A recently closed consultation suggests that ‘enablers’ of tax avoidance, including tax advisers and accountants, could face penalties where their clients have used tax avoidance schemes that are ultimately defeated.
What do you need to know?
Meaning of ‘enabler’
The government appears to be concerned that whilst users of aggressive avoidance schemes can face financial penalties, those who act as ‘enablers’ or intermediaries in the process do not, and so there is little risk for them – and therefore no disincentive to steer clear – even though they may have benefitted from fees or commissions as part of the ‘supply chain’.
The definition of an enabler will be wider than that of a promoter. For example, an accountant could seemingly fall foul of the rules merely for introducing a client to a scheme promoter, even if the accountant has nothing further to do with the arrangement.
Defeated arrangements
That is set to change according to the consultation ‘Strengthening Tax Avoidance Sanctions and Deterrents: A Discussion Document’, which proposes tax geared penalties of up 100% of the tax at stake – the trigger being the arrangements being ‘defeated’.
The consultation proposes that arrangements will be considered defeated if:
• arrangements have been defeated by the general anti-abuse rule (GAAR);
• arrangements have been given a follower notice;
• arrangements are notifiable under the disclosure of tax avoidance schemes (DOTAS) provisions, or the VAT DOTAS provisions; and
• arrangements have been the subject of a targeted anti-avoidance rule (TAAR) or unallowable purpose test contained within a specific piece of legislation
The last point is particularly worrying for advisers, as the interpretation of the laws can be contentious – and it appears to be at least possible that advisers might be fined for simply having a different view of how the legislation applies to a particular set of circumstances, and advising clients to complete their tax returns accordingly.
The paper also suggests that arrangements can be considered defeated where the taxpayer accepts and agrees to pay up. This is extremely worrying, as a taxpayer could feel intimidated into doing so before going to tribunal – their adviser could conceivably therefore be penalised, even where the arrangements are yet to be tested in court.
Problems for tax advisers?
Potential problems for tax advisers and accountants include: what happens if your client has entered into avoidance schemes without consulting you? Could you be caught out? Thankfully, there is no scope for penalties to apply to advisers who are ‘unwittingly party’ to avoidance arrangements. This means that where you didn’t know your client had undertaken a transaction, or knew, but you’d explicitly advised them not to do it as it might constitute unacceptable avoidance, you should be ok – the obvious problem will be proving it, and so minutes of client meetings and phone calls should be meticulously kept.
It would appear that simply submitting a tax return with (say) a loss from a partnership reported, where the partnership information has been provided by a third party, should not cause a problem.
Advising going forward
There is currently no proposed introduction date for the new penalty regime; it will merely form part of a future Finance Bill. A lot will depend on the responses to the consultation.
The appetite for aggressive avoidance has diminished somewhat in recent years, following a number of high profile tribunal cases finding in HMRC’s favour, the introduction of accelerated payment notices, and the introduction of targeted anti avoidance rules.
Practical Tip:
Tax advisers with clients who want to undertake planning going forward will need to be aware that they could face penalties if they assist clients in any way, and weigh this up against any financial reward that in the past may have been seen as easy money.
