Responses to HMRC’s consultation document, ‘Strengthening Tax Avoidance Sanctions and Deterrents’, which closed in October, appear to strongly support the Revenue’s proposals to make promoters of tax avoidance schemes bear some of the risk.
The proposals contained in the consultation paper were:
The key elements of the new penalty for ‘enablers’ will be that they:
‘Enabler’ is intended to include anyone in the supply chain who benefits from a taxpayer implementing tax avoidance arrangements which are later defeated and without whose involvement the arrangements, as designed, could not be implemented. Thus, the focus is on those who benefit financially from enabling others to implement tax avoidance arrangements which fail.
There were a wide range of views expressed to the proposals, with one respondent commenting:
“I am pleased that HMRC is at last taking action against the ‘source’ (the enablers) of aggressive tax avoidance schemes. These people have for too long regarded tax avoidance as a game they play with HMRC. They can earn big fees for no risk. It is the users who carry all the risk. Aggressive tax avoidance is often nothing more than contrived financial engineering.”
However, there were also strongly expressed concerns that, if inappropriately targeted, the measure could inhibit genuine commercial arrangements and impartial advice:
“…[if the measure is inappropriately targeted] agents and service providers could find themselves subject to penalties both when their role is limited only to the preparation and submission of a taxpayer’s Self Assessment/Corporation Tax Self Assessment returns, and when providing general advice…”
Self Assessment already provides for a range of tax-geared penalties for inaccuracies in tax returns which are imposed for failure to take ‘reasonable care’ but HMRC want to strengthen and modify the penalty regime in situations where someone is involved in complex tax avoidance arrangements which HMRC later defeats. The government believes that its proposed changes will make it more difficult for tax avoiders to side-step a penalty for failed avoidance and act as a disincentive to entering into avoidance at all.
The consultation covered two aspects of this definition:
A wide definition was proposed for both the penalty for enablers and users of tax avoidance: “any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable)”.
Arrangements would be treated as defeated when there is final determination of a tribunal or court that the arrangements do not achieve their supposed tax advantage or, in the absence of such a decision, there is an agreement between the taxpayer and HMRC that the arrangements do not work.
Defeated avoidance will now be defined as arrangements which take an unreasonable position in relation to the legislation. The draft legislation will provide further detail but the test will be based around the concept of double reasonableness. This is a test of whether arrangements entered into could reasonably be regarded as a reasonable course of action. The enablers’ penalty regime will apply where the defeated arrangements meet this test.
The government recognises that the avoidance market is not static but is constantly evolving and, with this in mind, HMRC will continue to explore ways to further discourage avoidance which will include: