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HMRC consults on tougher tax avoidance scheme disclosure rules

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Additional ‘client list’ reporting obligations to help HMRC identify end users of tax avoidance schemes are among the options set out in the consultation document Lifting the lid on tax avoidance schemes published today.

HMRC said the government would also explore the suggestion, put forward by CIOT President Patrick Stevens last month, that financial services mis-selling rules might be extended to promoters of schemes that ‘patently do not deliver the advertised tax advantages’.
‘Most’ avoidance schemes are developed by ‘a relatively small number of promoters (a core of around 20-plus various niche promoters)’, HMRC said in an impact assessment.
But Heather Self, a Director at the law firm Pinsent Masons, said in a press release today that the firm had seen ‘unsuccessful schemes promoted by accountancy firms of all sizes, from the smallest to the very largest’.
HMRC said the existing client lists were not sufficient for the department to readily match the data to specific taxpayers where a scheme was mass-marketed to individuals: ‘The government wants to ensure that HMRC obtains sufficient information to be able to cut through the chain of introducers and intermediaries in such cases and identify who the end users are.
‘One option is to impose additional “client list” reporting obligations on promoters and intermediaries. Another option is to provide HMRC with additional powers to require persons involved in marketing a scheme to identify the other parties in the scheme and what their role is. A third option is a mix of the two,’ HMRC added.
John Cassidy, Tax Partner at PKF, said: ‘The proposals make clear that the [client list reporting regime introduced in 2010] is not working as well as HMRC had hoped. Despite receiving quarterly lists from promoters containing the names of scheme users – which can include individuals but can also include other entities – the taxman still finds it difficult to identify the end users effectively and wants more detail from the advisers. These new proposals provide HMRC with the authority to ask for that information and could well have the effect of forcing anyone considering joining such a scheme to think again.’
Heather Self noted that ‘even without powers to “name and shame” tax avoiders being given to HMRC, strict taxpayer confidentiality is no longer guaranteed given the level of public disquiet’.
The disclosure of tax avoidance schemes (DOTAS) regime had assisted HMRC ‘greatly’ over the years, Exchequer Secretary David Gauke said this morning. In a speech at Policy Exchange in London, he said the regime had closed off ‘around £12.5bn in avoidance opportunities’. But the regime had to adapt to changes in the avoidance landscape.
Writing in The Times, Gauke said the reforms would enable HMRC to ‘take action against cowboy advisers and to close the net around the few schemes not already captured’.

‘We’ve seen unsuccessful schemes promoted by accountancy firms of all sizes, from the smallest to the very largest’

Heather Self, Director, Pinsent Masons

The CIOT’s Patrick Stevens said today’s proposals would see a significant tightening of the DOTAS rules, which had ‘proved a mostly effective way of identifying and dealing with unacceptable avoidance schemes’.

But some promoters and their clients had been ‘playing fast and loose’ with those rules and it was understandable that the government wanted to target them, he added.
‘The vast majority of tax advisers and their clients should have nothing to fear about these proposals – assuming they are properly targeted. Most tax advisers will support tackling those who give the profession a bad name – but there will be a need to make sure these really are targeted and there are safeguards to ensure that normal tax planning is not affected.’
Stevens welcomed the decision to explore the possibility of using mis-selling rules to target those who promote schemes that have no realistic chance of success.
Mary Monfries, Head of Tax Policy at PwC, said: ‘We welcome the opportunity for there to be a proper debate to clarify what constitutes unacceptable tax avoidance versus acceptable tax planning. Given both the short-term budget deficits and the long-term funding requirements of the economy, it is imperative that there is a stable platform for generating tax revenue. That needs to be a platform that maintains confidence in the tax system and the competitiveness of the UK to support business activity and growth.’
HMRC has invited comments by 15 October.
This news story was first published on 23 July 2012