The government has launched two new consultations dealing with tax avoidance, ‘Tackling promoters of tax avoidance’ and ‘Call for evidence: Tackling Disguised Remuneration tax avoidance.’
At a glance
The changes suggested were first announced in December 2019 as part of the government’s response to Sir Amyas Morse’s Independent Review of the Loan Charge. At Budget 2020 the Government announced that the measures would be taken forward in Finance Bill 2020-21.
Consultation: Tackling promoters of tax avoidance
- In March 2020 HMRC launched a policy paper 'Tackling promoters of mass-marketed tax avoidance schemes' where it set out its strategy for dealing with scheme promoters by strengthening its powers, disrupting promoters supply chains, and deterring taxpayers from taking up such schemes.
- Also in March 2020 'Call for evidence: raising standards in the tax advice market' was launched seeking views and suggestions on how to raise standards in the tax advice market.
This latest consultation has been released alongside draft legislation as part of draft Finance Bill 2020-21 which includes proposed measures to allow HMRC to achieve the strategy set out in March, by:
- Issuing stop notices to promoters under the Promoters of Tax Avoidance Scheme (POTAS) rules earlier by changing the notice conditions, stopping the scheme from being sold whilst they investigate it.
- Challenging the individuals behind corporate promoters to stop them avoiding the POTAS rules by operating through complex corporate structures.
- Using Schedule 36 powers to obtain information about enablers of abusive schemes as soon as they are identified instead of having to wait until they are defeated by HMRC.
- Ensuring penalties can be issued and enablers can be named without delay.
- Acting quickly where promoters fail to provide information on schemes under the Disclosure of Tax Avoidance Schemes (DOTAS) rules.
- Making changes to the General Anti Abuse Rule (GAAR) to ensure that it can be used as intended to counteract avoidance schemes marketed at partnerships.
The consultation asks 35 questions to ascertain views on the proposals and seeks responses by 15 September 2020, to be sent to
Call for evidence: Tackling Disguised Remuneration tax avoidance
The government is also seeking views on what drives the continuing use of Disguised remuneration (DR) schemes, and what further action they might take to deal with them. Between April 2019 and May 2020, HMRC identified over 45 schemes being marketed, aimed at individuals and designed to avoid tax on employment income.
The call for evidence considers and seeks opinions about:
- How to disrupt and deter promoters of DR schemes and especially those who are offshore, stop schemes at their source and encourage taxpayers to report schemes or promoters.
- Supply chains: should there be more onus on intermediaries such as employment agencies, umbrella companies or engagers, to stop people being drawn into using schemes?
- Behaviours; should the government be doing more to ensure taxpayers understand the risks of entering DR schemes and steer clear of them?
- How can HMRC best support scheme users to exit schemes and settle their tax liabilities?
- Any other areas where the government can act to stop the use of schemes.
No draft legislation is yet available for these proposed measures.
The call for evidence invites responses to the 21 questions asked by 30 September 2020 to:
Links
Promoters of Tax Avoidance Schemes (POTAS)
The Promoters of Tax Avoidance Schemes (POTAS) rules were introduced by Finance Act 2014 with the aim of changing the behaviour of promoters of tax avoidance schemes and deterring the development and use of such schemes.
Disguised remuneration loan charge (subscriber guide)
What is disguised remuneration? What is the loan charge? When does the loan charge apply? Will the loan charge affect me?
Schedule 36 Information Notices (subscriber guide)
What is a Schedule 36 Information Notice? When can HMRC issue one? What rights does the taxpayer have when an information notice is issued?
External links
Consultation: ‘Tackling promoters of tax avoidance’
Policy paper: 'New Proposals for tackling enables and supporters of tax avoidance schemes'
Policy paper: 'Tackling promoters of mass-marketed tax avoidance schemes'
Call for evidence: 'Raising standards in the tax advice market'
'Tackling Disguised Remuneration tax avoidance’: Call for evidence
Consultation questions
'Tackling Promoters of Tax Avoidance'
1. Would 30 days give a reasonable amount of time to furnish HMRC with information on the schemes that the promoters or enablers have been promoting or enabling?
2. Would the proposed approach prevent persons from obstructing enquiries by claiming not to be a promoter, or in other ways such as by restructuring or moving offshore? If not, why not?
3. How useful would information on the scheme be, without the name of the promoter, to help potential purchasers of the scheme understand the risks of using it? How might this information be published in order to be most helpful?
4. Are the grounds of appeal against the issue of a new SRN the right ones? Q5. Are there any other grounds that should be considered?
6. Would naming those in the supply chains for promoting tax avoidance schemes help make taxpayers aware that they risk falling into a scheme that HMRC suspects does not work?
7. Are there any other specific procedural safeguards which you think should apply to this power but which would not dilute the effectiveness of the proposed measure?
8. To what extent do the safeguards proposed achieve a balance between ensuring that the new power would be used appropriately and ensuring that the new powers are not sidestepped by promoters and others, allowing them to continue to market their scheme to taxpayers?
9. Do you agree that the proposed new rules, as described above, should also apply to Disclosure of Avoidance Schemes: VAT and other indirect taxes (DASVOIT)?
10. Are there any modifications to the proposals for the new power in DOTAS that would be needed in order for it to work appropriately in the DASVOIT regime?
11. Do the conditions for issuing earlier stop notices achieve a sensible balance between ensuring appropriate safeguards are in place, whilst ensuring that HMRC is able to promptly tackle schemes that are destined to fail for the benefit of taxpayers? If not, how could they be better targeted to achieve this balance?
12. Are there any other conditions that should be considered?
13. How can HMRC best ensure that the internal review and appeals process work appropriately for recipients of stop notices?
14. To what extent would publishing stop notices help inform taxpayers of the risks of entering into that scheme?
15. If the notice is appealed (and not subsequently withdrawn) – when would publishing of the details of the promoter best provide taxpayers with the information they need? Should this be after the First-tier Tribunal has reached a decision or later?
16. Would the proposal be a suitable way to achieve the government’s objective (as set out in para 4.9)? Are there any modifications that would help deliver that objective more effectively?
17. Are there any other specific procedural safeguards which you think should apply to this power but which would not dilute the effectiveness of the proposal?
18. Are the proposals to deal with promoters who hide behind other business structures/entities or individuals appropriately targeted?
19. Does the opportunity to comment on the proposed terms of the conduct notice continue to provide an appropriate safeguard?
20. To what extent would the existing procedural safeguards that apply to this regime continue to provide an appropriate amount of internal scrutiny to any future use of these powers if changed under these proposals (paragraphs 5.7-5.9)?
21. Do the proposed changes achieve an appropriate balance between providing a clear window for those in receipt of a conduct notice and the need to ensure that promoters cannot continue to manipulate the rules to prevent HMRC taking action against them?
22. To what extent would the existing procedural safeguards that apply to this regime continue to provide an appropriate amount of internal scrutiny to any future use of these powers if changed under these proposals (paragraphs 5.11-5.13)?
23. Are the proposed updates to the POTAS threshold conditions to include further DOTAS failures proportionate?
24. To what extent would the existing procedural safeguards that apply to this regime continue to provide an appropriate amount of internal scrutiny to any future use of these powers if changed under these proposals (paragraph 5.15)?
25. Do you agree that this change would enable HMRC to engage with potential enablers and get the required information from them to determine whether an enablers penalty is appropriate?
26. Where an enabler receives a notice from HMRC seeking information on other enablers in the avoidance chain how readily would the recipient have that information? Would it cause any problems for the recipient of the information notice?
27. Do you agree that penalties should be raised in all cases once there is a final judicial ruling confirming that the scheme is abusive avoidance?
28.To what extent do the proposed tiered threshold percentages provide a suitable balance between ensuring that penalties can be issued to enablers promptly while providing sufficient time for enough ‘defeats’ to confirm that the scheme is likely to fail?
29. To what extent do the conditions in 6.21 provide a suitable threshold for naming enablers of tax avoidance schemes who have received penalties if the addition threshold in 6.22 is removed (in order to ensure that HMRC can advise taxpayers of that enabler’s penalty position)?
30. To what extent would the existing procedural safeguards that apply to this regime continue to provide an appropriate amount of internal scrutiny to any future use of these powers if changed under these proposals?
31. What factors should the government consider in determining whether it would be appropriate to apply these measures from the introduction of the penalty regime in 2017?
32.Do the proposed changes to the legislation make it sufficiently clear as to how the GAAR would apply to partnerships?
33. To what extent are the existing safeguards within the GAAR suitable for cases involving a partnership, and for a responsible partner?
Tackling Disguised Remuneration Tax Avoidance
1. What DR schemes are you aware of being marketed currently, and how are these being marketed? Are these being targeted specifically at your profession or sector? How did you come across these schemes?
2. What more might HMRC do to encourage people to report a scheme or promoter?
3. Are there any variations of DR schemes which are not covered by the existing DR legislation? How else could the government strengthen the legislative framework?
4. What further action could government take to tackle misleading information promoters provide to taxpayers?
5. What further action could government take to increase the financial risk for promoters of tax avoidance and would this be effective in deterring promoters?
6. What further action could HMRC or the government take to ensure that promoters based offshore comply with all government regulations and liabilities, and make it harder for them to avoid their obligations?
7. What further action could government take to disrupt other aspects of promoters’ business models? 8. To what extent is tax avoidance a factor in determining the structure of the employment supply chain and why?
9. What action do engagers take to assure themselves of the tax compliance of any intermediaries they use to hire their contingent labour force?
10.Should the government explore further options to require engagers to assure themselves of the tax compliance of their flexible workforce? How should HMRC check that assurance? Would this be effective? If not, what would be?
11.Do you have any evidence of engagers specifically requiring individuals to participate in tax avoidance schemes, or of dismissing individuals who don’t participate in tax avoidance schemes?
12.Can you provide examples to support or disprove reports that some employment agencies use DR schemes?
13.What options should the government explore to tackle employment agencies which facilitate DR schemes? Would this be effective? Please provide views both on the options set out above and any other options.
14.What options should the government explore to tackle the role of umbrella companies in facilitating the use of DR schemes? Would this be effective? Please provide views both on the options set out above and any other options.
15.Do you have any evidence of different types of labour market supply chain noncompliance taking place together?
16.In what areas of non-compliance could HMRC go further to work effectively with other regulatory authorities to support labour market compliance?
17.How could HMRC improve and target communications with taxpayers to warn them about DR schemes, and what other approaches could HMRC and other organisations take to help taxpayers to recognise a DR scheme was being marketed to them?
18.The government would welcome any comments on the role of consumer protection for taxpayers using DR schemes if not raised in response to the call for evidence on raising standards in tax advice.
19.What do you see as the barriers for users exiting avoidance? What other approaches should HMRC consider to intervene early in DR avoidance schemes and to support taxpayers leave these schemes?
20.What further action could the government take to ensure that HMRC can effectively collect the tax due from those who enter DR tax avoidance schemes?
21.Beyond the planned approaches and options set out in this document what other action should the government take to prevent the use of DR schemes.