Tax Promoters are in the firing line - again!

Just when the hard pressed promoter thought things could get no worse, along comes the Finance Act 2014 (High Risk Promoters Prescribed Information) Regulations 2015 (SI 2015/549). This legislation was introduced on 6 March to implement further aspects of a new regime with enhanced disclosure obligations to certain promoters of tax avoidance schemes, and their intermediaries and clients.

Where it all started

In February 2015, HMRC published guidance explaining the new rules that apply to promoters of ‘tax avoidance schemes’. Legislation was also published to implement the new regime – The Promoters of Tax Avoidance Schemes (Prescribed Circumstances under Section 235) Regulations 2015 (SI 2015/130) and the Finance Act 2014 (Schedule 34 Prescribed Matters) Regulations 2015 (SI 2015/131).

The key points of the new regime are as follows.

According to HMRC, ‘the objectives of the regime are to change the behaviour of a small and persistent minority of promoters of avoidance schemes who are not transparent with HM Revenue and Customs (HMRC) and display other behaviours detrimental to the fairness of the tax system;’
A promoter is defined in terms of the activities it carries out in the course of a business that includes the design, marketing or implementation of avoidance schemes. The definition is modelled closely on the existing DOTAS definition at s307 FA 2004;
The regime builds on the existing regime for the disclosure of tax avoidance schemes (DOTAS);
There are two key elements to the new regime. Firstly, a conduct notice which may be issued by HMRC where a promoter meets a certain threshold condition and:
Secondly, a monitoring notice – which may be issued by HMRC where a promoter breaches a requirement in a conduct notice and approval is obtained from the First-tier Tribunal. A promoter that is subject to a monitoring notice is referred to in the legislation is monitored promoter;
The threshold conditions are: HMRC publishing information about the promoter as a deliberate tax defaulter; or the promoter breaches the Banking Code of Practice in respect of schemes that it promotes; or the promoter is given a conduct notice as a dishonest tax agent; or the promoter fails to meet DOTAS obligations; or the promoter is charged with a relevant criminal offence; or arrangements that the promoter has promoted are regarded as unreasonable by the GAAR Advisory Panel; or a professional body of which the promoter is a member takes certain disciplinary action against it; or a regulatory authority imposes certain sanctions on the promoter; or the promoter fails to comply with an information notice; or the promoter imposes certain restrictive contractual terms on clients; or the promoter continues to promote arrangements despite being given a stop notice in respect of those arrangements.
A conduct notice is issued by an authorised officer of HMRC and imposes conditions on a promoter that must be complied with. There is no right of appeal against the issue of a conduct notice, which can last for up to two years.
If a monitoring notice is issued the monitored promoter is subject to a more stringent regime that includes: publication by HMRC of information about the promoter; publication by the promoter of its status on the internet and in publications and correspondence; a duty on the promoter to tell clients that it is a monitored promoter and to provide them with a promoter reference number (PRN); a duty on clients to put the PRN on their returns or otherwise to report the PRN to HMRC; enhanced information powers for HMRC, backed by new penalties; preventing any attempt by a promoter to impose confidentiality on clients in relation to disclosure to HMRC; limitations to the defences of reasonable care and reasonable excuse against the imposition of penalties; extended time limits for assessment on clients; and a criminal offence of concealing, destroying or disposing of documents.

HMRC say:-

‘HMRC expects that few promoters will be issued with conduct notices and hopes the great majority of those will comply with the conditions in the notices. So the much more significant sanctions consequent on a monitoring notice will only be imposed in very few cases and subject to prior approval by the First-tier Tribunal that the issue of the notice is justified. Further, the provisions that would publicly identify a monitored promoter do not apply until the promoter’s appeal rights have been exhausted….

According to HMRC, there are some safeguards for the promoter as follows:-

the authorised officer must give the promoter an opportunity to comment in writing or at a meeting on the proposed terms of the conduct notice before finalising its terms. The officer must then consider fairly any comments made, taking into account the purpose of the legislation

the notice may include only conditions that are reasonable and proportionate for the purposes listed above

when making representations to the First-tier Tribunal on an application by an authorised officer to approve the issue of a monitoring notice the promoter can ask the Tribunal to refuse approval on the basis that the condition was not reasonably imposed in the conduct notice.

SI 2015/549

SI 2015/549 fleshes out further details for the new regime.

A monitored promoter must give its clients a notice stating that it is a monitored promoter, and which of the conditions in a conduct notice it has been determined that has failed to comply with. Such notification must be in writing; set out clearly and precisely the information required; make is clear that the promoter is being monitored by HMRC because it breached a condition or conditions of a conduct notice; and make clear the specific details of each of the conditions which it has been determined that the person has failed to comply with. If regulations are made to this effect, the monitored promoter shall publish this information of its website.

If a promoter or a client of the promoter is notified of a promoter reference number they must report the number to the Commissioners if they expect to obtain a tax advantage from relevant arrangements in relation to which the monitored promoter to whom the reference number relates is the promoter. This includes the full name and address (including postcode) of the person reporting the promoter reference number; the promoter reference number; the type of tax in respect of which the person expects to obtain a tax advantage; the relevant date of the transaction; a declaration that the information provided is correct and complete to the best of the knowledge and belief of the person making the report; the signature of the person making the report; the full name of the person signing the report; and the date on which the report is made.

There are stipulated time limits for such a report to be made. For example, in the case of an individual, partnership, trustee, company, where a tax return has not as yet been submitted, the report must be made by the end of the fifth working day following the date on which the return was required to be submitted.

There is an ongoing duty to provide documents and information following an HMRC notice including:

the name or names by which the monitored promoter refers to the monitored arrangements or monitored proposal;
a summary description of the monitored arrangements or monitored proposal and how they are intended to result in a tax advantage;
a detailed description of each part of the monitored arrangements or monitored proposal and the details of how they are intended to result in a tax advantage;
the legislative provisions that provide the basis for the intended tax advantage under the monitored arrangements;
if the monitored arrangements or monitored proposal have not been disclosed under Part 7 of the Finance Act 2004 (disclosure of tax avoidance schemes), an explanation as to why the monitored arrangements or monitored proposal have not been disclosed;
if the monitored arrangements or monitored proposal are funded by or will require funding from third parties, the names and addresses of the third parties, the level of funding required and the date on which the third parties agreed to provide funding;
the name and address of any person (including any legal advisers) consulted in respect of the monitored arrangements or monitored proposal;
the name and address of any person otherwise involved in planning, organising or operating the monitored arrangements and detailed information on the involvement and role of that person;
a list of each and every fee paid or to be paid by clients to use or participate in the monitored arrangements with a description of what each fee is charged for or will be charged for;

Promoters must also provide detailed information about clients including, for individuals, their national insurance number and unique tax reference number; and for trusts, partnerships and companies, their unique tax reference number. They must also give the date the person concerned became a client of the monitored promoter and the date on which the client entered into the transactions.

Conclusion

HMRC say they have already written to a number of promoters warning them of the consequences if they do not change their behaviour. They have also sent the first Conduct Notice, which requires a promoter to change its ways. There is no doubt that more will follow.

This is truly draconian legislation aimed at a small minority of professional tax advisers who have engaged in what HMRC believe to be ‘unacceptable’ tax avoidance. Whether such legislation is reasonable and proportionate, and thus in accordance with the Human Rights Act and other relevant principles of natural justice, remains to be seen.

Levy and Levy – the tax investigations and resolution specialists in London and Tunbridge Wells