It is rare that I unambiguously welcome a government press release, but presuming that this one means what it says, I do:
Accountants, tax planners and advisers who provide advice on how to avoid tax will face tough penalties under new proposals being consulted on by the government, Financial Secretary to the Treasury Jane Ellison announced today.
Under the plans set out in a HMRC consultation document issued today, enablers of tax avoidance could have to pay a fine of up to 100 per cent of the tax the scheme's user underpaid.
Currently tax avoiders face significant financial costs when HMRC defeats them in court. However, those who advised on, or facilitated, the avoidance bear little risk. The Government is acting to make sure that tax avoidance is rooted out at source and this action will target all those in the supply chain of tax avoidance arrangements.
The Financial Secretary to the Treasury, Jane Ellison said:
“People who peddle tax avoidance schemes deny the country of vital tax revenue and this government is determined to make sure they pay.
“The vast majority of their schemes don't work and can land their users in court facing large tax bills and other costs.
“These tough new sanctions will make would-be enablers think twice and in turn reduce the number of schemes on the market.”
The consultation document also clarifies the rules around whether proven tax avoiders have taken reasonable care to ensure their tax returns do not contain inaccuracies, making it simpler to enforce penalties when avoidance schemes are defeated.
This is the latest of a number of government measures designed to tackle illicit finance and tax dodging. These include a new criminal offence for corporations that fail to prevent the facilitation of tax evasion, and new sanctions against those who engage in multiple avoidance schemes which are defeated by HMRC.
I, and other tax justice campaigners have argued for years that tackling the supply side of tax abuse is key to beating it. After all, few tax avoiders (outside some major banks, that is) have ever dreamt up the schemes that they use. They do instead buy them from accountants and layers who have specialised in the creation of such arrangements. Prof Prem Sikka has called those so called professionals the Punstripe Mafia, so pernicious has their trade been.
The new measure is a blunt instrument but I very warmly welcome it, even though I suspect it will be used very rarely. There is good reason for that. Such are the scale of penalties an accountant or lawyer might face from being involved in the supply of tax avoidance schemes that very few will take the risk of doing so. And I stress, it looks like the risk will not just apply to the creators of the scheme but to those accountants and lawyers who might introduce clients to those creators, which is especially important for three reasons.
First it spreads the scope of the potential penalties.
Second it means that even if all the scheme creators move offshore it is likely that there will still be UK professionals who could be penalised.
Third, and most important though, this means that the professional indemnity insurance premiums of those engaged in tax avoidance will sky-rocket even if no penalty is ever charged. The consequence will be that accountants and lawyers will simply not be able to afford to undertake this activity, whether they are ever caught doing it or not. And that will mean that the tax avoidance market is likely to die because UK lawyers and accountants are required to hold professional indemnity insurance as a condition of advising the public.
I am under no illusion: the definition of tax avoidance that this legislation will use may well be narrow and that may appear to restrict its scope. But it's the knock knock effect in the professional indemnity insurance market that will really kill the sale of tax abuse. And I suspect every honest accountant and lawyer in the country will be cheering about that.
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Richard, do you have a link to the HMRC consultation document. I cannot find on GOV.UK.
Sorry – no – was not in press release
Was actually out a while ago
I have found it: https://www.gov.uk/government/consultations/strengthening-tax-avoidance-sanctions-and-deterrents-discussion-document
Thanks
This is really great news – and I doubt would have happened without your prodigious efforts over the last years.
Not me alone be by a long way
Is it possible that another outcome might be that all professional indemnity insurance policies include this cover as insurers are also risk averse, thereby putting everyone’s premiums up and putting all but the large firms who actually engage in this activity out of business? Or is that too pessimistic?
Policies are already risk related depending on activity
I cannot see the outcome you suggest
The cynic sees this as a selective crackdown on companies too small to send their money on a Caribbean holiday with the Big Four ‘travel agents’.
But here’s a mischievous suggestion: the blue-blooded end of tax-evasion – family trusts in Switzerland and grand houses owned by Cayman Island shell companies – will suffer from Theresa May’s antipathy to our ex-chancellor. Which extends, or so I am told, to his family business.
I agree this will not hit old offshore money
But it’s still very welcome for stopping new arrangements
The changes introduced by Osborne over the last few years have done away with grand houses owned by shell companies. Most offshore clients are now struggling to unwind these structures as the tax penalties for having them are severe (no PPR, ATED annual charges, 15% SDLT on the way in, no IHT saving, no CGT avoidance, potential allocation of income/gains from elsewhere in the structure leading to a charge for inhabiting them).
In fact the final nail in the coffin (the removal of IHT benefits) was to have come in by April 2017, but the chancellor’s departure has delayed the consultation document so there’s now a possibility that without Osborne the IHT benefits may stay.
I heard this morning that accountants are now worried that the definiton of abuse is so broad that any advice could be construed as such.
Aaaah – poor dears.
If accountants and lawyers are advising people on how to avoid tax, then this will curb it.
However, as you yourself recognise – let’s see how the this pans out in practice as the Tories have lost none of their cunning in using ‘warm words’ (remember ‘hard working families’?) to describe the policy (and lull the electorate into thinking something is being done) but then still under resource the means of delivering it.
I have seen the guidance
Any accountant should find it easy to follow
The way to comply is ‘just say no’
It’s not hard to understand
I’m betting this overwhelmingly going to target mainstream avoidance. However If your a multinational or the new Duke Of Westminster no action will be taken. You just have to look at the press reaction overwhelmingly it was about how nice he was etc etc. Plus I (unless I missed it)didn’t hear a single peep from politicians (even Corbyn/Mcdonnel for goodness sake) about Immediate action is needed. Compared to the debate on whether to ban or not ban trump from coming to the uk.
McDonnell will read it next week
That’s how his office works
They would have had the press release yesterday, like me
Condoc is here https://www.gov.uk/government/consultations/strengthening-tax-avoidance-sanctions-and-deterrents-discussion-document
The rules in general are welcome, since as a reputable accountant I am sick of losing clients to dodgy tax avoidance enablers, but the condoc definition of what is caught is extremely wide – much wider than it should be. Advising a client that a capital loss is deductible will give rise to a penalty for the advisor under the new rules if the loss is subsequently disallowed under the TAAR.
Likewise advising a client that a liquidation will be treated as a capital event will cause a penalty if the liquidation is subsequently reclassified as income under the Finance Bill rules. Those rules are very wide indeed and we have no guidance as yet from HMRC as to what they expect to be caught, so how as an advisor can you be sure that you will not be penalised if you advise on a liquidation?
It is far too wide and catches tax advice where the advisor has had no hand in structuring the arrangements and where there is genuine uncertainty as to what is caught and what isn’t.
But if you said a liquidation was a capital event without suggesting that this was subject to HMRC agreement (barring as I recall it a very low de minimis limit) then you would have been negligent
And advising is not tax avoidance if properly done
Constructing a scheme to be capital when it should be treated as income is avoidance and a risk us rightly attached to it
But if cards are placed fully face up in the table before HMRC I really am not sure what the risk is, except that of professional negligence of failing to appraise the client of HMRC’s options and advising on the facts
Do you predict that the tax fees of the Big 4 will go down if this is introduced?
I know where my bet is.
Yes, I do
Really? What percentage of tax fees do you estimate the Big 4 earns from such activities? A rough estimate is fine.
I do not know
They do not say
As a question: what jurisdiction does the UK have to impose fines on advisors operating outside the UK?
Presumably the lawfulness or otherwise of giving the advice will depend on their home jurisdiction, not the UK.
I’d imagine the big end of town won’t give a monkeys about whether their advisor is physically based in the UK.
The aim is to stop avoidance
If a UK intermediary can be fined the flow of work to offshore will dry up
Thanks, but what if the entire thing is done in another country?
Foreign nationals operating entirely in another country, advising UK residents on UK tax avoidance.
They market it online, the advice is provided in another country, the client never leaves the UK. All done remotely. There is no UK based person to fine.
Given there is an appetite for avoiding tax (and a lucrative living to be made peddling these schemes), and given the loopholes are there, wouldn’t people just do this instead?
That is technically possible but very unlikely to be relevant as tax avoidance has never been sold that way and I very much doubt it will be
I am someone with a small company on the low end of the chain with a lowly accountant in Tooting. Recently I tried through so many calls to HMRC to get an over payment of tax sorted on my personal account. No-one in HMRC knows anything about tax law, they are just clerks passing you from on department to another. When I saw my accountant yesterday he helped me fill out a form but said that he gets the same treament day in day out when he speaks to HMRC. He is in dispair as he is a good honest accountant who is trying to make sure his clients stay within the law and pay the correct tax.He is met with the brush off “well that is a grey area, you do what you think as we don’t know” I don’t care what new legislation this government passes as until there are enough properly paid, properly trained tax officers within HMRC I don’t believe that we can collect the correct taxes or that it is a fair system. I am with you Richard “The joy of tax” but this government & past ones do not see it this way.
Min
This is why I argue for a big investment in HMRC
Richard