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Consultation on new penalties for enablers of defeated tax avoidance schemes

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HMRC is consulting until 12 October 2016 on new penalties for those who ‘enable’ the use of tax avoidance arrangements which are defeated in a court or tribunal, or where agreement has been reached that the particular arrangements do not work. The consultation also proposes modifying the existing penalty regime to shift the burden onto taxpayers to prove that they have taken ‘reasonable care’ in relation to their tax affairs, rather than HMRC having to show that a person has been careless.

‘Enablers’ in relation to tax avoidance schemes will include those who benefit financially from helping others to implement tax avoidance arrangements, such as:

·         those who develop, advise or assist in developing such arrangements and schemes;

·         independent financial advisers, accountants and others who earn fees and commissions in connection with marketing such arrangements; and

·         company formation agents, banks, trustees, accountants, lawyers and others who are intrinsic in, and necessary to, the machinery or implementation of, the avoidance.

The trigger for ‘enabler penalties’ would be the defeat of a scheme, irrespective of the penalty position of users. The size of the penalty might be geared to the services provided by the enabler and the financial reward obtained, with a possible cap on the aggregate amount of penalties where a scheme is marketed to a very large number of people. The government also proposes to include the option of naming enablers who are subject to the new penalty.

The consultation also considers a number of possible new interventions HMRC could introduce to influence the behaviour of those involved in, or considering, tax avoidance.

Although the government is concerned to include safeguards that would exclude those who are ‘unwittingly’ party to avoidance, the CIOT has expressed concerns that the new sanctions could penalise professionals for giving appropriate advice. CIOT tax policy director, John Cullinane, said ‘words like ‘assist’ and ‘facilitate’ are extremely vague. They will need to be carefully defined so it is clear what kind of activity is being targeted’.


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