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Plans to tackle high-risk promoters unveiled

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The government has invited comments by 24 February on proposals, announced in the Autumn Statement following an earlier consultation, to require upfront payment where a tax scheme ‘hits avoidance hallmarks’. A consultation document published on 24 January has 21 pages of draft legislation earmarked for Finance Bill 2014.

The stated aim is to deter ‘those tempted to exploit the cash flow advantage allowed by the current rules’, and a leading tax body has warned that the measures must not be ‘overly burdensome’ for the majority of tax professionals.

In joint statement, HM Treasury and HMRC said the proposals would cover disputed tax relating to schemes within the DOTAS regime and ‘taxpayers engaging in the most abusive tax avoidance and therefore being investigated under the [general anti-abuse rule]’.

The measures would ‘remove the tactic that some taxpayers currently use of holding onto the disputed tax – sometimes for years – while their case is being investigated and litigated’, they added. ‘In most cases, the tax being avoided through these schemes will ultimately be due as HMRC wins over 80% of avoidance cases that it litigates.’

The ICAEW Tax Faculty noted this week that the proposals were aimed at about 20 firms many of which ‘operate outside of any oversight by a professional body’. A number operated outside the UK. ‘Any measures need to be targeted and proportionate and not overly burdensome for the majority of professionals who give tax advice,’ the Faculty said.

Jason Collins, head of tax at Pinsent Masons, said the measure was a potential game-changer: ‘Taking away the cash flow advantage won’t stop all forms of tax planning, but many prospective users will question having to lay out substantial sums paying the promoter its fee in the hope of getting money back from HMRC five years or more down the line.’

The consultation document said HMRC was currently investigating ‘around 65,000 individuals and small businesses that have used marketed avoidance schemes’. Around 85% of the avoidance took place more than four years ago, reflecting ‘a market for avoidance products which was very active in earlier years’.