Why does HMRC remove blacklisted tax avoidance schemes after just 12 months?

In years gone by, HMRC was criticised for not doing enough to warn taxpayers that they are involved in, or may be about to become involved in, a scheme or arrangement designed to convey a tax advantage not intended by parliament.

Or, to put it more bluntly, the taxpayer has or is about to be involved in a tax avoidance scheme which HMRC is aware of and will investigate, writes Tom Wallace, director of tax investigations at WTT Group.

Rolling the dice

In the past, HMRC’s unwillingness to invest resources to warn taxpayers of the dangers ahead was understandable. Most schemes were not targeted at the man on the Clapham Omnibus, but instead targeted sophisticated investors or businesses with access to good, professional advice. Most people were acutely aware that what they were entering into was not accepted by HMRC and would be challenged, but they were willing to roll the dice anyway.

However, with the proliferation of disguised remuneration schemes throughout the 21st century, hidden behind the veneer of what were claimed to be compliant umbrella companies, HMRC came to the realisation that more had to be done to warn taxpayers – including contractors. So it published the details of arrangements that it believed were tax avoidance.

Under what circumstances can HMRC ‘name and shame’ avoidance companies?

Therefore, HMRC was granted powers to publish details of schemes under limited circumstances. These circumstances are:

• Where HMRC has allocated a Scheme Reference Number under the Disclosure of Tax Avoidance Scheme (DOTAS) rules.
• Where the promotor has been given a ‘stop notice,’ or is in receipt of a monitoring notice, under the Promotors of Tax Avoidance Schemes (POTAS) rules.
• Where a penalty has been issued under the Enablers of Tax Avoidance (‘Enablers’) rules, or;
• HMRC suspects that a scheme involves tax avoidance in accordance with Section 86 Finance Act 2022 (FA 2022) legislation.

There is no time-limit on how long the details can remain published where a promotor has notified HMRC of the scheme under the DOTAS rules; the details are published under FA 2022, or they are made available as a result of the POTAS rules.

No longer serving the purpose

Where HMRC registers the scheme themselves under DOTAS, or details are available as a result of the Enablers rules, HMRC must remove the published information 12 months from the date it was made available.

In practice however, HMRC has been reviewing all published schemes at the 12-month stage for removal under a policy to erase information where it no longer serves the purpose of helping the taxpayer identify the associated risks of using such arrangements, or protecting the public revenue.

Why? Well, this would normally be because the scheme is no longer being operated and promoted under that entity listed, or at all. HMRC’s argument for this removal is that it helps keep the published list relevant and focused on those schemes that are currently being sold.

The names change, the mechanisms don’t

While I appreciate the need not to overwhelm taxpayers with irrelevant information, it can be argued that although the names of the entities change, the mechanisms by which payments are made ‘tax free’ do not, and therefore an archive list would be helpful so as to identify the hallmarks of such schemes. Currently no such archive officially exists, although internet sites (and some determined folk on the ContractorUK Forum) do retain snapshots of web pages at certain points. So contractors and others are doing their best to unofficially retain such useful information in an easily accessible format.

A short deadline that doesn’t protect taxpayers

However, the fact that such a relatively short period of time has been set for those arrangements published because HMRC have registered them as DOTAS has caused consternation among those in the contracting community, given that most of these schemes are aimed at those in the contingent workforce.

This appears counterproductive, as many of them may still be operating and therefore such an arbitrary short deadline does not give the protection that taxpayers want and need.

Good news: what HMRC is doing to pay more than just lip service

The good news here is that HMRC has now said that where such a scheme is still in operation at the point that the 12-month entry expires, the department will seek to immediately republish the details under the FA 2022 rules, so that the information can remain on the list until such a point it becomes obsolete.

The Revenue has undertaken to make such a publication before the removal of the original entry -- so that there is no gap in visibility of the scheme. This is welcome, and perhaps goes some way to reassuring contractors that HMRC is paying more than just lip service to such lists as a PR exercise, and genuinely want it to be a useful resource.

To end, a cautionary note…

However, I would be quick to caution that just like the fact that a scheme is not listed at all, a scheme being removed is not acceptance by HMRC that it was effective or achieved the results it claimed it did. If your tax return is not already subject to an investigation, it likely will be, and you should seek qualified tax advice from a specialist as to how to resolve the tax issues that are caused by the use of one of these schemes.