What penalties apply to Enablers of Tax Avoidance? When do they apply? Who is an enabler?
This is a freeview 'At a glance' guide to penalties and Enablers of Tax Avoidance.
Subscribers, see Penalties: Enablers of Tax Avoidance (subscriber version)
From 2017
New penalties apply to ‘enablers’ of failed tax avoidance arrangements.
Penalties are only applied if the tax avoidance arrangement has been defeated, the arrangement was abusive, and both of the following apply:
- The tax avoidance arrangements were entered into on or after 16 November 2017.
- The enabling action occurred on or after 16 November 2017.
Tax arrangements are 'arrangements' if it is reasonable to conclude that a tax advantage was the main purpose of the arrangement.
Finance (No2) Act 2017 provides that:
- Penalties apply to abusive schemes that have been 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.
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)
Consultation is ongoing to bring further changes to the penalty regime for those who continue to facilitate targeted tax avoidance.
See Criminal sanctions warranted for promoters of tax avoidance
Penalties for enablers
The legislation defines an enabler as someone who:
- Designs the arrangements.
- Manages the arrangements.
- Markets and advertises the arrangements.
- Enables people to participate in the arrangements.
- Financially enable the arrangements.
Where an employee enables the use of abusive tax avoidance arrangements, they will be excluded from being an enabler. In this scenario, the employer is the one carrying on the business and therefore the enabler.
Defeated tax avoidance arrangements
- An arrangement will be defeated if:
- There is a final determination of a tribunal or court that the arrangements do not achieve their intended tax advantage.
- 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.
- HMRC or the taxpayer have made a counteraction adjustment to the taxpayer's position.
- 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).
Calculation of penalties
- Penalties are equal to the consideration received for enabling the arrangements.
- If the enabler incurred any costs or associated fees, these are not taken into consideration.
- VAT that has been charged is not consideration and HMRC will not include it when calculating the penalty.
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?