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Stop notice penalty regime guidance sets out stringent penalty terms
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Stop notice penalties could hit £1m

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Where a tax scheme promoter fails to comply with a stop notice, HMRC can issue a penalty of up to £250,000, rising to £1m if the tax tribunal agrees.

14th Dec 2021
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HMRC’s output of publications on tax avoidance continues to expand. The latest pack introduces swingeing penalties for the failure to comply with stop notices. In addition, HMRC outlines rights under Article 6 of the European Convention on Human Rights, which has now been embodied into British law through the Human Rights Act 1988.

What is a stop notice?

Authorised HMRC officers can issue stop notices to any person they suspect of promoting arrangements that HMRC believe fall within the promoters of tax avoidance scheme (POTAS) rules. Such a person will become “subject to a stop notice” and their associates might also be included.

Once issued, a notice immediately requires recipients to stop promoting the arrangements covered. The legislation goes further, potentially obliging recipients to give a copy of the notice to other persons subject to it.

Penalties for failure to comply

The latest HMRC guidance on stop notices (CC/FS61 and CC/FS 63) addresses what happens when promoters fail to comply with stop notices. There are numerous other penalties that might be levied where advisers or others are found to have promoted schemes that constitute tax evasion or abusive tax avoidance.

Application

Penalties may apply where you are subject to a stop notice and:

  • Continue to promote arrangements of the kind described in the stop notice, or a proposal for such arrangements
  • Are the recipient of the stop notice and do not give a copy of the notice to any other persons who are subject to it
  • Are the recipient of the stop notice and do not give HMRC the required information about the other persons that are subject to it
  • Do not tell clients and intermediaries that you are subject to a stop notice and give them a copy of that notice
  • Do not send HMRC the quarterly returns required by the stop notice, or send a quarterly return that contains inaccuracies
  • Give HMRC inaccurate or false documents or information in support of an application to either suspend or withdraw a stop notice.

Promotion

A stop notice can be issued where an HMRC officer suspects that someone is involved with arrangements connected to tax avoidance schemes that are outside the law. Promotion includes involvement in design, selling, implementing, organising and managing the arrangements.

High penalties

The penalties that can be applied where individuals breach stop notices are quite eye watering.

If someone continues to promote arrangements after receiving a stop notice they can be charged a penalty of up to £100,000 (plus £5,000 for each person to whom the arrangement is promoted), rising to £250,000 (plus £10,000 per person) if they are also subject to a monitoring notice.

That is harsh but where an HMRC officer believes that £250,000 is inadequate, they can apply to the first-tier tribunal (FTT) to increase the penalty to £1m.

For failure to pass on a stop notice to others who might be subject, the penalty is £10,000 per person.

There is a further obligation to provide certain information about each person who should be receiving the notice. If this requirement is not met, HMRC can levy a penalty of up to £25,000 per person.

If the promoter does not notify clients and intermediaries of the stop notice as required in that notice, they can be subject to a penalty of up to £5,000 for each failure.

There are further penalties of up to £5,000 per offence for failure to send accurate and timely quarterly returns required by a stop notice, or providing false or inaccurate documents and information when applying to have a stop notice withdrawn or suspended. In the latter case, the penalty would be set by a direction from the FTT.

Article 6 human rights

As every tax adviser knows, penalties can be mitigated through co-operation, although it is also noted that there is no legal obligation to incriminate oneself or break silence.

Those involved in tax avoidance schemes are both advised to take professional advice (good news for our sector) and reminded that they have a right to appeal decisions or request review.

In addition, legal aid might be available in appropriate circumstances, although it is hard to imagine that many promoters of tax avoidance schemes would qualify.

Conclusion

Theoretically, these rules give HMRC draconian powers but, in practice, it is hard to imagine that even the bravest promoters would choose to ignore a stop notice.

It is to be hoped that, following years of effort by the government, the courts and HMRC to outlaw schemes of tax avoidance that are abusive or constitute evasion, very few accountants will become subject to stop notices or the associated penalties.

However, there is a professional need keep up with the latest legislation, if only because some clients might find themselves either directly or indirectly subject to the POTAS rules.

Replies (6)

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By Paul Crowley
14th Dec 2021 16:02

"advisers or others are found to have promoted schemes that constitute tax evasion or abusive tax avoidance."

Really?
abusive tax avoidance does not exist, it is just one man's opinion
Next thing you say will be that HM GOV immunisation should not be performed by 250 companies run by Phillipino directors

Even worse Politicians should pay stamp duty

But do not worry, I agree tax evasion should be punished by attending a lousy 10 Downing street party

Thanks (3)
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By Hugo Fair
14th Dec 2021 16:11

I'm no supporter of those who 'test the limits' of the rules, but ...
"Authorised HMRC officers can issue stop notices to any person they *suspect* [of promoting arrangements that HMRC believe fall within the promoters of tax avoidance scheme (POTAS) rules.]"

Since when did a "suspicion" translate into an automatic right for HMRC to act as judge & jury? Especially when, as Paul says, concepts such as 'abusive tax avoidance' aren't properly defined.

Thanks (3)
Replying to Hugo Fair:
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By Paul Crowley
14th Dec 2021 16:19

Sounds like ex parte mock judicials, as in HMRC decide all on their own
Given that HMRC lose just so many tribunals are they really capable of understanding what tax law really says?

Hate to say it but I would take a big four tax opinion over HMRC tax opinion every time

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Replying to Paul Crowley:
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By Hugo Fair
14th Dec 2021 16:35

Agree.
But in the meantime, they 'suspect' and start the clock ticking ... which quickly starts other clocks (as per related actions and 3rd-parties mentioned in article).

So how do you stop the clock if you disagree with HMRC?
Or do you have to stop all the individual clocks separately?

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By Justin Bryant
14th Dec 2021 17:36

"There are numerous other penalties that might be levied where advisers or others are found to have promoted schemes that constitute tax evasion.."

As far as I'm aware there are not numerous penalties for promotors of tax evasion schemes; only The The Proceeds of Crime Act 2002. I'm happy to be corrected if that's not the only financial penalty, but if that's right non-criminal tax avoidance can get penalized more than tax evasion for promotors, which seems daft.

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By AndrewV12
15th Dec 2021 09:19

Basically as nation were skint, fining creators of tax avoidance schemes is a lot more palatable than raising income tax, Vat, .....

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