HMRC and tax advisers flag avoidance risk
HMRC has published a list of ten things that a tax avoidance scheme promoter “won’t always tell you”, as the government seeks to highlight the “dangers” that people face when they sign up to a scheme.
“We are firmly on the side of the vast majority of taxpayers who play by the rules”, financial secretary David Gauke told an HMRC stakeholder conference this morning. The government had taken steps to clamp down on the “selfish minority” who practise avoidance.
“As a result, tax avoidance is now very high risk,” Gauke said. “On top of a substantial fee to join a scheme that will almost certainly fail a challenge by HMRC, tax avoiders will also have to pay the tax they dodged, plus interest and penalties.”
- “most schemes don't work,
- it could cost you more than you bargained for,
- you may have significant legal fees to pay,
- you could face criminal conviction,
- you could face publicity as a tax avoider,
- your scheme is never HMRC approved,
- you could be marked out as a high-risk taxpayer,
- HMRC is likely to beat your scheme in court,
- the risk is normally all your own, and
- you’ll have to pay the tax up front anyway”.
HMRC has begun to write to promoters potentially caught by new high-risk promoters rules. “If they don’t change their behaviour, HMRC could name them publically and fines might be imposed of up to £1m,” the department said.
A tax information and impact note on measures now set out in Finance Act 2014, allowing HMRC to issue conduct notices to promoters and monitor those who breach a conduct notice, could result in about 20 businesses being “designated”.
HMRC said today that the measures targeted “the small minority of tax advisers who are persistently uncooperative and opaque in their dealings with HMRC”.
‘Serious stuff for all involved’
HMRC’s announcement comes a day after tax barrister Jolyon Maugham invited fellow tax professionals to help him to develop a set of diagnostic criteria, or “badges of tax risk”, that a taxpayer might use to self-assess the risk of a proposed transaction.
“It's beyond doubt that many taxpayers find themselves involved, quite unwittingly, in tax transactions with a higher risk profile than they would choose,” Maugham told AccountingWEB.
“This has profound consequences for the exchequer – it leads to a substantial loss of tax – and for the taxpayer too. I am aware of marriages breaking down, taxpayers pushed into bankruptcy and even suicides. It's serious stuff for all involved, and I applaud all attempts to address the problem, including [today’s announcement].”
But HMRC would acknowledge that it is “not best placed” address this issue, Maugham suggested. He was “very keen” for people to comment on his proposal and engage in the debate.
“Anything HMRC says is susceptible to the response: 'Well, they would say that, wouldn't they?’ I think initiatives coming from taxpayer community are likely to be more successful, which is why I've launched the 'Badges of Tax Risk' project,” he added.
Maugham’s draft checklist focus on factors that indicate high tax risk. “In tax, as with other things, there is rarely such a thing as a free lunch,” he wrote. “The difference between tax efficient transactions and tax avoidance transactions is very often whether Parliament intended the tax result your transaction delivers.”
Several contributors have welcomed his initiative and some have suggested changes. Rebecca Benneyworth said a checklist could be “a very useful tool to support our clients”.
Tax campaigner Richard Murphy suggested the addition of a series of questions designed to help the taxpayer assess the suitability of the tax adviser. “We may not all be tax experts but we do have the ability to appraise those who claim to have that status. Just as some people in life are more risk averse than others, whilst some positively relish taking an aggressive stance on most issues, the same is also true of tax advisers,” he said.
Last week the Chartered Institute of Taxation argued, in response to a consultation on strengthening the disclosure of tax avoidance schemes (DOTAS) regime, that the link between accelerated payment notices and DOTAS resulted in “an increased incentive for unscrupulous promoters to try to circumvent DOTAS … and thereby mislead potential users of schemes”.
The CIOT added: “This therefore becomes very much a public protection issue, as well as causing problems for mainstream advisers whose clients are being targeted.”