HMRC targets tax scheme promoters
In the papers accompanying Rishi Sunak’s Budget speech, there were some rather vague comments about attacking promoters of tax avoidance schemes. Philip Fisher digs into the documentation to find out what is going to happen.
At the end of last week, HMRC published two policy documents: one that fleshes out the details of the proposed regime and the other a call for evidence on “raising standards in the tax advice market”. These are wide-ranging and potentially both harsh and controversial. We are also promised a call for evidence on tackling disguised remuneration.
According to Financial Secretary to the Treasury, Jesse Norman MP, “Tax avoidance schemes are no longer mainstream products, and their creation and promotion have moved to the more disreputable and shadier end of the market. That targeting has also changed, away from bespoke arrangements designed for the wealthy and towards mass-market schemes targeted at people on middle incomes, with more limited access to good advice.”
The latest initiative focuses on “tackling the promoters and enablers who have used every opportunity to get around tax disclosure rules, often leaving clients high and dry with large tax bills”.
Nowhere in the policy paper is an acknowledgement that tax avoidance remains legal, nor is it distinguished from tax evasion, which most certainly is not. Instead, it emphasises a desire to raise public confidence by ensuring that “those who pay tax will not be disadvantaged by those who do not”.
“Tax avoidance is bending the tax rules to gain a financial advantage never intended by Parliament,” asserts the paper’s executive summary. “It involves contrived and artificial transactions that serve little or no purpose, other than to reduce the amount of tax someone pays, and it deprives important public services of the funding they need.”
This completely re-defines tax avoidance, which had previously been understood to be a legal and generally acceptable method of minimising tax liabilities.
Apparently, today’s promoters are rarely members of professional bodies and they will take every opportunity to sidestep the rules, promoting schemes the vast majority of which “do not work” – ie are presumably ineffective.
Promoters seemingly fail to notify HMRC under the disclosure of tax avoidance schemes (DOTAS) regime and rarely tell taxpayers that they are in an avoidance scheme, nor do they explain the risks.
The point about mass marketing to those on middle incomes is repeated, inadvertently leading readers to conclude that HMRC had no problem when the beneficiaries of such schemes were exclusively wealthy.
HMRC has a number of weapons that it wishes to deploy.
The tax department plans to work with partner bodies including the Advertising Standards Authority, the Insolvency Service and the Financial Conduct Authority. It also expects to work closely with accountancy and taxation bodies to maintain the Professional Conduct in Relation to Taxation standards and refer miscreants under the relevant memorandum of understanding between each professional body and HMRC. The assumption is that reports of misconduct under these arrangements will lead to investigation and potential exclusion.
HMRC said it planned to prevent avoidance by setting up a team to contact “customers” early. This will allow taxpayers to leave avoidance schemes before they have built up significant tax liabilities.
There will be communication plans to educate taxpayers to stop them from entering schemes in the first place. This will include an awareness campaign targeting certain sectors such as IT, medical and oil and gas built around a message headlined “Ten things a promoter will not always tell you”…
The anti-avoidance points for these communities are:
- most schemes do not work
- it could cost you more than you bargained for
- you may have to pay significant legal fees
- you could face a criminal conviction
- you could face publicity as a tax avoider
- your scheme is never approved by HMRC
- 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
- you’ll have to pay the tax upfront anyway.
HMRC is determined to track down the 20-30 active promoters it has currently identified and will use criminal powers where applicable. It will also turn to international information agreements where promoters are based offshore. How this will be affected by Britain’s withdrawal from European arrangements remains to be seen.
HMRC’s plan comprises the following strategy:
- enforcing the legal obligations of promoters
- targeted and intensive enquiries into promoters, enablers and their business entities
- using its full range of criminal powers and civil sanctions for those who fraudulently design, promote or market tax avoidance schemes
- working closely with partner bodies
- running an awareness campaign on tax avoidance and helping taxpayers spot avoidance
- making it easy to report tax avoidance schemes and promoters
- using real-time information (RTI) and early interventions to help taxpayers out of avoidance.
This will be supported by actions including:
- strengthening HMRC information powers
- minimising delays to the imposition of enabler penalties
- empowering HMRC to act faster to obtain DOTAS information
- equipping HMRC to stop promoters from marketing and selling avoidance schemes more effectively
- ensuring promoters fulfil their obligations under the Promoters of Tax Avoidance Scheme (POTAS) regime
- changing the POTAS regime to prevent spurious legal challenges and clarifying GAAR rules for avoidance using partnership structures.
Additional policies to be introduced following this year’s Autumn Budget will be designed to:
- disrupt the business model of promoters
- disrupt the economics of tax avoidance
- give HMRC additional powers to tackle promoters
Other areas of concentration
This is a very long document and those who consider that they might be impacted are advised to read it in detail.
HMRC is clearly keen to attack not only promoters but also those that they term “enablers” and the avoidance supply chain, giving a number of examples of what it considers to be unacceptable behaviour.
HMRC’s plan to tackle promoters and enablers comes under the snappy heading of “identify, investigate, challenge”. For the first of these, it is looking to whistleblowing members of the public to contact its counter-avoidance team or use the online fraud reporting form.
An example relating to a fake eco-investment scheme will help to concentrate the minds, since HMRC not only recovered a nine-figure sum but also sponsored a prosecution which left those that promoted the scheme serving prison sentences of up to 45 years.
War on tax avoidance
HMRC is going to war on tax avoidance.
If nothing else, there may be a need for all of us to change the semantics in future. What we have termed tax avoidance in the past, for example putting money into pension schemes or making annual gifts to family members in an effort to avoid inheritance tax, will probably need new less provocative terms.
Those who are involved as promoters or enablers of avoidance schemes might wish to consider their future behaviour and activities. With the threat of prosecution under criminal law and, on a lesser scale, exclusion from professional bodies, every accountant and tax adviser, not to mention solicitors, barristers and other professionals should take these aggressive proposals very seriously.