HMRC to call out promoters of tax avoidanceby
HMRC will have extended powers to name people connected with promoters of tax avoidance – is this net too wide? Is the message about ineffective tax schemes reaching the right audience?
Nowadays, whenever there is a Budget or equivalent financial event, the government seems to issue yet another consultation or draft legislation directed against promoters of tax avoidance.
Draft Finance Bill 2021/22 includes provisions intended to highlight the activities of those attempting to promote and sell schemes designed to avoid or evade tax in ways that were never envisioned by the relevant legislation.
Few of those on the respectable side of the divide would have any objection to the naming and shaming of dodgy promoters, since they not only make our jobs more difficult by raising client expectations, but also tarnish our profession in the eyes of the general public.
However, the Chartered Institute of Taxation (CIOT) has some concerns about the latest proposals, which it has made public in its response to the draft legislation.
It sets out its stall in reasonable terms by stating that “The government is right to be taking a robust approach to those who continue to devise, promote or sell primarily mass-marketed tax avoidance schemes. There should be no place for such people and their schemes in the tax services market.”
Having said that, CIOT does have worries about the scope and extent of the powers available to HMRC under the draft legislation.
In particular, the ability “to publish information about tax avoidance schemes, persons suspected to be promoters of those schemes, those connected to them, and other persons involved in making the scheme available. The purpose is better to inform taxpayers of the risks of relevant schemes, so that they can identify and steer clear of the schemes or exit them.”
The rationale behind these powers is wholly fair, since they should put in place a regime that prevents many unwitting taxpayers from getting sucked into schemes that do not work and could lead them to great expense, not to mention anguish when the plans unravel.
Casting the net wide
The first moot point relates to whether the legislation should be restricted to attack only “the most egregious hard-core promoters” or go further.
The CIOT’s concerns are:
- That there is no requirement for any of the promoters of tax avoidance schemes (POTAS) hallmarks to have been met.
- The authorised officer merely has to “suspect” that a proposal or arrangements fall within the measure.
- As a result, HMRC could take advantage of this legislation in ways not currently envisaged.
- When HMRC gets things wrong, it is required to do no more than amend or withdraw incorrect or misleading information.
- The extent to which HMRC will implement internal governance procedures to control and restrict the application of the legislation is not yet clear but these should be very strong.
Some of these proposals deal more with theoretical problems rather than actual issues. For example, to date, it is not apparent that HMRC has named and shamed any taxpayer incorrectly and been obliged to withdraw or apologise.
Readers can decide for themselves the degree to which it is necessary to constrain HMRC from using measures of this kind unreasonably, attacking law-abiding taxpayers or advisers who could not be targeted in any other way.
Were this to happen, HMRC might face a bigger issue, with the prospect of civil action leading to compensation for losses suffered. Such a threat should be enough to guarantee due care.
One example given by CIOT is that the measure should not be used to publish the names of junior employees or small minority shareholders who had no (or only incidental) connection with the tax arrangements. It is neither clear that this would be covered, nor that HMRC would wish to take an action that would serve no purpose.
Perhaps not far enough
Refreshingly, the CIOT is even-handed in its response, suggesting that in one respect the application of this draft legislation may not go far enough.
This is with regard to the publication of information about rogue operators. There is a concern that if this is merely published on the government’s website and in documents that are not widely read and disseminated, many of those who might otherwise be dissuaded from entering schemes could be blissfully unaware of the risks involved.
While stopping short of recommending the use of adverts in the middle of prime-time TV (perhaps at half time in football matches?), the CIOT does very sensibly suggest the use of social media and the mainstream press supplemented by industry specific magazines, newsletters, webinars, professional websites etc., with the language used being appropriate for the medium rather than being very technical.
Going one step further, they also propose sending letters directly to known users of previous tax avoidance schemes.
Finally, if the legislation is ultimately implemented, it is suggested that there should be a review of its operation at the end of a set period of perhaps three or five years.
In conclusion, if this kind of action prevents illegal activity, it is to be commended. However, both the government and HMRC must ensure that these powers are only used when fully justifiable.