In what is seen as a major shift in approach, the UK Government is proposing to make accountants, lawyers, tax specialists and others whose advice lay behind individuals’ illegally aggressive tax avoidance schemes responsible for these schemes – and thus responsible for paying large fines – rather than the individual taxpayers themselves.
The new approach is revealed in a consultation document released today by HMRC, in which the Government proposes that those who advised their clients to invest in schemes that later were defeated in the courts could be forced to pay fines equal to as much as 100% of the tax the clients avoided having to pay.
The consultation, entitled Strengthening Tax Avoidance Sanctions and Deterrents: A discussion document, comes in the wake of vows by the new post-Brexit UK prime minister, Theresa May, to crack down on tax avoidance, which is a popular theme among cash-strapped voters.
It also comes after a number of dodgy tax avoidance schemes have been defeated in the courts by the Government, including several that involved celebrity clients and thus received considerable press coverage.
The closing date for comments is 12 October.
‘Vast majority…don’t work’
Jane Ellison, the financial secretary to the Treasury, said in a statement that the “vast majority” of the schemes designed to avoid tax “don’t work, and can land their users in court facing large tax bills and other costs”.
“These tough new sanctions will make would-be enablers think twice and in turn reduce the number of schemes on the market.”
One of the questions the consultation says the Government “welcomes views on” is “whether this approach is the right scope for a penalty on those who enable tax avoidance which HMRC defeats”.
Among the proposals contained in the consultation document is to make imposing penalties easier when avoidance schemes have been found in court to have been illegally set up, by redefining how the tax avoiders are deemed to have taken “reasonable care” to avoid errors in their tax returns.
A number of UK tax professionals contacted on Wednesday morning said they were still going through the 32-page document, and several said they needed more time before commenting.
Frank Strachan, partner and head of tax services for Edwin Coe LLP in London, said that in principal he “fully support[ed] a strengthening of HMRC’s ability to penalise those who continue to peddle these schemes, which most professionals and indeed most potential purchasers of tax avoidance schemes now know they are fools gold and shouldn’t be touched”.
“But I worry – every time HMRC is given new powers or sanctions, they misuse and misinterpret them, seeking to use them in scenarios that they weren’t initially designed for,” he added.
“So yes, great to see that those who peddle these schemes will face sanctions, but I’d want to see safeguards in place to ensure HMRC is fit for purpose to use [them].”
John Cassidy, partner at Crowe Clark Whitehill LLP, prefaced his remarks by noting that at this stage, the document in question is “only a consultation” at the moment. Beyond that, he added, “if it has the desired effect, will we ever see it used in practice? [Because] if it deters the promotion of aggressive avoidance schemes [with] the risk of a huge financial penalty, it will never be used.
“If it is used, I hope HMRC use it properly, and don’t target those of us who give bespoke tax planning advice.”