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HMRC ‘pulls rabbit out of the hat’ on tackling marketed tax avoidance

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HMRC has been consulting since 2011 on measures designed to tackle the way tax avoidance schemes are sold and to take away cashflow advantages arising from procrastination by the scheme user or promoter. In confirming on Friday 24 January that it is pushing the reforms through, HMRC has softened some of the edges of the proposals but it has also pulled a rabbit out of the hat.

The reforms will target promoters who meet one or more of the widely drawn ‘threshold conditions’ in Schedule 1 – which include asking prospective clients to enter into a non-disclosure agreement (NDA) about the scheme, or creating shared funding obligations, including a restriction on the ability to withdraw. Targeted promoters will be issued with a ‘conduct notice’ imposing conditions, tailored to the promoter in question, including requiring prospective users to be given a frank risk warning. If the promoter fails to comply, it will be named and have to advertise that it is being ‘monitored’ by HMRC. Clients of the promoter will be subject to enhanced penalty risk if they do not take independent advice before buying the scheme and it is ultimately found not to work.

Separately, HMRC will be allowed to issue a ‘follower notice’, requiring a user to settle where HMRC believes the user’s scheme is substantially the same as a case which has already been finally determined in HMRC’s favour in litigation. A penalty will be payable for failure to comply without good reason. A case is finally determined where a judgment of any tribunal or court cannot be appealed or where an appeal is not sought or abandoned.

HMRC announced in the Autumn Statement that, even where a taxpayer avoids a penalty because his scheme is different, he will be required to pay the tax in dispute on account to continue his own case. Not content to stop there – and as predicted in James Bullock’s comment in Tax Journal, dated 6 December 2013 – HMRC now wants to require ‘accelerated payment’ in a broader class of case. Rather than wait to win a lead case before collecting payment, HMRC is consulting on requiring upfront payment in all cases where a scheme is disclosable under the disclosure of tax avoidance schemes (DOTAS) rules or the subject of a counteraction decision by the general anti-abuse rule (GAAR) panel.

HMRC believes that many taxpayers will not buy a scheme at all if they have to pay the tax upfront, along with the promoter’s fees. However, it may cause promoters to take a more aggressive view on whether a scheme is disclosable or not, and it might drive more promoters offshore so that any obligation to disclose falls on the user. But, most worryingly, this proposal will apply to existing cases as well as new ones. One has to ask whether it is lawful to move the goal posts in the middle of a dispute? The pill might be easier to swallow if scheme users were to be offered an ‘amnesty’ in tandem. But don’t hold your breath...