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New proposals on strengthening sanctions for tax avoidance

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HMRC is consulting until 14 October 2015 on detailed proposals for new measures against serial tax avoiders, including a further consultation on measures for serial avoiders, serial promoters, and how to introduce specific penalties where the general anti-abuse rule (GAAR) applies.

These proposals take account of responses to the initial consultation held between January and March 2015. They cover:

  • Serial avoiders: the consultation document sets out how the serial avoiders’ regime would work. The proposal is that the first defeat of an avoidance scheme would trigger a ‘warning period’. Once issued with a warning notice, an avoider would be required to certify annually to HMRC that they have not used avoidance schemes, or, if they have used one or more avoidance schemes, to provide details of the schemes and why they believe the schemes work. If the taxpayer enters into further avoidance schemes during the warning period, they would risk being named as a serial avoider. A serial avoider who during a period of warning continues to submit multiple returns that use avoidance schemes which HMRC defeats could face increasing rates of surcharge. Any tax reliefs being abused could also be restricted.
  • GAAR penalty: It is also proposed to introduce a penalty for cases to which the GAAR applies in order to reinforce the ‘line in the sand’ drawn by the government for the worst cases of tax avoidance.  A penalty of 60% of the tax advantage counteracted by the GAAR is suggested. Some safeguards are suggested to ensure proportionality. The consultation also sets out some further areas for consideration under the GAAR.
  • Promoters of tax avoidance schemes (POTAS): The consultation sets out a new POTAS threshold condition for promoters whose schemes are ‘regularly defeated’. There is a widening of when a scheme is regarded as defeated, time periods for considering regularly defeated schemes under the new threshold condition; and consideration of appropriate safeguards.