Limited companies warned amid onslaught on tax avoiders
HM Revenue & Customs has fired a warning shot directly across the bows of limited company owners, seeming to position them firmly within its crosshairs for what it says is the biggest step up in its targeting of tax avoiders.
In a publication released alongside a raft of new anti-avoidance proposals, HMRC effectively explains that the tax liability of a limited company director is far from limited to just the company if they engage in avoidance.
“If you are a director of a limited company and you are considering involving the company in an avoidance scheme you must remember that you owe legal duties to the company and its employees, customers and creditors.
“This means,” the Revenue adds in ‘Tempted by Tax Avoidance?’, “that you could be personally liable for the company’s tax or other debts if the company engages in risky tax avoidance which causes loss to the company.”
The tax authority’s warning, aimed at individuals contemplating avoidance schemes, includes tips such as “if something sounds too good to be true - it probably is,” “don’t fall for the sales pitch,” and “HMRC never approves tax avoidance schemes.”
It coincides with HMRC’s invitation to firms or individuals marketed to by ‘high-risk’ scheme promoters to have their say on fresh anti-avoidance proposals, including a provision to impose penalties on ‘other users of failed schemes.’
In particular, the Revenue wants to know what safeguards should be put in place for its proposal to oblige taxpayers who have used avoidance schemes which are defeated in another party’s litigation to amend their tax return, or be penalised.
Specifically, the ‘other’ taxpayers would face a tax-geared financial penalty if they fail to satisfy HMRC that there is a “reasonable basis” for not amending their self-assessment tax return (“to negate the tax advantage they had gained”), to reflect the court’s judgement.
“This adjustment would take effect when HMRC close the enquiry,” the consultation adds.
“This option would require changes to the time limits for amending returns, but these changes would not be applied generally and would be restricted to amendments to returns required under these proposals.”
Seeming aware of his low haul from EBT users, the taxman added of the proposal: “This would remove the incentive that currently exists to delay settlement with HMRC and would encourage taxpayers to settle their case and pay the tax they owe much sooner than at present, without HMRC having to expend resources needlessly pursuing cases with the same material facts.”
The proposal appears to be the most likely one of the anti-avoidance set being consulted on by HMRC to directly impact some contractor taxpayers, although such workers may wish to feedback on the others, in light of their potential to also impact them.
Among them, is a new package of obligations for ‘high-risk’ avoidance scheme promoters who, according to the proposals, face being 'named and shamed' to the public (so they are “isolated from mainstream tax advisers”); subjected to earlier data requests about their products and forced to alert their users (and intermediaries) of HMRC’s scrutiny of them.
In terms of the naming and shaming, HMRC foresees a two-fold approach using new legislation. Firstly, it will put out publicity about the promoters, including posting their details on the Revenue website so that potential users are aware of “the consequences” of using one or more of their products.
Secondly, the promoter should face an obligation to notify all users and intermediaries – even if offshore - that HMRC has deemed them and their products to be ‘high risk’, states the consultation, open for responses until October.
Writing the foreword of the HMRC document, the exchequer secretary to the Treasury David Gauke reflected on why such anti-avoidance measures against promoters are on the table.
“[‘High risk’ promoters are] out of step with society at large, which has made it clear there is no tolerance for tax avoidance,” he claimed.
“We will make it significantly harder to market avoidance in the first place. That will be underscored by significant new penalties for failure to comply with the new regime and higher standards for reasonable excuse and reasonable care that will apply to attempts to sidestep it.”
In line with his stance, HMRC also proposes to strengthen the Disclosure of Tax Avoidance Schemes (DOTAS) regime, so that the initial data provided to the tax authority about an avoidance arrangement should include “all material provided to prospective uses of the arrangement.”
Currently, ‘all material’ includes sample copies of all documents signed by the users as part of the arrangement; a full analysis of the tax advantage that the arrangement is designed to obtain and an explanation of how the arrangement produces the tax advantage.
Pointing to the raft of anti-avoidance proposals, Mr Gauke said: “Never before have the stakes been raised so high and the disincentives to market and participate in avoidance so strong.”