HM Revenue & Customs has published new guidance on how it implements its so-called Serial Tax Avoidance Regime legislation, which came into force in 2016, and which, in HMRC’s words, “imposes various sanctions on users of tax avoidance schemes that are later defeated in court or tribunal”.
The guidance could be of interest – if little help, except to avoid future losses – to those who were involved in recent cases in which UK courts found in favour of the tax authority and against investors who had sought to obtain tax relief in exchange for investing in film partnerships.
Although the Serial Tax Avoidance Regime, or STAR, was originally billed as applying to persistent users of avoidance schemes, in fact it applies to any taxpayers “who have used only one avoidance arrangement that has been defeated”, according to a notice about the new HMRC guidance on the website of the Society of Trust & Estate Practitioners.
According to STEP, which in turn quotes from the 57-page guidance document found on HMRC’s website, “new avoidance arrangements entered into since 15 September 2016 are caught by the regime, as are arrangements that were entered into before that date, if they were defeated after 5 April 2017”.
“When a scheme is defeated in court, HMRC has 90 days in which to issue the taxpayer with a warning notice requiring them to provide full information each year on their use of tax avoidance arrangements”, the STEP summary adds.
The penalties for those who are found to have avoided tax through a scheme that the courts rule against increase the more one engages in the practice, with a 20% penalty charged for the first defeat, 40% for the second and 60% for the third and any successive defeats. Those who are ruled against three or ore times risk being named publicly named, and could be subject to a three-year restriction on access to direct tax reliefs, the HMRC guidance document notes.