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Expert questions need for "inconsistent" proposals to tackle 'boutique' tax scheme promoters

Out-Law News | 12 Aug 2013 | 4:23 pm | 3 min. read

New proposals allowing HM Revenue and Customs (HMRC) to tackle the promotion of "high risk tax avoidance schemes" by 'boutique' advisers "smack of shutting the stable door after the horse has bolted", an expert has said.

Ray McCann of Pinsent Masons, the law firm behind Out-Law.com, questioned the need for the introduction of new information powers and penalties against the promoters of failed tax avoidance schemes "so soon after the General Anti-Abuse Rule has become law".

"The proposals allow HMRC to designate a promoter as high risk," he said. "It seems unlikely that very many promoters are still operating in the way these proposals imagine or that they would have a ready supply of potential clients - those that do have been put on notice."

"The real task facing HMRC is to clear up the large backlog of tax avoidance schemes, some of which go back ten or more years. HMRC accepts that current levels of tax avoidance activity are significantly down, and that's why we have been pressing HMRC to look for more radical ways to tackle the backlog," he said.

In addition, HMRC has proposed new measures to encourage the users of avoidance schemes to settle their tax affairs quickly after similar cases have been defeated in court or at the tax tribunals. Users of similar schemes to the one that has failed which are under investigation could be forced to amend tax returns or face paying a penalty based on the tax avoided. The consultation also suggests that the proposals could be extended to schemes affected by past decisions, McCann said.

"Users of scheme who have not yet settled with HMRC may be exposed to penalties if cases decided in the past such as Dextra in 2005 and TowerMcashback in 2011 are regarded by HMRC as applying to them," he said.

Unlike tax evasion, which involves fraud or deliberate concealment, tax avoidance is not illegal but can involve using contrived and artificial arrangements to gain a tax advantage that the Government never intended. The new proposals build on work undertaken by HMRC last year on how to tackle the supply of and demand for such schemes, which highlighted the behaviour of certain "high risk" promoters as a problem.

Among the proposals is the introduction of a new power allowing HMRC to "name and shame" tax advisers whose behaviour is deemed to be high risk. Doing so will enable taxpayers to publicly identify "high risk" firms and distinguish them from mainstream tax advisers, HMRC said. It has proposed using a number of "objective criteria" to be used to identify these promoters, coupled with a general duty for it to consider "an overall view of the promoter's business and the level of risk", according to the consultation.

Once a promoter has been designated as high risk by HMRC, it is proposed that it will be subject to different obligations and sanctions from "mainstream" promoters. New information powers would require promoters to provide HMRC with information about their products, intermediaries and users in response to specific requests or on an ongoing basis. Promoters that do not comply with these requirements could face initial fines of up to £1 million and additional daily fines, according to the consultation. Users of the promoter's products, and intermediaries, would also be subject to disclosure obligations.

Promoters that have been designated "high risk" by HMRC would be able to appeal against this decision. Tax expert Ray McCann of Pinsent Masons said that this was "somewhat inconsistent" with the lack of appeal routes given to banks under HMRC's Code of Practice on Taxation for Banks, a new version of which is due to be formalised in legislation to apply from 2015.

"Given the banks are much less likely to engage in what HMRC views as 'aggravated' behaviour, this seems unfair," he said.

HMRC is also using the consultation to seek views on extending the prescribed information which must be supplied by those notifying it of the use of schemes covered by the Disclosure of Tax Avoidance Schemes (DOTAS) rules.

Exchequer Secretary to the Treasury David Gauke said that the proposals would "deter" taxpayers from using schemes which were often unsuccessful. HMRC won over 80% of the avoidance cases that it took to court, he said.

"The Government is committed to tackling tax avoidance and the proposals in this consultation will allow HMRC to further close in on the cowboy advisers promoting these high-risk schemes," he said.

"The vast majority of tax advisers are not high-risk and have moved away from selling aggressive avoidance schemes, but there is still a minority that persists in promoting these schemes. We want to make life as difficult as we can for them and demonstrate that there is no tolerance for aggressive tax avoidance," he said.