investments.

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By MH
02nd Feb 2015 16:33

Please note: "avoidance" is

Please note: "avoidance" is not illegal.  

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02nd Feb 2015 17:57

Evasion is often disguised as avoidance

MH wrote:

Please note: "avoidance" is not illegal.  

ISA's are legal because they are used as intended.

Charitable donations are legal if you give money to charity.

Pretending to give money to charity and obtaining relief is NOT using the tax relief as intended, and is illegal.

Many of the 'avoidance schemes' aren't 'legal' ...... else they would succeed in the courts.

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By MH
02nd Feb 2015 19:35

"Illegal" means "criminal".

"Illegal" means "criminal".  Tax evasion is illegal because it is a crime.  Tax avoidance is not criminal so it is not illegal.  If an avoidance scheme is found to be unsuccessful by a court, that does not make it a crime; it simply means that the taxpayer's analysis was incorrect.

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03rd Feb 2015 08:47

Blurring of the lines

MH wrote:
If an avoidance scheme is found to be unsuccessful by a court, that does not make it a crime; it simply means that the taxpayer's analysis was incorrect.
Surely that depends on whether their original analysis was legitimate in the first place.

I agree that failed avoidance schemes that simply hinged on a differing interpretation of the law then that failure is not an indication of evasion. But so many of the failed "tax avoidance" schemes seem to involve loans that will never be repaid and businesses that don't really exist. Are you really saying that such things should be classified as simply avoidance? It is the scheme providers marketing such falsehoods as simple "avoidance" that are blurring the lines. The issue is not that the schemes are failed tax avoidance, but that they were evasion dressed up as avoidance all along.

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02nd Feb 2015 19:23

I'm a serial tax avoider

I am a serial tax avoider, I admit it, and so should you and your clients.

For example.

My business is VAT registered so when I work out my "income" and "outgoings" I take off the relevant amounts of VAT before declaring them for business tax. I have deliberately arranged it this way since I was below the threshold for having to be registered when I first started and wanted to look bigger than I was to potential clients.

Another example

I list all the relevant costs I have wholly and exclusively incurred to perform my business to the letter of the law and claim those before working out my tax. I deliberately keep records of these transactions and the receipts for just such a purpose. I also deliberately find out what I can and cannot claim under the law - and I advise my clients what is applicable to their business.

 

As I see it, the moment you claim anything to reduce your tax liability from what has come into your business bank account or petty cash, even if a capital injection, you and I and all of us are TAX AVOIDERS and should feel no shame!

The Government should write better tax laws in the first place. It should stop trying to encourage this or that in the economy by way of tax reliefs, tinkering and opening up loopholes.

 

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02nd Feb 2015 19:34

@anndartnall

Agreed. There is nothing wrong with using reliefs as the law intended. If you were to make up imaginery business costs, and claim relief, then it would be evasion, not avoidance.

What is so very wrong, is claiming losses on a non-existent loan, claiming a company has made charitable donations when it hasn't, claiming losses from running a second hand car sales business when the business doesn't exist, etc.

None of these things are 'legal, yet the 'tax avoidance industry' claims they are! This is why I say that some (not all) avoidance is really evasion dressed up as avoidance.

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02nd Feb 2015 19:50

There's the rub

If they hadn't taken 'professional advice' it would be a criminal offence of evasion.

ie. if someone filled in their own tax return and claimed sideways loss relief on a non-existent loss from a non-existent business (eg. second hand car sales) then it would be evasion, and criminal!

Maybe the promoters of such schemes should be prosecuted for inciting others to pursue illegal activities?

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03rd Feb 2015 09:28

Anything

artificial is evasion pure and simple. How the intelligent community think they can actually get away with creating loans and business that don't exist is beyond me. Perhaps they think that under the banner of "avoidance scheme" instead of evasion they've got nothing to lose.

However I class IR35 in the same category. It's artificial and should be named "creative taxation". Yet there is no mechanism to weed out these artificial creative taxation schemes.

Why should a self-employed taxable entity have 20% deducted from its income (in this day and age)?

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03rd Feb 2015 10:25

Penalty for failed avoidance arrangement

I dont see why another penalty is needed.  If the failed avoidance is through a scheme, the taxpayer will already be penalised - he will have paid a fee to the scheme promoter and possibly additional fees to argue the merits of the scheme when HMRC started to enquire into it.  And this on top of the tax bill which was not avoided.

So, if the government want to see a reduction in schemes, they just need to show that they fail and the economics of using them will do the rest.

As to "serial avoiders" they are presumably already paying the penalty of having their tax affairs scrutinised and enquired into every year already?

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04th Feb 2015 08:58

Penalty for serial avoiders

I'm with Jon on this one: surely its better to tackle the promoters of such avoidance schemes than their clients?  Of course there is more to raise in penalties by tackling the taxpayer or am I taking a view of HMRC approach that is way too cynical?

Perhaps HMRC may wish to review the way in which they publicise their successes in overturning avoidance schemes?  Beyond nameing and shaming the odd 'celebrity' there is appears to be precious little in the press.

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04th Feb 2015 09:46

Alleula HMRc are getting some where

At last HMRc are getting their act together cracking down.

 

I can tell HMRC legislation is beginning to bite as the tax avoidance schemes are getting more and more desperate as legal loop holes are closed (Chris Moyles scheme was based on  selling cars and Gary Barlow had to pretend to be a singer :) .

I would love to know the basis of   Gary Lineker tax avoidance scheme, repairing TV's ? 

 

My message for HMRC keep going, a man recently said     “the broadest shoulders should contribute the most”.

 

Incidentally should the  BBC employee staff who use aggressive tax avoidance schemes, me thinks not.

 

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04th Feb 2015 10:23

Auntie BBC

AndrewV12 wrote:

Incidentally should the  BBC employ staff who use aggressive tax avoidance schemes, me thinks not.

Not sure if it is fair to place responsibility onto the Beeb.  Presumably employees tax affairs are private so the Beeb would only know about avoiders when information is made public (by for example HMRC).  And the question is then one of legality - avoiding tax is perfectly legal; getting a tax calculation wrong is also perfectly normal (even HMRC do it.  If there was any illegality, presumably the Beeb would only employ criminals who have served their sentence (rather than those presently in jail).

Next you'll be expecting government departments to clamp down on avoiders working for them.

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04th Feb 2015 11:35

I have to admit, i have no idea where it would end up, nor if any additional tax would be collected,  the debate would just be kicked down the road a few years.  It would be hard for the BBc to check up on employees,   it all seems one of those scenarios no  one asks and on the flip side no one tells.

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04th Feb 2015 11:40

It all seems as though the well off see it as there right, possibly duty to side step taxes by any means available,  I have to admit if England banned all footballers who used aggressive tax avoidance schemes we would have to play england school boys in full internationals, and it would not surprise me if one or two of them....... the rest writes its self.

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