HMRC reveals draft anti-abuse legislation
The Revenue has revealed draft clauses for the Finance Bill 2016 concerning HMRC criminal powers, new penalties for those falling foul of the GAAR and measures to help tackle serial tax avoiders.
On the tax administration front the Revenue has put out policy papers on civil sanctions for enablers of offshore tax evasion, criminal offence for offshore tax evaders, a new threshold condition for promoters of tax avoidance schemes and a serial avoiders special regime.
In addition it has revealed policy papers on corporation tax anti-hybrid rules, penalties for the General Anti-Abuse Rule (GAAR) and the extension of new data-gathering powers.
This legislation applies to individuals and businesses who deliberately assist taxpayers to hide assets, income and gains offshore.
The penalty applies where the enabler’s behaviour was deliberate and the evader has received a penalty relating to offshore tax non-compliance, either through deliberate behaviour or because they failed to take reasonable care.
According to HRMC the measure, included in clause 67, will reduce non-compliance with the tax system by deterring individuals and businesses from deliberately assisting taxpayers who use another tax jurisdiction and don’t declare the tax they owe.
The measure was announced at Budget 2015; a consultation followed on 16 July and closed on 8 October. It will now be included in FB 2016.
As part of its ongoing anti-abuse programme, HRMC has also put forward legislation that provides a new criminal offence for those who have income or gains outside of the UK and evade their UK income tax or CGT responsibilities.
The offence does not require the prosecutor to prove intent and will not apply retrospectively, but will first apply in respect of the tax year in which the offence is introduced. For example, if the offence comes into effect in September 2017 then returns filed in relation to the tax year 2017 to 2018 would be the first to potentially fall within the scope of the offence.
The measure was first consulted in August 2014, and a second consultation was published on 16 July 2015 before closing 8 October this year.
As revealed in draft clause 70, legislation will be introduced in FB 2016 to insert new sections into the Taxes Management Act 1970 - sections 106B to 106H.
Following a consultation that closed in October 2015 this legislation will enable the Revenue to consider issuing conduct notices to a broader range of promoters under the Promoters of Tax Avoidance Scheme (POTAS) regime. It will have effect from the date of Royal Assent to Finance Bill 2016.
The new threshold condition, in draft clause 64, relates to promoters who have marketed multiple tax avoidance schemes that are regularly defeated. Three such defeats over an eight-year period will trigger the threshold condition and bring the scheme promoter into consideration for a conduct notice. Where there are multiple users of a defeated scheme, a scheme will be defeated if litigation is finally found in HMRC’s favour or 75% of the scheme users agree with HMRC that the scheme does not provide the asserted tax advantage.
The final tax administration document, announced at March Budget 2015, applies to taxpayers who repeatedly use tax avoidance schemes.
The government will legislate to provide that HMRC must issue a notice to the user of a tax avoidance scheme which HMRC has defeated. The notice will cover a five-year period, placing an annual reporting requirement on the taxpayer and warning that if HMRC defeats any further tax avoidance schemes used during that period, the taxpayer will face a series of increasing sanctions, including penalties, publication of the taxpayer’s details and denial of access to tax reliefs.
The measure, included in draft clause 63, will have effect on and after 6 April 2017.
Taxpayers who use tax avoidance schemes before the date of Royal Assent to Finance Act 2016 but which HMRC defeats on or after 6 April 2017 will be issued with warning notices, unless they advise HMRC before 6 April 2017 of their firm intention to relinquish their position and settle their case.
Taxpayers who use further avoidance schemes while under warning which HMRC defeat, will become liable to a penalty of 20% of the understated tax and subsequent defeats will result in increasing penalties to a maximum of 60%.
This legislation in draft clauses 60-62 will introduce a penalty of 60% of the tax due, which will be charged in all cases successfully tackled by the GAAR.
Announced at March Budget 2015, the government will also make “small changes” to the GAAR’s procedure to improve its ability to tackle marketed avoidance schemes.
Legislation will be introduced in FB 2016 and will be triggered when a taxpayer submits to HM Revenue and Customs (HMRC) a return, claim or document that includes arrangements which are later found to come within the scope of the GAAR.
The GAAR procedure will be amended such that a GAAR Advisory Panel opinion will enable counteraction of the same arrangements by other users. The GAAR procedure will also be amended to enable a “protective” assessment of tax, to align the GAAR procedure with the overarching enquiry framework.
According to HMRC, this measure applies to business intermediaries and electronic payment providers who operate digital wallets.
Since new powers were introduced in the FA 2013, new payment methods and innovations have arisen such as digital wallets.
Legislation will be introduced in FB 2016 to amend Schedule 23 to the Finance Act 2011 by adding two new categories of data-holders. This will allow HMRC to issue notices to business intermediaries and to electronic payment providers operating digital wallets requiring them to provide data.
These measures will have effect on and after the date that FB 2016 receives Royal Assent and secondary legislation will be made by the end of the summer 2016.
This legislation neutralises the tax mismatch created by the hybrid arrangement by changing the tax treatment of either the payment or the receipt, depending on the circumstances.
The rules work whether both or just one country affected by the arrangement have introduced the OECD rules.
A series of examples illustrating the application of the hybrid mismatch rules will be published on 22 December 2015.
The measure applies to payments made on or after 1 January 2017 involving hybrid entities or instruments which give rise to a hybrid mismatch outcome.
Rebecca Cave will shortly be producing a report for our sponsor Keytime on what the new Autumn Statement and Finance Bill 2016 measures will mean for small businesses.