HMRC in 'long-lasting' assault on tax avoiders
The providers of tax avoidance schemes and their customers should consult with the government now, before it stamps on their contrived legal side-stepping of liabilities that is responsible for almost 14% of the UK tax gap.
All but issuing the ultimatum, the government said HM Revenue & Customs should have powers to more clearly identify avoidance schemes and the parties they involve, including any intermediaries and, specifically, “end-users” – the individuals expectant of a tax advantage.
It also seeks a “higher hurdle” for ‘reasonable excuse’ for failure by an avoidance scheme promoter to report a scheme, and may even force them to hand over client lists, which the government says should contain a greater level of detail. More footballers, entrepreneurs and comedians would therefore be exposed.
In particular, HMRC says, it should have the power to disclose information about schemes that are proved not to work; release details on their failed promoters (without breaching rules on taxpayer confidentiality), while spelling out the consequences for their customers.
Ironically, individuals and firms currently in receipt of “marketing and advice about tax avoidance” are specifically appealed to respond to the responding framework, open for consultation until October, with a view to it taking effect from the end of next year.
Asked in the paper for their comments on the package of anti-avoidance reforms, and suggestions for improving HMRC’s public information about avoidance, such individuals or firms may be lowering their tax bill via an intermediary.
“There is no onward reporting obligation on intermediaries, so in such cases client lists will not inform HMRC who the end user is,” says the government, cueing up its response in the consultation, Lifting the Lid on Tax Avoidance Schemes.
“For example, HMRC has had disclosures of employment income schemes where the client is an offshore umbrella company. Further, since it is offshore, it cannot be compelled to pass on the scheme reference number to those parties (UK companies and individuals) who intend to obtain income tax and NICs.”
To help counter the activity, the taxman will impose extra reporting obligations on parties who fail to disclose a scheme; will force them to disclose client lists and wants a person, or firm, to have an “obligation” to ensure so-called DOCAS obligations are being met.
Speaking after the consultation’s unveiling yesterday, by Exchequer Secretary David Gauke, the Chartered Institute of Taxation was welcoming, but warned: “These proposals would see a significant tightening of the rules for Disclosure of Tax Avoidance Schemes.
“The DOTAS regime has been in place since 2004 and has proved a mostly effective way of identifying and dealing with unacceptable avoidance schemes. However some have been playing fast and loose with the disclosure rules and it is understandable that the government want to target these people – whether they are scheme promoters or their clients.”
CIOT president Patrick Stevens welcomed HMRC’s recognition that “benign” tax planning should not be caught up in the avoidance clampdown.
"Most tax advisers will support tackling those who give the profession a bad name – but there will be a need to make sure these really are targeted and there are safeguards to ensure that normal tax planning is not affected,” he said.
Yet according to HMRC, its officials are aware of arrangements involving groups or consortia that “go beyond what could reasonably be described as benign planning,” which it states is not the intentional target of the incoming measures.
“This consultation,” the CIOT reflected, “alongside those on a general anti-abuse rule and a cap on tax reliefs… raise big questions about our tax system and how the tax authorities ensure taxpaying individuals and companies pay ‘their fair share’. Changes made to the system over the next 12 months are likely to be far-reaching and long-lasting.”