The National Audit Office report “Tax avoidance: tackling marketed avoidance schemes” identified that most marketed tax avoidance schemes were devised by a relatively small number of promoters. And in its 2013 Consultation Document ‘Raising the Stakes on Tax Avoidance’, the Coalition floated proposals to target the actions of those 20 or so “high risk promoters.”
The resultant measures were enacted in Part 5 of the Finance Act 2014. They defined a class of people (“promoters”) who carry on a business of designing or promoting arrangements that enable people to obtain tax advantages where the obtaining of a tax advantage is the main purpose of those arrangements.
Where a promoter meets a threshold condition (defined in Schedule 34 of the Act) – a relatively high threshold singling out particular ‘problematic’ promoters – it will have its card marked by being issued with a conduct notice. That conduct notice will require the promoter to comply with certain conditions imposed to secure that the promoter desist from the problematic conduct.
If the promoter goes on to breach a condition they will then be issued with a monitoring notice. A kind of fiscal asbo, if you like.
Being subject to a monitoring notice will be profoundly detrimental to the conduct of a monitored person’s business. HMRC will publicise the fact that they are a monitored promoter along with the conditions they have failed to comply with. A monitored person will be required to notify actual and potential clients of their “promoter reference number.” And those clients will be obliged to report that number to HMRC if they expect to obtain a tax advantage from arrangements proposed by the promoter. They will also be subject to additional information gathering powers and longer periods within which HMRC can raise discovery assessments.
A breach of any of those conditions will render the promoter liable to a fine of up to £1 million.
How do these measures fit into the broader arsenal at HMRC’s disposal for tackling tax avoidance?
First, they recognise that tax avoidance can be tackled not merely by addressing demand – through such measures as accelerated payments – but also by tackling supply by increasing the commercial impediments to problematic promoters staying in business.
Second, they have been adopted against a background of an inadequate regulatory regime. Many promoters are not subject to regulatory control and, whilst it is not HMRC’s role to act as a regulator, a sensibly designed fiscal regime proceeds from an understanding of the broader world in which it operates.
Third, they recognise that the world of tax is a complex one – often, even to an insider – and that taxpayers can lack a practical mechanism for testing whether that which is being sold to them as pro-purposive plain vanilla planning has in actuality a rather more exotic fiscal flavour. The high-risk promoters regime aims to give prospective clients fair warning that the arrangements they are contemplating are likely to be high risk.
Finally, they seek to tackle a rather particular problem. The use of DOTAS disclosures as a gateway to Accelerated Payment Notices – and the effect of APNs on the economics of selling marketed tax avoidance schemes – has created a new distortion in the tax market. If promoters, often with the benefit of advice from Counsel, are able to form the view that a particular scheme is not disclosable, users of the scheme can benefit from a favourable cash flow treatment. This, in turn, increases the attractiveness of the scheme from the perspective of potential consumers, and enhances the profitability of the promoter.
This dynamic has given rise to a familiar, and rather unattractive, dance in which responsibility for the question whether to make a DOTAS disclosure is diffused between Counsel and promoter. The high-risk promoters regime enables HMRC gently to cut in by treating a failure to make a DOTAS disclosure as grounds for the issuance of a conduct notice.
It’s a surprisingly tentative step, the high risk promoters regime. Perhaps, as with the GAAR, it is a first, tentative step into new waters. I find it difficult to see how marketed tax avoidance will survive the slew of measures adopted in the Finance Act 2014 but should this prediction prove wrong, you can expect to see a significantly strengthening of this regime.
The above piece was published last week in Accountancy Magazine and is reprinted here with kind permission.