Tougher sanctions for promoters of tax avoidance

HMRC have published a response to their Consultation ‘Tougher Consequences for promoters of tax avoidance’ which set out proposals for a new criminal offence for promoters of tax avoidance schemes who fail to comply with HMRC stop notices and to expedite the disqualification of directors who promote tax avoidance.

The Consultation which only closed on 22 June 2023, has been published in record time.

Nineteen written responses were received of which thirteen came from professional bodies. The government did also meet with eight external stakeholders to discuss the matter. 

• Most respondents were supportive of the proposed measures. Although some respondents commented that the numbers impacted would be small, they recognised that HMRC must be willing to use these powers where appropriate to underpin the desired deterrent effect.
• The majority of respondents felt that introducing a new criminal offence would help to deter promoters from continuing the promotion of schemes covered by a Stop Notice.
  • Some respondents however sought assurances that there is effective governance in place around the issuing of Stop Notices, given the potential for criminal convictions.
  • HMRC’s response points out that existing safeguards continue to apply, not least the right of a promoter to ask for a stop notice to be withdrawn or suspended.
• Those that commented on the director disqualification measure had no objections to HMRC expediting the disqualification of directors and those who control or exercise influence over companies, involved in promoting tax avoidance.
  • There were some concerns over the recruitment of young inexperienced people as ‘Stooge’ directors for a fee and how they might be affected.
  • HMRC’s response here confirmed that they will take account of all factors when considering if disqualification is warranted, whilst pointing out that one of the purposes behind the proposed changes is to discourage such behaviour in the first place.
• Several stakeholders used their responses to make wider points about how non-compliant umbrella companies selling disguised remuneration avoidance schemes were being tackled, calling for the regulation of umbrella companies and the raising of standards in the tax advice market.
  • The government has recently published a Response to its Call for Evidence on umbrella companies after an eighteen month delay, and is currently Consulting on options to tackle non-compliance in the umbrella company market.

Following the consultation response, as part of Legislation Day on 18 July 2023, the government has published draft legislation in Finance Bill 2023-24 which, from Royal Assent of the Finance Bill:

• Introduces a new strict liability criminal offence resulting in unlimited fines and a potential prison term of up to two years where there is evidence that there has been promotion in breach of a Stop Notice.
  • This would apply to Stop Notices issued prior to Royal Assent where they are still live.
• Gives HMRC the power to apply to the court for a disqualification order in respect of directors and other persons who control or exercise influence over a company which is involved in promoting tax avoidance and operating against the public interest.
• The proposal would maintain the current civil and criminal sanctions for those breaching a disqualification order or helping disqualified directors which are:
  • A criminal sanction resulting in imprisonment, a fine or both and
  • A civil sanction of personal liability for certain company debts.

Useful guides on this topic

Promoters of Tax Avoidance Schemes (POTAS)
Who is a Promoter? What are the Promoters of Tax Avoidance Scheme rules? What does this mean for promoters, intermediaries and clients?

A new director? Start here....
This freeview 'At a glance' guide is essential reading for anyone thinking about becoming a company director.

Directors' responsibilities and duties
What duties and responsibilities does a director have? What is the definition of 'director'?  

External links

Tougher consequences for promoters of tax avoidance – summary of responses

Policy paper: Tougher consequences for promoters of tax avoidance 

Draft legislation – avoidance (director disqualification)

Draft legislation – failure to comply with a stop notice