Penalties: Enablers of Tax Avoidance

What penalties apply to Enablers of Tax Avoidance? When do they apply?

This is a freeview  'At a glance' guide to penalties and Enablers of Tax Avoidance.

  • Subscribers click here for your more detailed version of this note.

From 2017 new penalties apply to ‘enablers’ of failed tax avoidance arrangements. There will also be a change in the way penalties are applied to users of failed tax schemes.

From 10 June 2021 Finance Act 2021 gives HMRC additional powers to:

  • Use Schedule 36 powers to obtain information about enablers of schemes as soon as they are identified.
  • Ensure penalties can be issued and enablers named without delay.
  • It also makes changes to the number or percentage of defeats which need to take place before penalties can be issued for multi-user schemes. Defeats does not just mean a defeat in court and can include users settling with HMRC. See Penalties: Enablers of Tax Avoidance (subscriber version)

These penalties are designed to stamp out the tax avoidance industry in the UK.

Finance (No2) Act 2017 provides that:

  • Penalties will apply to abusive schemes defeated by HMRC.
  • A 100% fee-based penalty will be imposed on everyone in the supply chain.
  • Penalties will apply to advice provided or actions taken after Royal Assent to Finance (No2) Act 2017 on 16 November 2017.
  • The defence of taking Reasonable care will be removed for those who rely upon non-independent advice.

Penalties for enablers

  • The term 'enabler' is intended to include anyone in the supply chain who benefits from an end-user implementing tax avoidance arrangements which are later defeated.
  • The focus will be on those who benefit financially from enabling others to implement tax avoidance arrangements which fail.
  • Whether or not an enabler is given a penalty will not depend on whether a user of an avoidance arrangement receives one or not.
  • Penalties will be linked to the enabler’s fees; HMRC will be able to estimate this if enablers seek to disguise their fee levels.
  • Activities which constitute enabling will include designing, marketing and financing arrangements, or providing advice that is key to achieving the avoidance objective or implementing the scheme.
  • There will be safeguards for those who might unwittingly become involved in enabling avoidance.  

Defeated tax avoidance arrangements

  • An arrangement will be defeated either:
    • When there is a final determination of a tribunal or court that the arrangements do not achieve their intended tax advantage, or
    • In the absence of such a decision, when there is agreement between the taxpayer and HMRC that their arrangements do not work, e.g. reaching a settlement with HMRC.
  • Whether an arrangement is an avoidance arrangement will be based on the General Anti-Abuse Rule (GAAR) double reasonableness test rather than being linked to schemes notifiable under DOTAS or defeated by a Targeted Anti-avoidance Rule (TAAR).

Penalties for enablers of offshore evasion

Finance Act 2016 introduced the first penalties for ‘enablers’ of tax avoidance, focusing on offshore evasion of:

  • Income Tax.
  • Capital Gains Tax (CGT)
  • Inheritance Tax (IHT)

Under the provisions a penalty is payable by a person (P) who enables another (Q) to carry out offshore evasion where the following conditions are met:

  • P knew that their actions would be likely to enable (by encouraging, assisting or otherwise facilitating) Q to carry out offshore tax evasion or non-compliance, and
  • Q has been convicted of a relevant offence or found liable for a relevant penalty. 

Useful guides on this topic

Penalties: Enablers of Tax Avoidance (subscriber version)
What penalties apply to Enablers of Tax Avoidance? When do they apply? Who is an enabler?

DOTAS: Disclosure of Tax Avoidance Schemes
What are the on Disclosure of tax avoidance schemes (DOTAS) rules? When should you disclose your use of a tax avoidance scheme? What are the consequences of non-disclosure? How are penalties calculated?

General Anti-Abuse Rule (GAAR)
What is the General Anti-Abuse Rule (GAAR)? When does it apply? 

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?