The consultation document, ‘Tackling marketed tax avoidance’ draws to a close in just under a week’s time and if its proposals are enshrined in legislation then contractors still attracted to tax avoidance schemes may wish to pause for thought.
Launched late last month, the consultation proposes to require individuals to pay tax in dispute during an enquiry or appeal relating to tax avoidance. This would affect not only individuals and companies who have entered into tax avoidance schemes but also promoters of schemes and those who provide tax advice.
HMRC estimate there are around 65,000 people and businesses that have used marketed tax avoidance schemes that need to be investigated and litigated. When an avoidance scheme is challenged in the courts however, the tax system permits a taxpayer to hold on to the disputed tax regardless of how robust the scheme is or whether the taxpayer will succeed. The Revenue argue that this provides an incentive for the taxpayer and scheme promoters to ‘sit back and delay as long as possible’.
Of the 65,000 cases mentioned above, 85% of these took place more than 4 years ago and a wide range of avoidance schemes have been used to reduce Income Tax, NIC, Corporation Tax, Capital Gains Tax and Stamp Duty Land Tax. Two of the four largest areas of avoidance are implemented within the freelance sector as follows:
|Area of tax avoidance||Users under investigation|
Employee Benefit Trusts (EBT’s):
Some users have apparently used the same scheme more than once whilst others have used more than one scheme, although it is uncertain if contractors are amongst their number.
Avoidance schemes take a long time to investigate and bring to resolution and because of this HMRC want to accelerate the payment of tax by the taxpayer by firstly issuing a ‘Follower Notice’. This will be issued in cases where there has been a final judicial decision in another case on the same or similar arrangements. The notice will require a person to amend their tax return or agree to settle on the basis that the likelihood of the taxpayer’s scheme succeeding is remote.
This will cover all taxes but NIC will require separate legislation.
This will be issued alongside the ‘follower notice’. The ‘follower notice’ has a 90 day response time, after which the accelerated payment of tax would become due.
If a person agrees to settle the dispute then the Payment Notice will be discharged once the settlement has been concluded and the tax paid. Otherwise, the Payment Notice will become due for payment and pursued by HMRC.
It will be possible to challenge a Payment Notice but only on limited grounds that HMRC has erred in the process, e.g. a notice has been sent to the wrong person.
These proposals will apply to Self Assessment enquiries that are still ongoing and remain unresolved.
Penalties will also be introduced for late payment of tax as follows:
Subject to any amendments following responses to the consultation, these proposals will be included in this year’s Finance Bill.