The government has released a summary of the responses to their 'Clamping down on promoters of tax avoidance' consultation and has issued draft legislation enacting the provisions.
The consultation sought stakeholder responses on proposed new measures and powers to allow HMRC to further tackle promoters of tax avoidance schemes.
- The circumstances outlined by HMRC in the consultation document that would allow HMRC to ring-fence a promoter’s assets were seen as reasonable by most respondents.
- There was a mixed response to the time scales with which HMRC can freeze assets reflecting the balance between collecting sufficient information to apply the provisions diligently and not giving the promoter the chance to dissipate assets.
- There was general agreement that a security payment or freezing order was appropriate to help ensure that any liabilities would be settled and offered a significant penalty for non-compliance.
- The High Court would be the most appropriate court for seeking a freezing order.
- That a detailed review by a solicitor and a designated HMRC Insolvency officer prior to independent oversight by the relevant court was seen as providing appropriate and reasonable safeguards to the imposition of freezing orders.
- Most respondents agreed that the proposed definition of promotion structures was sufficient, however, there was some concern about the width of the definition and the potential liability for unconnected UK entities.
- There were some concerns in respect of the additional penalty charging provisions:
- Penalty charges on UK associates were levied based on activities carried out by someone else.
- Smaller penalties under DOTAS could lead to more severe additional penalties.
- There should be sufficient publicity to raise awareness of the additional penalty provisions.
- Respondents agreed that it was appropriate for UK entities facilitating tax avoidance by offshore entities to be subject to security or asset freezing orders where there is a risk that assets will be dissipated.
- Respondents were supportive of the government aims to tackle offshore promoters but emphasised the need for measures to be appropriately targeted, effective and proportionate.
- The proposals were seen as striking a fair and reasonable balance between tackling overseas promoters and their UK associates.
- Most respondents agreed that where anti-avoidance regimes had been significantly breached and it was in the public interest to do so, HMRC should present winding-up petitions and that director disqualification should be considered where appropriate.
- Most respondents agreed the proposed provisions would effectively target limited companies and Limited Liability Partnerships (LLPs) promoting offshore avoidance.
- Most respondents agreed that current periods of director disqualification (two to five years for misconduct, six to 10 for more serious conduct and 10 to 15 for the most serious conduct) were appropriate.
- Most respondents felt the existing legal safeguards offered adequate protections for individuals and companies for freezing orders and disqualification respectively.
- Most respondents were supportive of the proposed HMRC power to inform taxpayers of HMRC enquiries into specific promoters and schemes and believed it would help taxpayers avoid and exit such arrangements.
- The proposed safeguards for promoters were given mixed responses highlighting the balance needed between safeguarding the reputations of advisors and HMRC’s desire to clamp down on tax avoidance schemes and inform taxpayers.
Following the consultation
- HMRC have released draft legislation in Finance Bill 2022 which would give them powers to:
- Seek freezing orders where penalties are to be issued and there is a risk that the promoter would dissipate, or hide, assets before paying.
- Levy significant additional penalties against UK entities that facilitate the promotion of tax avoidance by offshore promoters. These penalties can be imposed where the UK entitiy has incurred total anti-avoidance penalties of at least £100,000, the penalties can be up to the total fees earned by the scheme.
- Present winding-up petitions for companies operating against the public interest. This can include non-compliance with obligations under anti-avoidance regimes, or providing tax schemes that leave users with large additional tax bills after failing to provide the benefits promised.
- Publish details of promoters and their schemes to raise awareness and give those already involved a chance to exit the arrangements. Promoters will have a 30-day window to make representations to avoid this publication. Beyond this time limit, a judicial review is the only option to challenge HMRC.
Useful guides on this topic
Consultation: Clamping down on promoters of tax avoidance
HMRC have issued a new consultation, ‘Clamping down on promoters of tax avoidance’ setting out proposed new measures and the powers to allow them to further tackle promoters of tax avoidance schemes.
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?
DOTAS: Disclosure of tax avoidance schemes
What are the rules on Disclosure of Tax Avoidance Schemes (DOTAS)? When should you disclose your use of a tax avoidance scheme? What are the consequences of non-disclosure? How are penalties calculated?