The attack on promoters of tax avoidance schemes has come from many different angles. For example their existing base of clients may have suffered some of the following:
A formal enquiry
A letter encouraging the use of a settlement opportunity
An Accelerated Payment Notice
The fear of the above may have also impacted a person’s desire to undertake tax planning. It may be worth noting that there is general confusion as to what is acceptable or not because what was assumed acceptable ten years or more ago has recently been branded by HMRC as unacceptable.
A quick search on the internet reveals what appears to still be a thriving market (at least on the promotion of tax planning). The concepts we identified appeared from our insight and knowledge of such arrangements to be schematic and possibly, illegal: more fraudulent hiding behind a premise as opposed to any real structuring.
Curiosity led to a little research on some of the promoters and their principles, which may indicate that there is still an active market for the tax planning they are promoting. It may also indicate that those promoters are structuring their affairs in a manner that fees are diverted offshore! This may indicate that the measures introduced by HMRC are not effective, which could be why HMRC are strengthening their approach to high risk promoters – the subject of a HMRC announcement on 7 March 2015.
Why do people continue to promote tax planning schemes and why do people still use them?
The simplest answer may be that people dislike the tax system/government; although it is suspected that they value more money in their own hands rather than in someone else’s. Obviously if the Health or Police service weren’t able to support that person, they would probably complain. They may even justify that they consider they have paid a fair amount of tax regardless of any tax planning.
However, what if they had paid very little tax? For example, let us consider someone who earns £100,000 a year and undertakes planning costing say £15,000 and pays no tax versus someone who earns £1,000,000 a year and undertakes planning saving say £200,000 of tax but still pays £300,000 of tax. Is either party behaving more reasonably than the other? Is it simply that reducing your tax is wrong? What if one had undertaken what was largely considered acceptable tax planning and the other had used an avoidance scheme?
The reality is probably that:
Promoters overstate the benefits and avoid informing the risks
Users desire to accept what the promoters tell them because they have become accustomed to not paying higher tax and may not be able to afford to pay given previous tax reductions resulted in lifestyle improvements
Promoters are desirous of maintaining an income stream and may not be able to afford to lose the income stream without reducing lifestyle
Considering some of the statements made by promoters we identified it is probably no wonder that HMRC are strengthening their approach to high risk promoters. Some of the statements we found included:
“Used by in excess of 10,000 individuals and businesses”
“Planning does not require a DOTAS number”
“100% legal and can reduce your taxes and save you money”
“Drawings received normally and are placed into trust”
“Mechanism in place to allow access to drawings to help mitigate Income Tax”
“Monies contributed to a trust are tax deductible”
“Arrangements disclosed to HMRC on annual return”
“Supported by leading tax counsel”
“Up to 90% returns. Same day payments”
“Specialist trust and tax lawyers will provide professional advice to you in the event of an enquiry from HMRC”
“Receive up to 90% earnings” “Same day payments” “Fully compliant range of strategies”“100% Compliant”
“Been in operation for over 25 years and never been successfully challenged by HMRC”
“Your legally robust solution”
“Fees insured through PI cover up to £2.5m per case ( has never had to be claimed on)”
“You remain in control of funds with a UK bank account”
These statements did not appear to be made by tax professionals. The claims are to any qualified tax adviser a little too optimistic. One of the first things a tax adviser learns is that there are lots of “grey areas of law” where adviser and HMRC may disagree, which means there is a risk. Why are the risks not highlighted?
Measures to counter the behaviour of certain promoters
The original measures were aimed at schemes made widely available. The target group were a small group of tax promoters who were marketing schemes and failing to comply with the obligations under the Disclosure of Tax Avoidance Scheme (DOTAS) rules (according to HMRC). However, the rules now go significantly further and anyone involved in any way connected to arrangements designed to obtain a tax advantage should consider their application.
The provisions in FA 2014 (High Risk Promoters Prescribed Information) Regulations 2015 allow HMRC to issue high risk promoters with a conduct notice. If a promoter does not comply with the terms of the conduct notice, they will, under the new rules, be issued with a monitoring notice and the promoter will be publicly named by HMRC. Promoters will also have to make their circumstances clear to prospective customers. Failure to comply with the conditions of the monitoring notice could result in fines up to £1m.
High risk promoters
The definition of promoter could catch those involved in the design (to any extent responsible) or implementation (organisation or management) of a relevant proposal or arrangement as well as those promoting or sub promoting (makes or has made a firm approach to another person with a view to making the proposal available for implementation by that person or another person).
The definition of a relevant proposal or arrangement is also wide and appears to catch more than originally intended. Broadly a relevant proposal means a proposal for arrangements which (if entered into) would be relevant arrangements. Arrangements are relevant if the expectation is to enable any person to obtain a tax advantage and the main (or one of the main) benefits is the obtaining of that advantage. An arrangement includes any agreement, scheme, arrangement or understanding of any kind, whether or not legally enforceable, involving one or more transactions. A tax advantage includes relief, increase relief, repayment, avoidance or reduction, avoidance of assessment, deferral, and an avoidance of an obligation to deduct/account for tax.
The sanctions apply where the promoter breaches the threshold condition, is issued with a conduct notice and fails to comply with the conduct notice.
Once a promoter is identified, HMRC may issue conduct notices provided one of the conditions (the “threshold conditions” is met in the previous three years).
The conditions include where the promoter:
Is the subject of publication as a deliberate tax defaulter
Is named in a report for a breach of the Code of Practice on Taxation for Banks
Receives a conduct notice as a dishonest tax agent
Failed either to disclose a tax avoidance scheme or to provide details of clients to HMRC
Has been charged with a specified tax offence
Has been found guilty of misconduct by a professional body
Failed to comply with an information notice issued by HMRC
Requires a contribution to a fighting fund
Continues to market or make available a tax avoidance scheme after being given a notice to stop following a judicial ruling
A further condition is where a majority of a sub-panel of the General Anti-Abuse Rule Advisory Panel has given an opinion that entering into one of the promoter’s tax avoidance schemes is not a reasonable course of action.
HMRC may also amend any of the conditions or add new ones.
Meeting a threshold conditions can result in an automatic conduct notice. HMRC have discretion where there is a breach of the Banking Code of Practice or disciplinary action by a professional body or regulatory authority.
Before deciding on the terms of the conduct notice, the recipient must be given the opportunity to comment on the proposed terms. A conduct notice will require the recipient to comply with specified conditions, which are reasonable to impose specified purposes. The notices are likely to require the evidencing of behaviour including demonstrating the provision of adequate information to clients and intermediaries as well as contractual relationships with other parties and details of what is being promoted.
No doubt the conduct notices will not be received well and some will avoid. Enter, further sanctions.
If the conduct notice is breached, the promoter may be subject to a monitoring notice.
A monitoring notice must state the reasons for the decision and which condition has not complied with. It must also explain the effect and effective date of the monitoring notice. There is a right to appeal against a monitoring notice.
HMRC may publish the fact that a person is a monitored promoter. The publication may include
Name (trading name, previous name or pseudonym)
Business address or registered office
Nature of the business;
“Any other information that the authorised officer considers it appropriate to publish in order to make clear the monitored promoter identity”
HMRC may also publish a statement stating which conditions in a conduct notice the person has failed to comply with.
The recipient of a monitoring notice must give any person who is a client (at the time the monitoring notice takes effect) and any person who becomes its client (while the monitoring notice has effect) a notice stating:
That they are a monitored promoter
Which of the conditions in a conduct notice it has been determined that the person has failed to comply with
The monitored promoter will receive a promoter number and a continuing client of the promoter must notify HMRC of that promoter number if they expect to obtain a tax advantage (from monitored arrangements).
There are also provisions to permit HMRC to obtain information ongoing from monitored promoters as well as intermediaries and clients.
Finally, failure to comply with the conditions of the monitoring notice could result in fines of up to £1 million.
Obviously HMRC’s steps are another tool to counter abusive tax planning. It may be appropriate, as we have alluded to before, for HMRC to categorically state what is abusive or not or provide an efficient clearance service (which may involve more man power). That aside, will promoters or users stop or will they find new ways to do what they are doing? It is likely that a number will continue to pursue continued promotion because there is clearly a market and people desire keeping money in their pockets. The only difference is that they will be underground, although maybe this is where Connect and fraud detection will come into its own and if this is required, it is likely to result in some Criminal Prosecutions (predicted date 2020….)