Britain’s plethora of tax professionals — whether they be accountants, lawyers or financial advisers — are now firmly in the taxman’s sights.
On Wednesday, HM Revenue & Customs released its long-anticipated proposals for new punishments for individuals and companies involved in designing, marketing or facilitating tax avoidance arrangements. The proposed penalties — which include a fine of up to 100 per cent of the amount of tax avoided — would apply to anyone professionally involved in a scheme that was later defeated by HMRC.
HMRC would not put an estimate on the expected impact of the new measures — which were designed to “look nasty”, according to one lawyer — until later in the consultation process. However, the prize is the £2.7bn the tax collector estimates that avoidance costs the UK public.
The government’s aim, said Chas Roy-Chowdhury, head of tax at the Association of Chartered Certified Accountants, is clear. “They want to drive certain categories of behaviour out of business,” he said. But the proposals were criticised for their lack of clarity in several areas, including what constituted “defeat”, and could scare firms off from providing legitimate tax advice.
Frank Haskew, head of tax at the accountancy body ICAEW, said that as the proposals stood, “almost any adviser or body is potentially within the new rules where their client may have been involved in a tax avoidance scheme”.
This is the latest attempt by HMRC — under pressure from the government — to make life more uncomfortable for those who use or market tax avoidance schemes.
For the past two years, the tax collector has been making extensive use of “accelerated payment notices” — where people or businesses it deems to be using tax avoidance schemes have had to pay the disputed amount up front while the dispute is settled.
These new rules are a further attempt to change the economics of avoidance by placing more risk on the professionals involved, who also face being named if they have been identified as enabling avoidance, in order to “alert and protect taxpayers”.
The proposals, which go out for a 10-week consultation, also seek to make it easier to impose penalties when avoidance schemes are defeated by forcing suspected avoiders to demonstrate that they took reasonable care not to make errors in their tax returns.
At present, the burden of proof rests with HMRC. The Treasury consultation proposes reversing that because it “creates an incentive for tax avoiders to make it difficult for HMRC to gather evidence to show their true motives”.
Campaigners, who have often accused similar government moves of being ineffective, welcomed the proposals.
Alex Cobham of Tax Justice Network, which has pushed for changes to international tax law, said that “by and large the threats do not come from individuals or individual companies deciding unilaterally to take a punt [on an avoidance scheme]. Instead, the threats stem from schemes which are marketed widely”.
Toby Quantrill, economic adviser to the charity Christian Aid, said the measures could be “quite effective” if implemented in full. There existed a “rotten global system”, he added, that relied on professionals being “prepared to test the boundaries of legality in order to help their clients slash their tax bills”.
But while all the professional bodies and firms were quick to support efforts to get tough on serial promoters of aggressive tax avoidance schemes that are frequently defeated in court, there was widespread concern that the proposals as currently drafted will affect mainstream tax planning advice.
Jonathan Riley, head of tax at Grant Thornton, the accountants, said that “defeating outright artificiality has to be good” but cautioned the government had a responsibility to provide “clear, unambiguous tax law”.
Richard Woolich, UK head of tax at DLA Piper, the law firm, said if the proposals were largely aimed at firms pedalling aggressive schemes, they would “act as a further deterrent to the cowboy advisers that are around”. But the wide definitions in the consultation document would give the whole industry pause for thought, he said, with the risk being that insurance companies chose to put up premiums for those doing tax advisory work.
Mr Woolich particularly highlighted the wording of the document suggesting sanctions would apply not only to schemes defeated in court. “That has the potential to be a lot wider.”
Fiona Fernie, head of tax investigations at Pinsent Masons, said HMRC’s aim seemed to be “if we make this look nasty enough, then people won’t want to go anywhere near it”. She flagged concerns that the definitions in the proposals were “too broad” and that there was nothing in the proposal to stop the sanctions being applied retrospectively.
John Cullinane, tax policy director at the Chartered Institute of Taxation, said it was important the regulations did not prevent taxpayers “from getting access to honest, impartial advice on the law”. Much of the wording was “extremely vague” and he said he was concerned about a scenario in which a client takes advice on the risks attached to participating in a scheme, but decides to join anyway.
“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.”
Additional reporting by Kate Allen, Lauren Fedor and Emma Dunkley
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