Published 20 July 2021
Who is likely to be affected
The measure will affect promoters and enablers of tax avoidance schemes.
The proposals supporting customers to identify and exit avoidance will benefit taxpayers.
General description of the measure
The measure is targeted at the most persistent and determined promoters and enablers of tax avoidance.
The proposed legislative changes are designed to clamp down on the supply of tax avoidance arrangements and include:
- a new power for HMRC to seek freezing orders that would prevent promoters from dissipating or hiding their assets before paying the penalties that are charged as a result of them breaching their obligations under the anti-avoidance regimes
- new rules that would enable HMRC to make a UK entity, who facilitates the promotion of tax avoidance by offshore promoters, subject to a significant additional penalty
- a new power to enable HMRC to present winding-up petitions to the Court for companies operating against the public interest
- new legislation that would enable HMRC to name promoters, details of the way they promote tax avoidance, and the schemes they promote, at the earliest possible stage, to warn taxpayers of the risks and help those already involved to get out of avoidance
Proposed revisions
Freezing Orders for promoters where there is a risk they will hide or dissipate assets
The proposed changes would enable HMRC to seek a freezing order where they are about to commence proceedings for a tribunal assessed penalty under current anti-avoidance legislation. For instance, where HMRC are about to make an application for a tribunal assessed DOTAS penalty.
The legislation would make it clear that this would satisfy the requirement for an existing cause of action, allowing HMRC to use this position to apply for a freezing order. HMRC would still need to show that it was appropriate for a freezing order to be granted.
Penalty on UK entities who facilitate tax avoidance schemes provided by an offshore promoter
The conditions, all of which must apply, under which the additional penalty may be charged are that:
a) The UK entity falls within the definition of a member of a
‘promotion structure’ (as introduced in Schedule 30 Para 10 Finance Act
2021).
b) A penalty or penalties under anti-avoidance legislation becomes due
and payable on the UK entity in respect of their own activities.
c) The activities giving rise to the penalty or penalties under
anti-avoidance legislation were undertaken within an offshore promoter
structure.
d) The total value of the penalty or penalties under POTAS, DOTAS or DASVOIT legislation is equal to, or greater than, £100,000.00.
A penalty may also be charged where conditions a, b and c above are met and the UK entity is subject to an Enablers penalty under Section 16 Finance (No.2) Act 2017. The £100,000 threshold in this instance is not applicable.
The additional penalty for facilitating an offshore promoter’s business would be for an amount up to the total fees or amounts economically equivalent to fees earned by all those involved in the development and sale of that tax avoidance scheme.
Where it was not possible to determine the value of those fees, a best reasonable estimate would be used. There is also provision in the draft legislation for the additional penalty to be increased or for a new penalty assessment to be raised where further fees come to light at a later date.
Winding up companies that promote tax avoidance
The proposed new power to be included in the Finance Bill will enable HMRC to present a winding-up petition to the Court for companies who are operating against the public interest whether there is a debt or not.
The new HMRC power will mirror the approach that currently exists in the Insolvency Act 1986 by using any information acquired in connection with the Commissioners’ functions under section 5(1) of CRCA as a basis for considering winding-up action against a company.
Supporting taxpayers to identify, steer clear of and exit tax avoidance
This proposed power will allow HMRC to share information about promoters of tax avoidance and tax avoidance schemes earlier than it currently can or will be able to under the recently amended provisions in Finance Act 2021.
The proposed power would enable HMRC to name a particular scheme, its arrangements and how it is being made available to taxpayers or administered, from when HMRC first learns about it. The power will enable the naming of those associated with the entity carrying out the promoting activity by means of control or influence as well as any persons that carry out a role in selling the scheme to taxpayers.
The new power would also enable HMRC to publish any other information or documents relating to the arrangement, entities or individuals which HMRC reasonably believe will ensure that members of the public can identify the arrangements and understand them and the risks which attach to them.
The proposed changes would require HMRC to provide a 30-day period to those entities or individuals after HMRC have given them notice that they intend to name to allow them an opportunity to make representations as to why they should not be named. A final decision on whether to publish information would be made by an Authorised Officer.
A Data Protection Impact Assessment will be completed before the measures are implemented.
Tax does have to be taxing.
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