Measures will “strengthen existing deterrents” and apply retrospectively, bringing historic scheme promoters to justice
The government has published draft legislation which could see persistent promoters of tax avoidance schemes face unlimited fines and potential jail time.
Published on 18th July, the measures are part of the government’s broader strategy to reduce tax avoidance in the umbrella sector. The proposals have been designed “to strengthen existing deterrents and make it riskier for promoters to continue promoting their tax avoidance schemes”.
One of the measures is a new criminal offence for promoters of tax avoidance who fail to comply with an HMRC Stop Notice. The second measure would allow for a quicker disqualification for directors of companies involved in scheme promotion.
Both are the result of a government consultation – Tougher consequences for promoters of tax avoidance – launched following the spring budget and explore harsher measures against promoters of tax avoidance.
Proposals in detail
Intended to “build on and complement anti-avoidance measures” already in place, the proposed legislation would impose tougher sanctions on those involved in the promotion of tax avoidance schemes.
The first measure would allow for greater penalties for breaches of a Stop Notice, which currently requires the recipient “to immediately stop promoting [a] specified scheme”.
The legislative change “would ensure the strongest possible deterrent” by making scheme promoters liable for an unlimited fine, a prison term of up to two years, or both.
Importantly, this would apply to all “live” Stop Notices on its enactment – including those issued prior to its effective date. This retrospective element would bring historic scheme promoters into scope of the legislation – welcome news for self-employed workers who have been caught in tax avoidance traps and contractors affected by the Loan Charge.
As well as greater penalties for breach of Stop Notices, the second proposal would allow HMRC to bring a disqualification order against “directors and other persons who control or exercise influence over a company” involved in the promotion of tax avoidance.
Government action is “long overdue”
Julia Kermode, CEO of umbrella company compliance specialist PayePass, welcomed the plans, despite the fact that regulation has “been a long time coming”.
“The government looks to be pressing ahead with plans to hand out more severe punishments to those guilty of promoting tax avoidance schemes – and rightly so.
“These immoral schemes have left tens of thousands of innocent people with staggering tax bills, so anything that stops the trail of devastation they cause is welcome – albeit long overdue. The sooner it becomes law and those guilty of promoting tax avoidance face unlimited fines and jail time, the better.
“The plan to apply it retrospectively is also good news and could see recognised tax avoidance schemes hit with these new, harsher penalties”, she said.
While consultation respondents were broadly supportive of the measures put forward, some also raised concerns about gaps in the legislation, particularly around disqualification.
The Low Incomes Tax Reform Group wanted to see “a strong internal governance structure in place” at HMRC to protect “young, inexperienced or otherwise vulnerable individuals being recruited as nominee or stooge directors” at non-compliant umbrella companies.
This tactic can “disguise true ownership”, with vulnerable people recruited and at risk of disqualification, while actual scheme promoters face no consequences.