Background

On 23 July 2012 HMRC published a consultation document “Lifting the lid on tax avoidance schemes”. In HMRC’s view, this consultation document “describes a significant new programme of work the Government is developing to improve the information available to HMRC and customers about tax avoidance schemes and the risks of using them.”

The intention of the consultation document, according to HMRC, is twofold. Firstly it is designed to warn the public of the risks of using tax avoidance schemes. Secondly there are options to make the Disclosure Of Tax Avoidance Schemes (“DOTAS”) regime more stringent.

More information for taxpayers

The consultation document states that the Government is developing a programme of measures for “improving information about avoidance arrangements and the risks associated with using them.” The consultation document makes two key suggestions.

  1. HMRC will, subject to its legal duties of confidentiality, publish further information about avoidance schemes and “the risks and consequences attached to those schemes”. For example, it will explore what further information it could publish about schemes that are proved not to work, about the promoters of those schemes and the consequences for the users of those schemes. HMRC is also looking at ways of making more effective use of new social networking media.
  1. HMRC is also exploring ways in which “it could communicate more directly with users of tax avoidance schemes where it considers the schemes to be ineffective and, in particular, warning of the risks of using those schemes which rely upon some degree of misrepresentation or concealment of the facts in order to deliver the purported tax advantage.”

Enhancing DOTAS

In HMRC’s view, the information that promoters are required to provide on client lists is not sufficient, “where the scheme is mass marketed to individuals,” for HMRC to match the data to specific customers. HMRC also claim that it is difficult for them to identify the end user of the scheme rather than an intermediary, for example, in instances of disclosures of employment income schemes where the client is an offshore umbrella company.

The intention is to enable HMRC to obtain “sufficient information to be able to cut through the chain of introducers and intermediaries … and identify who the end users are.” Different options are discussed, namely imposing an additional client list reporting obligation on promoters and intermediaries and/or providing HMRC with additional powers to require persons involved in marketing a scheme to identify the other parties in the scheme and what their role is.

HMRC also propose to increase the penalties payable by promoters who fail to disclose a tax avoidance scheme to HMRC. The consultation document stated that FA 2010 has provided for a tribunal to impose higher maximum penalties, up to £1m for a promoter who fails to disclose a scheme. In HMRC’s view, however, some promoters still do not disclose and even if, following an enquiry, they do make a disclosure “they will generally rely upon the fact they have legal opinion that the scheme was not disclosable as providing “reasonable excuse” for non-disclosure.” The consultation document continues:

4.12 The Government recognises that there is a difficult balance to be struck in ensuring compliance. Disclosure is “self-assessing” and a promoter has to interpret the law as to whether or not any particular scheme is disclosable. On the one hand, it would be wrong to penalise a promoter who has relied upon a reasonable interpretation of law and fact. It would also be wrong to force a promoter to disclose a scheme in order to prove it is not disclosable. On the other hand, the later a disclosure is made, the less its value to HMRC and the more that promoter has gained an unfair advantage over those competitors who have disclosed a similar scheme.”

In HMRC’s view, therefore, there is “a case for raising the hurdle for a reasonable excuse as extinguishing a prima facie breach of the rules (eg to where the promoter relied upon a reasonable interpretation of both fact and law).”

Finally, HMRC considers that there is a case for imposing a personal obligation upon an individual, alongside the obligation on the firm, “to ensure that a promoter’s DOTAS obligations are complied with. This will be of particular significance where the firm is dissolved, moves offshore, or the individual moves from firm to firm. The Government does not want to impose any additional obligation on the vast majority of accountants, solicitors etc who do not engage in avoidance schemes and are in practice never promoters for DOTAS purposes”.

Conclusion

HMRC is already equipped with a formidable array of weapons in the battle against tax avoidance, with the introduction of the GAAR being yet another major weapon it can deploy to tackle what it perceives to be unacceptable avoidance. In our view, there must come a point where, finally, the Government says “enough is enough” so that hard pressed practitioners can be spared yet more pages of new and complex legislation.

No one can question that the public interest lies in a fair and efficient tax collection system. HMRC should be given the necessary resources to tackle its responsibilities and should not have to cope with the stringent cuts that have been imposed in recent times. It is not clear, however, what benefits will arise from the addition of yet more pages of legislation to the statute book. There are also unwelcome signs that a “witch hunt” is being waged against tax advisers who have designed and implemented tax structures and those who have participated in these structures. The concern here is that the confidentiality that such taxpayers are entitled to will be compromised and the promoters themselves subject to the levying of penalties and other legislation that may be contrary to provisions in the Human Rights Act.