HMRC consulting on "sudden and unprecedented escalation" of sanctions against tax avoidance scheme promoters

New marketing restrictions, which HMRC will be able to impose on firms before any tribunal or court has considered the legality of a particular tax planning scheme, will be included in this year's Finance Bill subject to a consultation which closes at the end of this month. Lawyers, accountants and other tax advisers that do not comply with restrictions placed on them by HMRC could be fined up to £1m if they continue to promote schemes that HMRC considers to be avoidance.

Tax expert Ray McCann of Pinsent Masons, the law firm behind Out-Law.com, said that the new rules would "very publicly stigmatise these tax advisers and mean that they will struggle to win new clients and carry on in business".

"Since HMRC will be able to apply these rules before any tribunal or court has considered the efficacy of the tax planning scheme being promoted the severity of the proposals will raise concerns about the infringement of human rights," he said.

"HMRC would like to drive the providers of tax avoidance schemes out of business and they have already had success in this area with some of the more prominent promoters of tax schemes already having shut up shop. £1m fines are a sudden and unprecedented escalation of the sanctions that HMRC have against promoters of tax planning schemes and again makes clear the determination of the government to prevent abusive tax schemes," he said.

Under the proposed new regime, HMRC would be able to designate certain tax planning companies as 'high risk' and subject them to stricter monitoring and disclosure requirements. These companies would be required to state on their websites and inform all present and prospective clients, through their marketing material and other communications, that they are being monitored by HMRC.

High risk promoters would also be required to issue their clients with a 'promoter reference number', to be used by the client on tax returns and other material sent to HMRC. The proposed legislation would also make it a criminal offence for those promoters to dispose of relevant documents. Tax advisers that fail to comply with these new requirements could face fines of as much as £1m, depending on the seriousness of the offence and the number of times that they have failed to meet HMRC's requirements.

Tax expert Ray McCann of Pinsent Masons said that the proposed legislation would also put the clients of tax advisers designated as high risk at a "very significant disadvantage", as HMRC would have a longer time period than usual in which to investigate those clients' tax affairs. Many advisers would also be concerned that it would be easier to breach one or more of the proposed threshold conditions than claimed by HMRC, McCann said.