New rules were introduced in late 2017 imposing penalties on ‘enablers’ of defeated tax avoidance schemes. HMRC can levy a penalty equal to the fees received for providing the enabling assistance. There is, therefore, no benefit in being part of such an arrangement and an enabler can also be ‘named and shamed’ in a list published by HMRC too.
It is quite possible that advisers or lenders could, in certain circumstances, fall within these rules, so it is important that they have a broad understanding of the potential issues. Even if you do not enable a defeated tax avoidance scheme, you may find that lenders and advisers are now no longer able to assist in relation to structures that you have previously used.
Who is an enabler?
For these purposes an enabler includes anyone involved in facilitating the arrangements. This includes someone who (a) designs, organises, markets or manages the arrangements in question or (b) provides finance to enable the participation in the arrangements as part of their business, if they knew (or could reasonably be expected to have known) that the arrangements were abusive tax arrangements. Managing or organising arrangements can cover drafting the property and corporate documentation to the extent it involves more than simply administrative tasks (such as preparing board minutes or filing statutory returns). A person may also be a manager of arrangements if they are to any extent responsible for the organisation or management of those arrangements. It will clearly depend on the facts but negotiating the detail of a transaction may be sufficient to fall under this heading in certain cases.
What is a tax arrangement?
Arrangements are tax arrangements if someone would reasonably conclude that the obtaining of a tax advantage was the main purpose, or one of the main purposes, of the arrangements.
Which taxes are covered by the new rules?
At present the list of taxes covered by the new rules includes Stamp Duty Land Tax, the Annual Tax on Enveloped Dwellings, Corporation Tax and the Apprenticeship Levy. A full list of the taxes covered can be found in HMRC’s technical guidance. Please note that this list may be extended over time.
When is a tax arrangement abusive?
A tax arrangement is abusive (adopting the language of the General Anti-Abuse Rule (the GAAR)) if, having regard to all the circumstances, the entry into or carrying out of the arrangements cannot reasonably be regarded as a reasonable course of action in relation to the relevant tax provisions.
This will depend on a number of factors, such as whether the outcome of the arrangements is consistent with policy objectives, whether the arrangements involve one or more contrived or artificial steps and whether the arrangements are intended to exploit any shortcomings in the relevant tax provisions. Arrangements defeated using technical argument rather than reliance on the GAAR will still be treated as abusive, for the purposes of the pursuing penalties against enablers, if the arrangements could have been defeated under the GAAR.
Not all ‘arrangements’ will be abusive tax arrangements. However, advisers and lenders should be careful when assisting clients to take steps that are designed to create a tax advantage. If there is any suggestion that obtaining a tax advantage is a motivating factor in the arrangement then both the client and the adviser/funder are liable to penalties if the scheme is successfully challenged. Similarly, clients need to understand that advisers and lenders who decline to be involved are likely to be motivated to comply with these new rules. In the realms of tax planning the phrase ‘if it seems too good to be true then it probably is’ potentially takes on a more sinister (and expensive) undertone.