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HMRC publishes guidance on high-risk promoters

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HMRC has published a guidance note on FB 2014 (Part 5 and Schs 30–32), promoters of tax avoidance schemes. It contains a flowchart and examples. The guidance explains that the objectives of the regime are to:

  • deter the development and use of high risk avoidance schemes;
  • change the behaviour of the small number of promoters;
  • force monitored promoters to disclose details of their products and clients to HMRC;
  • force monitored promoters to tell clients, potential clients and intermediaries that they are a monitored promoter;
  • minimise the risk of tax loss via avoidance schemes developed by promoters of tax avoidance schemes; and
  • make sure that clients and intermediaries are fully aware of the risks of engaging in avoidance schemes.

The regime builds on (DOTAS), drawing on and reinforcing existing disclosure obligations and sharing many similar definitions. The guidance therefore frequently refers to the existing DOTAS guidance.

The regime involves a graduated series of sanctions. There are two key steps:

  • a conduct notice – which may be issued by HMRC where a promoter meets a threshold condition; and
  • 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 as a ‘monitored promoter’.

Threshold conditions include:

  • HMRC publishing information about the promoter as a deliberate tax defaulter;
  • the promoter breaching the Banking Code of Practice in respect of schemes that it promotes;
  • the promoter being given a conduct notice as a dishonest tax agent;
  • the promoter failing to meet DOTAS obligations; and
  • the promoter being charged with a relevant criminal offence.

A conduct notice is issued by an authorised officer of HMRC (i.e. authorized under FB 2014) and imposes conditions on a promoter that must be complied with. The legislation sets out the purposes for which conditions may be imposed by a conduct notice. For example, these are to ensure that the promoter:

  • supplies adequate information to its clients about schemes that it is promoting;
  • does not discourage others from meeting obligations to disclose information to HMRC of a description specified in the notice; and
  • does not promote schemes that rely on one or more contrived or abnormal steps to produce a tax advantage.

The guidance stresses that the conditions should be chosen to address the poor conduct of a small minority of promoters who may, for example:

  • promote schemes that have very little chance of working but without letting clients have an adequate assessment of risk;
  • rely on failing to disclose relevant information to HMRC; and
  • provide misleading descriptions in marketing material.

Although there is no appeal against the issue of a conduct notice (which can last up to two years) there are three important safeguards. These are:

  • 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; and
  • the notice may include only conditions that are reasonable and proportionate.

If a promoter breaches one or more conditions in a conduct notice, an authorised officer of HMRC may ask the First-tier Tribunal for approval to issue a monitoring notice. There is a right of appeal against a decision of the First-tier Tribunal to do so. 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 expects that few promoters will be issued with conduct notices and the great majority of those will comply with the conditions in the notices. This means that 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.