HMRC has published draft legislation proposing tougher measures and greater powers for those using and promoting aggressive tax avoidance schemes.
The department this week published draft clauses alongside a document detailing responses to its autumn consultation paper, Raising the stakes on tax avoidance.
The new measures will come into force once the Finance Bill 2014 receives Royal Assent this summer.
The draft legislation arrived shortly after Prime Minister David Cameron voiced criticism at the World Economic Summit in Davos of “clever accountants” who help companies navigate around legitimate tax systems.
UK200Group member from Harwood Hutton and former tax inspector Cormuc Marum responded: “Accountants and lawyers do not ‘bend the rules’; they spend all of their time helping clients comply with the rules. David Cameron and the other politicians need to pass the tax laws they consider appropriate and businesses will not change their policy one jot – they will continue to apply the law of the land.
“That is simply what they have done in the past and that is simply what they will do in the future. It’s the only ‘proper way’ that works. If, currently, the ‘wrong amount’ is being taxed, responsibility lies squarely with the politicians.”
Griping from the profession aside, the legislation is poised and ready to go, and the consultation responses shows that the government is standing firm on many of the points raised including a refusal to delay pre-emptive penalty payments until a scheme is overturned at upper tribunal.
Here is an overview of the anti-avoidance measures that will be enacted in the Finance Act 2014.
The draft clauses that were published set out the conditions surrounding accelerated payments, under which users of tax schemes that have been defeated at tribunal would have to make an up-front tax payment.
Under the proposals, accelerated payments would be linked to follower notice telling users that the scheme they’re using is similar to a case already decided in court or tribunal.
CIOT director of tax policy Patrick Stevens, said that the measure should be welcomed, as long as it targets real, aggressive avoidance schemes and not, for example, a local dispute.
"Getting taxpayers to pay up front will encourage them to either settle or fight the case - either way, to sort it out. We think that this is sensible and reasonable provided it's aimed at things it ought to be. The caveat we would apply to this is that it should only apply to blatant tax avoidance schemes," he said.
Gabelle tax consultant Isobel Clift added that the implications of accelerated payments will be “quite significant” and could have a negative effect.
“If you are a promoter and your client has to repay this money to HMRC, they’re going to go back to you and say ‘I’ve got this tax bill and these penalties, what are you going to do about it?’
“There’s nothing wrong with good, careful planning that’s within the legislation, but these measures will see more people shying away from aggressive planning,” she said.
In addition, the consultation includes proposals to include dispuited tax associated with schemes subject to DOTAS and taxpayers being investigated under the new GAAR.
As announced in Budget 2013, HMRC will be able to issue conduct notices to promoters if they trigger a “threshold condition”.
The notices can last for up to two years and the promoter has a right of appeal. They will permit HMRC to request further information on schemes disclosed under DOTAS on top of information already provided.
The promoters can be monitored for any breaches of their notice and will be subject to new information powers and penalties that will also apply to intermediaries who continue to represent them after monitoring commences.
The monitored promoter can be named by HMRC with details about how the notice was breached. Monitored promoters are subject to penalties for non-compliance up to £1m.
Those subject to the regime will have to inform their clients and intermediaries that they are being monitored by HMRC.
Stevens said that this measure will be a positive in dealing with boutique firms that specalise in aggressive avoidance schemes. He warned however that the provisions must not catch reputable firms in their net.
"The small population of boutique firms cause upset for ordinary tax advisers. Something does need to be done about these. However we need to make sure the provisions don't capture reputable firms of advisers," he said.
But the director of tax policy added that the CIOT were happy with the conduct notice concept.
"Conduct notices are a real improvement over original proposals and quite cleverly done. It takes away any objections we previously had."
Where a tax avoidance scheme is found to be ineffective, supported by a tribunal decision, all scheme users will be issued with a notice to amend their returns to reflect the position.
There is a statutory time period of 90 days from the issue of the notice to do so.
They also have a choice to respond to HMRC with the reason why this does not apply to them. There is a tax penalty imposed where a taxpayer pursues litigation on the same scheme and is unsuccessful.
In spite of numerous responses arguing that the regime should apply only when test cases were decided at upper tribunal, the government the requirement should be triggered where a representative case is found in HMRC’s favour at the first-tier tribunal (or higher) and is not appealed further.
“Taxpayers involved in marketed and mass-use schemes very often do not pursue litigation beyond the first-tier tribunal and so setting the minimum level above this would restrict the application of the measure and reduce its effectiveness,” it said in the consultation response document.
The Tackling Market Tax Avoidance consultation runs until 24 February. In addition, the closing dates for comments on the draft legislation published under Raising the stakes on tax avoidance also runs until that period.