New legal powers to tackle tax evaders and the promoters and users of avoidance schemes

Alongside the Budget 2013, on 20 March 2013 the Government published a progress report on tackling avoidance and evasion.  The report states that almost £1 billion is being invested in HM Revenue and Customs (HMRC) in an unprecedented clampdown on avoidance and evasion. HMRC will also have new legal powers to tackle tax evaders and the promoters and users of avoidance schemes.

Tackling tax evasion and avoidance: 2013 Budget

Key targets include tax avoidance schemes, offshore tax evasion and avoidance of employment taxes.

Tax avoidance schemes

The Government announced measures to close loopholes, enhance disclosure obligations and focus on high-risk promoters of tax avoidance schemes.

  • the UK’s first General Anti-Abuse Rule (GAAR) will be introduced as a new deterrent to abusive avoidance schemes and strengthen HMRC’s means of tackling them. The GAAR will apply to income tax, corporation tax (and amounts treated as corporation tax), CGT, inheritance tax, SDLT, the annual tax on enveloped dwellings and petroleum revenue tax.
  • there will be a consultation on new proposals to target the promoters of tax avoidance schemes, intending to tackle both the supply and demand of these schemes. HMRC will consult on new “naming and shaming” proposals alongside a range of targeted disclosure requirements and associated penalties;
  • retrospective legislation it planned to address aggressive Stamp Duty Land Tax (SDLT) avoidance schemes. HMRC will be paying specific attention to “sub sale” schemes undertaken since April 2012;
  • suppliers bidding for contracts will be required to declare specified non-compliance with tax obligations, allowing government departments to exclude bidders that have not been compliant. The Government will review the effectiveness of the policy within a year and amend the rules if necessary to secure compliance
  • The misuse of the partnership rules has been identified as a feature of many tax avoidance schemes closed down in recent years. The Government will consult on measures to:
  1. remove the presumption of self-employment for limited liability partnership (LLP) partners, to tackle the disguising of employment relationships through LLPs; and
  2. counter the artificial allocation of profits to partners (in both LLPs and other partnerships) to achieve a tax advantage.

Offshore tax evasion

Agreements with the Isle of Man, Guernsey and Jersey aim to increase the amount of information automatically exchanged on potentially taxable income, in order to identify and tackle evasion. This is building on greater sharing of information between governments including the enhanced automatic exchange agreement signed with the USA last year.

Avoidance of employment taxes

The Government plans to strengthen obligations to ensure the correct income tax and NICs are paid by offshore employment intermediaries, with consultation on the details.

Criminal prosecutions

In January it was announced that the Crown Prosecution Service (CPS) intends to substantially increase the number of tax cases it takes on with a view to criminal prosecution. HMRC investigates tax avoidance and evasion in the UK and then passes the files to the CPS to make a decision on charge and criminal prosecution.

Tax payers with undeclared income or who been involved in tax mitigation arrangements that are not to HMRC’s liking are increasingly at risk of being subject to criminal investigation and prosecution.  Primary targets are not only the architects of dishonest schemes, or the tax consultants who promote them but also those who have invested in them.