Tax avoidance clampdown: new powers
In our Accountants' Liability Update of 1 August 2014 we looked at how in recent years the Government has clamped down on tax avoidance schemes. Our Update focused on some of the new measures and strengthened powers introduced by The Finance Act 2014 namely Prescribed information, High risks promoters and Judicially defeated schemes. Further provisions introduced by The Finance Act 2014 (which came into force on 17 July 2014) gave HMRC the power to demand upfront payment of any disputed tax associated with avoidance schemes by issuing an Accelerated Payment Notice (‘APN’). Prior to the issue of APNs HMRC had to win a tribunal case before it could demand disputed tax but the new power removes the cash advantage to the tax payer of sitting and waiting for the outcome of a tax avoidance dispute. Though permission to judicially review the legality of APNs has been granted to investors in three partnerships promoted by Ingenious Media, HMRC has not placed a moratorium on the issuing of further APNs pending the Judicial Review hearing (expected to take place this summer). In July 2014, HMRC published a list of approximately 1,200 DOTAS (‘Disclosure of Tax Avoidance Schemes’) scheme reference numbers expected to receive APNs. HMRC announced in the March 2015 Budget that a further 21,000 APNs are planned up to March 2016 and it is believed HMRC has identified more than 40,000 cases where an APN may be issued. We await the outcome of the Judicial Review with interest. Given that the Government is reportedly looking to reclaim £7.1 billion of unpaid tax as well as clearing a backlog of approximately 28,000 tax disputes it is hardly surprising that HMRC is less than keen to give up this powerful weapon in its armoury.
Promoters of tax avoidance schemes
As for the promoters of tax avoidance schemes, the stakes were raised further by the Government in March 2015 following the introduction in The Finance Act 2014 (High Risk Promoters Prescribed Information) Regulations 2015 (which came into force on 27 March 2015) of new requirements for such promoters to publicise the fact that they are being monitored by HMRC, so that potential customers are aware of the risks of using them. This requirement builds on the power given to HMRC in The Finance Act 2014 whereby under its POTAS (‘Promoters of Tax Avoidance Schemes’) regime it can issue promoters identified as high risk with a Conduct Notice, which requires the promoters to take steps to change their behaviour. Under the new rules, if a promoter does not comply with the terms of the Conduct Notice, they will be issued with a “tougher” Monitoring Notice, and failure to comply with the conditions of the Monitoring Notice could result in fines of up to £1million. POTAS thresholds include failing to meet DOTAS; promotion of arrangements that are regarded by the GAAR panel as unreasonable; or failing to comply with an information notice.
In its most recent press notice on point (7 March 2015) HMRC reports that it “has already written to a number of promoters warning them of the consequences if they do not change their behaviour, and has also sent the first Conduct Notice, which requires a promoter to change its ways.” HMRC expects that few promoters will be issued with Conduct Notices and the great majority of those will comply with the conditions in the notices. If this is correct, it ought to follow that the much more significant sanctions consequent on a Monitoring Notice will only be imposed in very few cases. Even then, HMRC has to obtain prior approval of the First-tier Tribunal that the issue of the notice is justified. Further, the provisions that would publicly identify a monitored promoter do not apply until the promoter’s appeal rights have been exhausted. Nevertheless, the overall message is clear that the Government is pursuing ever more draconian strategies in its tenacious plan to tackle and combat tax avoidance schemes. Promoters and investors alike are likely to find it increasingly difficult to avoid scrutiny and we anticipate that once the Conduct Notice process has started, it will be very difficult to derail HMRC.
Guidance on Professional Conduct in relation to Taxation published on 1 May 2015 by ICAEW jointly with AAT, ACCA, ATT, CIOT, ICAS and STEP suggests that members contemplating advising on third party tax planning should ascertain prior to considering such tax planning whether the promoter of the arrangement is subject to a Monitoring Notice. The Guidance states at 4.42: “If the third party is a monitored promoter within the POTAS regime it is difficult to envisage any circumstance in which it would be appropriate for the member to introduce their arrangement to clients”.
Between February 2011 and June 2015 HMRC has published 24 ‘Spotlight’ documents on its website which contain information about tax avoidance schemes which have received negative attention.
For further information please contact Kathleen Atherton, Senior Associate on tel:+44 (0)117 301 7394.
This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.