UK government proposes further measures against promoters of avoidance schemes
HMRC consultation documents released this week include draft legislation to change the disclosure of tax avoidance schemes (DOTAS) rules and the enablers penalty regime, to require promoters to divulge information at an earlier stage. The promoters of tax avoidance scheme (POTAS) rules, aimed at deterring avoidance scheme promoters by monitoring the activities of repeated offenders, will also be adjusted.
According to Charity Tax Group, HMRC is aware that promoters and others in the tax avoidance industry are 'increasingly failing to comply with their obligations voluntarily and are using every available opportunity to delay, obstruct or sidestep HMRC compliance activity while they continue to sell their schemes'. The consultation document points out that such promoters often respond to enforcement action by restructuring their businesses, engaging in protracted circular correspondence, or simply denying they are a promoter while continuing to sell their schemes.
The new proposals include:
- giving HMRC extra powers under POTAS to issue 'stop notices' to scheme promoters, making it harder for them to promote schemes that HMRC believes do not work. This measure will apply to all schemes promoted after Finance Bill 2020-2021 gets royal assent, or which are promoted before that date and continue to be promoted after it;
- preventing promoters from abusing corporate entity structures to avoid their POTAS obligations. The current rules do not hold the promoter directly accountable for the actions of entities they control, so that unscrupulous promoters can set up new entities and collapse them at will. The new power will allow HMRC to attribute threshold conditions, conduct notices, and monitor notices to new entities into which a scheme promoter has transferred their activities, where HMRC have reason to believe that the new entity is also a scheme promoter;
- allowing HMRC to demand information about the enabling of abusive schemes as soon as they are identified for the purposes of the enablers penalty regime, by issuing a standard Schedule 36 notice. HMRC will also have powers to issue enabler penalties without delay when a scheme has been defeated at tribunal. The new information power would apply to all current and future investigations into potential enablers, while the new penalty regime would apply to schemes enabled and defeated after royal assent;
- granting extra powers to HMRC to act quickly where promoters fail to declare schemes under the DOTAS rules; and
- further technical amendments to improve the effectiveness of POTAS, and to ensure that the general anti abuse rule (GAAR) can be used to counteract partnerships as intended.
'While we will be looking at the detail to check that the changes will work practically this does seem a sensible element in HMRC’s strategy', commented John Cullinane, Tax Policy Director for the Chartered Institute of Taxation (CIOT). He added, 'There is anecdotal evidence of promoters of tax avoidance enticing taxpayers to use their schemes on false pretences as to the risks and likely consequences of entering the scheme, and then failing to support the taxpayers (except in return for significant further fees) when HMRC investigate and perhaps litigate. The possible interventions necessary to address this issue need to apply whether the promoters in question are giving, or purporting to give, advice or not.'
The deadline for comments is 15 September 2020, while a call for evidence on tackling disguised remuneration tax avoidance has also been issued with the deadline of 30 September 2020.
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