HMRC report: Use of marketed tax avoidance schemes

HMRC have released a report on the ‘Use of marketed tax avoidance schemes in the UK (2019 to 2020)'. It provides an update on what they know about the tax avoidance market, how big a problem it is and what they are doing to combat it.

HMRC estimates that from 2019 to 2020 around £1.5 billion was lost to tax avoidance, with an estimated £36.9 billion of additional tax collected from tackling avoidance, evasion and other non-compliance.

• About £0.5 billion of the lost tax relates to marketed avoidance schemes sold to individuals, the same figure as for 2018 to 2019.
• The number of individuals using avoidance schemes peaked in 2017-18 at 41,000 falling to 28,000 for 2019-20.
• Just 1,000 employers are thought to have used schemes in 2019-20 compared to 6,000 in 2013-14. This is thought to be due to a shift away from Disguised Remuneration (DR) avoidance schemes targeted at SME employers, such as Employee Benefit Trusts (EBTs) and Employer Funded Retirement Benefit Schemes (EFRBS).
• DR schemes made up over 99% of schemes used by individuals in 2019-20 with schemes to avoid other taxes such as Stamp Duty Land Tax (SDLT) accounting for less than 1%.
• The majority of scheme users were between the ages of 40 and 60 and lived in London and the South East. 21% classed their work as bookkeeping activities whilst 20% undertook hospital activities.
• There were 20 to 30 promoters of tax avoidance schemes remaining in 2019-20 however HMRC estimate 60 to 80 non-compliant Umbrella companies.
• Failure to take reasonable care is thought to account for the largest proportion of unpaid tax at £6.7bn with legal interpretation accounting for £5.8bn and evasion £5.5bn.

The report highlights that HMRC have now successfully challenged nine schemes on the grounds that they are notifiable under the Disclosure Of Tax Avoidance Scheme (DOTAS) regime with one win protecting tax of over £40 million, forcing the promoter to disclose the names and addresses of over 1,000 high earners.

Finance Act 2021 includes measures to:

• Change the DOTAS regime and enable HMRC to act decisively when promoters fail to provide information.
• Change the Promoter Of Tax Avoidance Scheme (POTAS) regime to allow the more effective issue of ‘stop notices’ and prevent promoters abusing corporate structures to avoid their obligations under the POTAS rules.
• Change the Enabler penalty to allow HMRC to issue information notices earlier and speed up when penalties can be issued to enablers.

HMRC report that these new powers have already enabled HMRC to issue over 130 information notices to gather evidence of organisations who are enabling the creation and marketing of tax avoidance, as well as issuing five DOTAS notices to promoters. Names of these promoters will be published in early 2022.

Further measures are included in Finance Bill 2022 including:

• Clamping down on promoters who dissipate or hide their assets to avoid paying penalties.
• Penalising UK entities who facilitate the promotion of schemes in the UK on behalf of offshore promoters.
• Allowing HMRC to present winding-up petitions for companies or partnerships involved in promoting tax avoidance, where it can be shown they are not operating in the public interest.

Useful guides on this topic

Disguised remuneration loan charge
What is disguised remuneration? What is the loan charge? When does the loan charge apply? Will the loan charge affect me?

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 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?

Joint & Several Liability of Company Directors etc
When can Company Directors or LLP Members become jointly and severally liable for company or LLP tax liabilities and penalties? Finance Act 2020 has provided HMRC with wide-ranging new powers. What are the conditions and what are the rights of appeal?

General Anti-Abuse Rule (GAAR) (subscriber)
This guide looks at the key features of the General Anti-Abuse Rule (GAAR) contained within the Finance Act 2013, what areas of tax it covers and what you need to know about the provisions it contains when considering tax planning.

External link

HMRC report: Use of marketed tax avoidance schemes in the UK (2019 to 2020)