The UK today launched a consultation proposing to fine accountants, tax planners, advisers, and others who enable tax avoidance. New rules were also proposed that would make it more likely that existing taxpayer penalties will apply when tax avoidance schemes are defeated.
“People who peddle tax avoidance schemes deny the country of vital tax revenue and this government is determined to make sure they pay,” Financial Secretary to the Treasury Jane Ellison said, announcing the proposals.
Under HMRC’s consultation document, if an avoidance scheme is defeated by HMRC, penalties would be imposed on anyone “in the supply chain who benefits from an end user implementing [the] tax avoidance arrangements and without whom the arrangements as designed could not be implemented.”
As such, penalties would extend not only to those that design, promote, or market, tax avoidance but also to individuals such as company formation agents and intermediaries that receive fees for referring business.
Tax avoidance schemes are defined in the proposal as those counteracted by the general anti-abuse rule in Finance Act 2013; that have been given a follower notice under Part 4 of Finance Act 2014; that are notifiable under the disclosure of tax avoidance schemes or the VAT disclosure regimes; or that have been the subject of a targeted avoidance-related or unallowable purpose test contained within a specific piece of legislation or regime.
Different options are presented on how to compute the size of the penalty. The government also proposes to publicly disclose the names enablers hit with the new penalty.
John Cullinane, Tax Policy Director of the Chartered Institute of Taxation, said that in its effort to combat tax avoidance, HMRC should take care to not prevent taxpayers from seeking impartial advice.
“We are concerned about a scenario where a taxpayer goes to their tax adviser for advice on risks attached to participating in a scheme, receives appropriate advice setting out these risks and the likelihood of the scheme being defeated, but decides to join the scheme despite this. It would be extremely harsh to penalise a tax adviser in this scenario where all the tax adviser has done is advise the taxpayer on the law as it stands,” Cullinane said.
The second part of the consultation proposes options designed to make it more likely that a taxpayer that used a defeated tax avoidance scheme would be considered careless and thus subject to heightened tax penalties.
The consultation recommends that existing rules be amended to describe what does not constitute the taking of reasonable care, or alternatively, to place the requirement to prove reasonable care onto the taxpayer.
The consultation runs until October 12.
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