HMRC Consultation: Strengthening Tax Avoidance Sanctions and deterrents

24 August 2016

Last Wednesday HMRC published it’s latest consultation document focusing on the arena of tax avoidance.

We will be responding formally to the consultation in due course but for now here is a summary of the main points.


17 August 2016 - Consultation Document Published
12 October 2016 - Consultation closes
Later this year - Response document will be published
Future Finance bill - Legislative changes

Key Points

  • Increase sanctions against enablers of tax avoidance
  • Clarify what constitutes reasonable care
  • 2015 document 'Penalties - A discussion Document' referenced. Not to raise revenues. Proportionate to failure. Applied fairly so compliant customers are in a better position than the non-compliant. Provide a credible threat. Consistent and Standardised.
  • Accountancy Bodies and banks already have Rules and codes of practices. But it's the whole supply chain that presents the risks.
  • Who is an enabler? Includes anyone in the supply chain who benefits from an end user implementing tax avoidance arrangements. Company formation agents, banks, IFA's, Accountants, Lawyers, any other introducer including a user that gets a cash incentive for bringing in another user. Wider definition than in DOTAS and POTAS.
  • Not just avoidance. 2015 document 'Tackling offshore tax evasion: Civil sanctions from enablers of offshore evasion' referenced. Defines enablers. Acting as a middle man. Providing planning and bespoke advice. Delivery of infrastructure. Maintenance of infrastructure. Financial Assistance. Non-reporting.
  • Options for penalties - Favoured option is 100% of the tax avoided. Publish the names of enablers. Trigger is the defeat of the arrangement. No connection to penalties imposed upon users. May be necessary to consider a cap to the total penalties.
  • Both users and enablers of defeated arrangements may provide relevant information to identify other enablers and to ensure that any penalty on them is appropriately mitigated.
  • Appeals will be possible. Need to exclude the unwitting parties.
  • What constitutes reasonable care? Currently burden of proof lies with HMRC, could change that so burden of proof with taxpayer. Preferred option is to create prescriptive list of examples.  Arrangements having QC opinions does not mean reasonable care has been taken. Neither would bespoke advice if not provided by a financially disinterested party.
  • What is defeated tax avoidance? Propose to follow the same definition as set out in Finance Bill 2016. There is a final determination of a tribunal or court that the arrangements do not achieve their purported tax advantage. Caught By GAAR. A Follower Notice has been issued. Notifiable under DOTAS. Subject of a TAAR or an unallowable purpose test contained in a specific piece of legislation or regime.
  • Further ways to discourage avoidance. 'Real time' interventions. The Avoidance Lifecycle - Marketing - Firm Offer - Implementation - Self assessment - Enquiry - Settlement or Litigation. Require promoters to provide lists of all those to whom arrangements are marketed. Disclose introducer fees to clients. Provide clients with HMRC information. Notify HMRC re other parties involved in marketing. Penalties for not advising users that HMRC is challenging arrangement. Real time reporting on users to HMRC digitally. Users to certify in their self assessment they understand risks. SA return warning re arrangements not disclosed under DOTAS. Require promoters of Non-notified arrangements subject to a DOATS enquiry to provide full client lists.

If you are concerned about how this consultation may affect you or your clients then please do not hesitate to get in touch by calling 0203 039 3993.

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