Draft Finance Bill 2020–21—promoters and enablers of tax avoidance schemes
What changes, in overview, are made by this draft legislation?
Over the past ten years the government has introduced significant additional powers for HMRC to use to combat the promotion of abusive tax schemes. There is a lack of detailed evidence to undertake a useful evaluation of how effective these changes have been but given that the government is now seeking to further strengthen the sanctions against those who have continued to promote or enable tax avoidance schemes, it must be assumed that those promoting tax schemes have been able to frustrate HMRC’s ability to quickly suppress the promotion of such schemes.
The following key changes are now suggested:
- promoters of tax avoidance schemes (POTAS): the draft legislation will give HMRC power to issue ‘stop notices’ to promoters at a much earlier stage in order to stop the scheme being marketed while HMRC investigate. The original POTAS rules are quite unwieldy and promoters are now to be prevented from circumventing the rules by, for example, routing their activities through an offshore entity—in this regard HMRC would, going forward, be able to issue a conduct/monitoring notice to UK persons who act for the suspected entity. HMRC will also have the power to publish details of the promoter and the scheme to which the stop notice relates at an earlier opportunity than is the case currently. The period for which conduct notices can apply will be extended from two to five years
- penalties for enablers of defeated tax avoidance: again the objective here is speed and HMRC will be able to issue a penalty without delay once a scheme has been defeated at tribunal
- disclosure of tax avoidance schemes (DOTAS): the proposed changes will allow schedule 36 information notices to be issued to a wider range of promoters and intermediaries. This is intended to allow HMRC to ascertain whether an avoidance scheme is being promoted so combatting non-disclosure of tax schemes under DOTAS. If the information was not forthcoming HMRC would then be able to issue a Scheme Reference Number to quickly bring a scheme into DOTAS so broadening the range of powers available to HMRC
- general anti abuse rule (GAAR): technical changes will be made to GAAR notices to ensure notices are effective where a partnership is involved. This is intended to operate on a similar basis to the representative partner approach currently existing for enquires conducted under the Taxes Management Act 1970
Why does HMRC want to strengthen the existing regimes in this way?
The proposals are part of a wider policy to further curtail the behaviours of those who continue to design and promote aggressive tax avoidance schemes and to provide further clarity for the taxpayer in deciphering where they are being misled.
There is still a concern that taxpayers are being enticed into schemes without any real understanding of the risks. These powers will enable HMRC to intervene at an earlier stage to address this issue and allows HMRC to act where it concludes that the scheme cannot achieve what is being promised by the promoter.
The policy intent of the new powers can be considered alongside the continued action HMRC is taking against disguised remuneration schemes. In a recent call for evidence specifically related to such schemes HMRC talked about wanting to ‘disrupt the business model/ economics and supply chains of avoidance as well as helping taxpayers steer clear’.
Has HMRC used the POTAS rules much since their introduction in 2014?
The POTAS rules were really an additional deterrent and a means by which HMRC could monitor the activities of a small number of persistent repeat offenders. There is little tangible evidence of their use, but it may be reasonable to assume that HMRC has been more active than the evidence suggests.
Notwithstanding, it is clear that the overall level of tax avoidance activity has been significantly reduced in the main due to the combination of the DOTAS and accelerated payment notice regimes that plugged a significant gap. It was always hoped that few promotors would meet the given POTAS threshold conditions and thus be issued with conduct notices, and that from there most would comply with a conduct notice so that there would be no need to issue a subsequent monitoring notice.
HMRC describes the changes as 'necessarily far-reaching'. Should law-abiding tax advisers be concerned?
It was surprising that Sir Amyas Morse’s independent review of the loan charge published in December 2019 stated that since the introduction of the loan charge in 2016 over 20,000 new schemes had emerged and 8,000 of those emerged as late as 2019–20. This data was somewhat difficult to believe given the controversy caused by the loan charge and the extent of the consequent publicity but plainly some individuals have continued to play fast and loose with the rules.
The rules should not apply to those tax advisers who steer well clear of tax schemes and many advisers will support these changes as targeting anyone who continues to promote tax avoidance schemes and undermine the integrity of the profession.
Does the new consultation document shed any additional light on how the new provisions will be applied?
As with all new anti-avoidance measures HMRC must ensure that adequate procedural safeguards exist for the protection of the taxpayer and the difficulty is always ensuring that these do not compromise the effectiveness of the rules. Some further thought will be needed in relation to an appeals process.
Further measures are promised for the Autumn Budget 2020, do you have any views on what we might see?
As mentioned above, the new rules sit alongside a call for evidence on tackling disguised remuneration schemes so we should expect to see additional measures in this area. The existing rules are complicated for HMRC to apply and even with these changes HMRC is likely to find that there remain issues in how effectively it can tackle those most determined.
It seems likely that many of the anti-avoidance rules and corresponding taxpayer protection measures will continue to be streamlined to increase their effectiveness.
There are presently many strands of evidence-gathering concerning promoters of tax avoidance schemes, including a recent All-Party Parliamentary Group paper on responsible tax practices. As a result the government may conclude that even more wide-ranging changes, including a possible new Taxes Management Act, are required.
When will the Finance Bill 2021 measures take effect?
Many of the tweaks to the existing rules will take effect for all new schemes which are or continue to be promoted after the date of Royal Assent. The new information powers will apply to all current as well as future investigations into potential enablers.
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