Enablers of tax avoidance could face fines of up to 100 per cent of the tax the scheme’s user underpaid, HMRC has warned following new legislation unveiled in the Budget 2016 speech.
As it stands today, tax avoiders face “significant financial costs” when HMRC proves in court that an offence has taken place. However, the new changes target those aiding the tax avoidance, who have previously faced little risk.
The new tax avoidance laws are being consulted on by the government, but Jane Ellison, financial secretary to the Treasury, had a stark warning for those committing tax avoidance crimes. “People who peddle tax avoidance schemes deny the country of vital tax revenue and this government is determined to make sure they pay.
“These tough new sanctions will make would-be enablers think twice and in turn reduce the number of schemes on the market.”
The government is now calling for views from members of the public, representative bodies, advisers and promoters, as well as businesses and individuals who may have received marketing material, taken advice about, or used arrangements which seek to avoid tax.
Under David Cameron, and in the last parliament, in excess of £1bn was invested into HMRC to strengthen its powers to tackle avoidance and evasion. Over 40 legislative changes to combat tax avoidance were made, closing down loopholes.
HMRC and the government’s new target are the enablers of tax avoidance, believing that financial sanctions provide a “tangible response” by minimising the financial rewards those enablers would otherwise enjoy.
Enablers are described as those who design, promote and market avoidance. This could include independent financial advisors (IFAs) and accountants, but also could be company formation agents, banks, trustees or lawyers.
HMRC intends to start cracking down on those acting as a “middleman”, individuals arranging access and providing instructions to others who may provide evasion services, as well as those providing planning and bespoke advice on the jurisdictions, investments and structures that enable the taxpayer to hide their money and any income, profit or gains.
In deciding what kind of fines are handed out to enablers, and similar to what happens for offshore evasion, HMRC will recognise that “careful thought is required where a scheme is widely marketed, as an enabler could have enabled tens or hundreds of people to try to avoid tax and would therefore be subject to the new sanctions in relation to each of those persons”.
There is also the possibility of naming enablers, like is currently done for businesses paying staff less than the minimum wage, as a way of “alerting and protecting” taxpayers.
If an enabler helps ten people implement arrangements which are then defeated by HMRC in court, and each of those has underpaid by £1,000, then an enabler would receive a penalty equivalent to ten times £1,000 – £10,000.
HMRC’s plans do make it clear that the purpose of penalty provisions is to “influence behaviour’ by supporting those who try to meet obligations and penalise those who do not.
Full details on HMRC’s proposals, and the government’s consultation, can be found by visiting the Treasury’s website.
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