Tax Avoidance 2021 – The Finance Bill
On 21 July 2020, the Government published draft legislation in anticipation of the next Finance Bill (which will eventually become Finance Act 2021) and a policy paper to accompany the draft. Among the provisions are proposals to assist HMRC in pursuing promoters and enablers of tax avoidance schemes, including the granting of further and wider information powers to the Commissioners and more stringent sanctions in the event of non-compliance. Those currently working within who aim to enter the avoidance market will find that the stated aim of these measures is to restrict that market.
The proposals concentrate on Promoters of Tax Avoidance Scheme (POTAS) and Disclosure of Tax Avoidance Schemes (DOTAS) rules and the changes include:
- Further rules on the issuing of stop notices to promoters, under the Promoters of Tax Avoidance Scheme (POTAS) rules, to make it harder to promote schemes that do not work
- Changes to prevent promoters from abusing corporate entity structures to avoid their obligations under the POTAS rules
- Ensuring HMRC can obtain information about the enabling of abusive schemes (for the purposes of the Enablers Penalty Regime) as soon as they are identified
- Levying enabler penalties without delay when a scheme has been defeated at tribunal stage.
- Ensuring that HMRC can act quickly and decisively where promoters fail to provide information on their avoidance schemes under the Disclosure of Tax Avoidance Schemes (DOTAS).
- Making further technical amendments to the POTAS regime so that it continues to operate effectively and to ensure that the General Anti Abuse Rule (GAAR) can be used to counteract partnerships.
POTAS
Stop Notices
Additions to the rules (in S236 Finance Act 2014) will amend the current stop notice powers so that HMRC may issue notices earlier, in order to stop the sale of schemes that will not give the tax advantage that the promoter has promised before the scheme has been defeated. Under the proposed legislation a stop notice could be issued for a new tax scheme where:
- HMRC has a reason to suspect that a person is a promoter
- The promoter is promoting arrangements where at least 1 benefit is a tax advantage and
- HMRC has reasonable grounds to suspect that the arrangements do not deliver the tax advantage promised.
And where the promoter is issued with a scheme reference number in relation to any scheme under DOTAS, has previously been found to have breached the POTAS regime, promotes schemes that are caught by the loan charge or disguised remuneration provisions. These are the result of the independent review into the loan charge policy in December last year.
The effect of the stop notice will be to prevent the promotion of arrangements that meet the description in the notice (and so examination of the notice will be critical) and to require the person subject to the notice to provide quarterly returns including:
- In the first return the number of clients to whom the person has provided relevant services before the stop notice,
- The number of clients to whom the person has provided relevant services since,
- The details of those clients and
- Any name by which the scheme is known or marketed.
The new provisions include the powers to permit HMRC to require promoters to produce information or documents for the purposes of monitoring compliance with the notice, establishing whether the person meets threshold conditions or enabling HMRC to understand how the promoted scheme works. A failure to provide the information will render the person liable to penalties and (in serious cases) criminal sanction (punishable with a maximum of 2 years imprisonment), bringing stop notices in line with Information Notices (Part 8 Finance Act 2008).
If a promoter does not comply with a stop notice they would meet a POTAS threshold condition which may lead to HMRC giving them a conduct notice under section 237/237A FA2014. A conduct notice imposes conditions on the promoter which require it to change its behaviour and can lead to a monitoring notice and potentially stronger sanctions such as the publication of information about the promoter and an ongoing requirement to provide HMRC information relating to avoidance schemes they are promoting.
A recipient affected by a stop notice can request that the notice cease to have effect in writing by providing evidence to show that schemes are no longer promoted or intended to be promoted or if there are other reasons (unspecified by the Bill but which may be the subject of HMRC guidance by notice). If HMRC refuse to withdraw the notice there is a right of appeal by s236E to the Tribunal.
Use of Corporate Structures
Schedule 33A to the Bill also contains measures that are plainly aimed at those who use corporate structures to try to avoid legislation. Individuals who operate in the UK and act under the influence or guidance of an offshore promoter will be deemed as carrying on the business as a promoter. If HMRC believe and can show that a person with significant influence or control sets up a new entity into which promoting activities are transferred HMRC would be able to attach threshold conditions, and conduct and monitoring notices to the new entity.
Threshold Conditions
The proposed legislation updates the DOTAS threshold conditions to include disclosure failures of any nature, and brings DOTAS and other disclosure powers within the POTAS remit.
DOTAS and Information Notices
HMRC will be able to publish and the enablers name and address, the number of penalties to which the person is subject sooner that is presently the case. The notices can be issued to a wider range promoters and intermediaries in the chain Initially the notice will require the recipient to supply HMRC with information in order to ascertain whether an undisclosed avoidance scheme (as caught by DOTAS) is being. If the information is forthcoming HMRC would be able to use that information as normal within the DOTAS regime. The second stage is triggered if the information is not forthcoming or insufficient and would enable HMRC to issue a DOTAS Scheme Reference Number (SRN). This would help bring a scheme into the DOTAS regime quicker and allow HMRC to take action faster against promoters of avoidance schemes.
Companies and individuals who have already had HMRC interest in their business by way of DOTAS information notice ought to pay particularly close attention to the proposed changes, to the routes of appeal and to the reputational damage of failing to do so.
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