Clamping down yet again on Tax Promoters and Enablers
A new consultation paper has been issued by HMRC that aims, yet again, to crack down on Tax Promoters and Tax Enablers. The consultation may be found on:
HMRC have asked for responses by 1 June 2021.
HMRC justification for the new proposed measures
HMRC say:
‘Although HMRC’s existing anti-avoidance regimes have persuaded manypromoters to stop their activities, a small but determined population remains in themarket. Typically, promoters in this group refuse to cooperate and take everyopportunity to sidestep the rules, so that they can continue to sell their schemes. This includes increasingly basing themselves offshore in order to hinder HMRC’s
investigations.’
Definition of Tax Promoters and Tax Enablers
Paragraph 7 of schedule 16 Finance Act (No.2) 2017 defines a person who has enabled abusive tax arrangements as a person who:
- Is a designer of arrangements
- Is a manager of arrangements
- Has marketed the arrangements
- Is an enabling participant in the arrangements
- Is a financial enabler in relation to the arrangements
The legislation refers in many places to a person carrying on a business “as a promoter”. This is defined in section 235(1) of the Finance Act 2014. A person carries on a particular business as a promoter, if in the course of carrying on that business, that person is, or has been, a promoter in relation to a relevant proposal or arrangements. This means that person’s activities fall within any of the descriptions of a promoter given in section 235(2) or [3] of Finance Act 2014.
The effect of the legislation is that a person is a promoter of a relevant proposal if it:
- Is responsible to any extent for the design of the proposed arrangements
- Makes a firm approach to a person in order to make that proposal available to that person or anyone else
- Makes the proposal available for implementation by anyone
A person is a promoter of relevant arrangements if it:
- Is a promoter of a relevant proposal that is implemented by the arrangements
- Is responsible to any extent for the design, organisation or management of the arrangements
The provisions are extremely wide, and cover ever conceivable type of person, natural or otherwise, who might be involved in the design, marketing, and implementation of any ‘tax avoidance’ product.
Dissipation of assets
According to HMRC:-
‘…..there remains a determined group of promoters who seek to sidestep the rules within the anti-avoidance regimes, including exploiting safeguards as a form of delaying tactic to hinder HMRC in securing a penalty position and collecting that penalty. During this time some promoters continue to profit from promoting schemes while others seek to evade HMRC altogether by closing down their company, dissipating or moving their assets, and subsequently setting up a new company so they can continue to promote avoidance.’
The proposal would create a new power for HMRC to seek an order from a court or tribunal, to ring-fence the assets of a promoter of tax avoidance (or directors or individuals linked to the promoter) where certain prescribed conditions are met, for example where HMRC has reached a penalty position under the DOTAS, POTAS or Enablers penalty regimes. This might be by way of an upfront security payment or freezing order.
Offshore Promoters
HMRC say:
‘Promoters of tax avoidance schemes are increasingly basing their businesses offshore. Consequently, a significant proportion of the firms currently promoting tax avoidance are, or claim to be, based offshore. The regimes designed to tackle those who promote tax avoidance apply to promoters whether they are in the UK or offshore. However, tackling promoters who are based offshore presents a number of difficulties enforcing and collecting any sums due from the promoter. Complex offshore cases can take HMRC much longer to investigate and require more resource than equivalent UK cases.’
HMRC wants to deter UK based entities from acting on behalf of offshore promoters and so make it more difficult for these promoters to sell their schemes in the UK. The proposal in this respect is to do this by creating a liability on the promoter’s UK associates, to penalise them for assisting the offshore promoter’s activities.
Closing down Promoters and Enablers
HMRC say:
‘The government wants to disrupt the business activities of companies involved in promoting or enabling tax avoidance. As part of this it wants to be able to close down companies at the earliest point possible, where it has been shown they are not operating in the public interest. In this context, “public interest” means protecting the public from the actions of the company or the directors which are causing harm. This could include companies that do not comply with their obligations under the anti-avoidance regimes, and/or those that are selling tax avoidance schemes where HMRC have a reasonable belief that the scheme will not deliver the tax benefits promised, and which leave individuals using the schemes with big tax bills on top of substantial fees already paid to the promoter. The government also wants to ensure that directors operating these companies cannot set up similar operations using a new company. Taking action more quickly would allow HMRC to remove these companies from the market and reduce the harm they cause to taxpayers and the wider economy, prevent new companies being set up by the same directors and deter others from being involved in promoting and enabling tax avoidance in the first place.’
Currently, companies can be wound up by the court upon the petition of one or more creditors, the official receiver, Secretary of State for Business, Energy and Industrial Strategy (BEIS), or by the shareholders of a company, or the company directors. There are a number of reasons a court may wind up a company, the most common being when a company is not able to pay its debts, if it is just and equitable to do so, or it is in the public interest. Investigations of live companies are undertaken by the Insolvency Service (INSS), on the authority of the Secretary of State.
HMRC can only take action itself against promoter companies under the existing insolvency legislation where there is an enforceable tax debt.
The proposed measure would mean that HMRC could petition the court to wind up a company where:
- A significant breach demonstrates non-compliance with the anti-avoidance legislation; and
- HMRC have established the evidence to petition the courts that because of a series of non-compliant and deliberate actions by the company, it should be wound up on public interest grounds.
More information on Promoters
HMRC say:
‘While the government recognises HMRC may have only limited information when a potential tax avoidance scheme first comes to light, it wants taxpayers, who may be considering joining the arrangement, to be alerted so that they ask more questions and understand the risks. The government therefore believes that it is important that HMRC are transparent about the promoters and schemes that they are considering so that taxpayers can fully understand the risks involved in using a tax avoidance scheme.
To achieve this the government proposes a new power that would allow HMRC to publish the name (and details) of schemes and the relevant promoters where the following all apply:
- HMRC have grounds to suspect that on the basis of the information they have seen that the arrangements could be tax avoidance; and
- HMRC have initiated enquiries into the scheme and its promoters; and
- Where a promoter has not adequately responded to HMRC’s request for it to make representations as to why the information should not be disclosed.
Under the proposal, HMRC would limit the information published to (i) the name of the scheme (ii) the names of those believed to be the promoters, and (iii) the fact that that HMRC was enquiring into them. HMRC would publish the information on GOV.UK. HMRC would also be able to provide this information directly to taxpayers in relevant circumstances.’
Levy and Levy comment
Readers will no doubt recollect the famous rallying cry of the Dalek race when confronted by their enemies – ‘Exterminate!’ There is little doubt that HMRC have similar intentions towards their Arch-nemesis the Tax Promoters (and Enablers). It will be interesting to see exactly who these remaining promoters are, as the tax avoidance market no longer exists in any meaningful sense. It appears that some hardy specimens are still out there selling their schemes but not, we think, for long.