HMRC proposes 'two-pronged' attack on tax avoiders and avoidance scheme promoters, says expert

HM Revenue and Customs (HMRC) is consulting on proposed additional financial and reporting burdens for those who have used multiple avoidance schemes, as well as looking at whether to introduce additional penalties in the most abusive tax avoidance cases. However, the most significant development was that the proposals did not just focus on taxpayers, said tax expert Fiona Fernie of Pinsent Masons, the law firm behind Out-Law.com.

"These measures are a continuation of the government's proposals to 'close the tax gap' and change the behaviours of recalcitrant taxpayers," she said. "The intention is to build on previously-announced measures which aimed to remove the economic benefit to the taxpayer of being part of a disputed tax avoidance scheme, thus discouraging the use of such schemes."

"The current proposals differ from previous measures, however, in that they do not only focus on taxpayer behaviour. Instead, the idea is that there should be a two-pronged attack, one aspect of which is a focus on the promoters of high-risk avoidance schemes. It would be interesting to see what effect the proposed measures in relation to the promoters of schemes – which include 'naming and shaming' and fines of up to £1 million – have on the number and efficacy of new schemes introduced to market," she said.

The government announced that it would consult on potential sanctions for repeat users of known avoidance schemes as part of the Autumn Statement in December. The new measures follow last year's introduction of 'accelerated payment notices' (APNs) allowing HMRC to demand the payment of disputed tax associated with an avoidance scheme up front. APNs can be issued where schemes hit certain "avoidance hallmarks", such as the scheme being subject to disclosure requirements under the Disclosure of Tax Avoidance Schemes (DOTAS) rules.

According to HMRC, it has issued APNs worth over £1 billion since the new regime came into force. However, HMRC was recently ordered not to enforce APNs in relation to a group of clients represented by Pinsent Masons, who are pursing a judicial review claim against the issue of the notices. Fernie said that the outcome of the review "could have a significant impact on whether taxpayers are influenced to change their behaviours and steer away from using tax avoidance schemes".

The measures proposed in the new consultation would apply to a group of 'serial' users of tax avoidance schemes yet to be defined, but which could cover those who use the same avoidance scheme in more than one year or who use different avoidance schemes over a short period. These taxpayers could be required to pay a surcharge on the repeated or concurrent use of tax avoidance schemes that fail, or could become subject to special notification requirements. Those who enter these 'special measures' could also have their names published by HMRC.

The consultation also proposes strengthening the new Promoters of Tax Avoidance Schemes (POTAS) rules to catch promoters if a "significant proportion" of the schemes that they notify under DOTAS fail in the courts or tribunals. This new "threshold condition" would be set in such a way as to ensure that it does not catch tax advisors who conscientiously comply with the reporting regime and whose products are generally compliant with the law, according to the consultation document.

The consultation also considers whether to introduce additional penalties for cases where the general anti-abuse rule (GAAR) applies, and if so how to do this. The GAAR was introduced in July 2013 and is designed to prevent 'artificial and abusive' tax avoidance schemes that "cannot reasonably be regarded as a reasonable course of action". This could take the form of a new penalty for cases where the GAAR applies, or the introduction of a surcharge in cases where the GAAR applies, according to the consultation.

The consultation closes on 12 March 2015.