The High Risk Promoters Regime

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.

14 thoughts on “The High Risk Promoters Regime

  1. Have these statutory powers been designed to catch phoenix operators? Presumably it will be legal entities (rather than the principals behind them) who will be designated high-risk promoters? So what’s stopping the principals setting up a shell companies for each scheme? Another example of legislative construction not being in the real world?

  2. I’d need to check but my dim recollection is that that’s right. Of course having been in the market a while is a powerful sales tool in this area where punters, lacking the sophistication to see the underlying structure, apply a sort of sniff test

  3. AIUI (from second hand sources), there has been a shift in the market recently, with the actual individuals who come up with the ideas setting up single-use companies or LLPs for each scheme. These are then the ‘promoters’. But are only ever used for a single scheme.

  4. Interesting – and thanks. My own practice is largely litigation based – I almost never advise on the structuring of these things – so my own market intell is always either second hand or a little out of date.

  5. I’m not involved with the “high risk” end of the tax advisory market, and it is hard to have sympathy with new operational difficulties faced by the purveyors of flaky avoidance schemes.

    That said, it was surely counter-productive for disclosures under DOTAS – which was originally intended to give HMRC earlier information about tax planning – to become retrospectively a gateway to the accelerated payment regime. New disclosures are now discouraged, and tax advisers who in the past took the conservative position that some tax planning might need to be disclosed, so better safe than sorry, find their clients now being penalised for the advisers trying to do the right thing in the past. As they say, no good deed goes unpunished.

  6. I rather agree. A couple of background debates – in case you’re not aware of them.

    There is an argument that if you didn’t have to make a DOTAS disclosure and you did so only to be a good ‘citizen’ you can’t now be subject to an APN. There is some support for this argument in the legislation – and no doubt someone will take the point.

    Separately, the fact that HMRC are not issuing APNs to all DOTASed schemes rather suggests they see the force of the point as well. They haven’t said (so far as I recall at least) why they are only issuing APNs in some cases but it might be reasonable to suppose that it’s because they accept that some DOTAS disclosures were made unnecessarily.

    Of course, one would rather that FA14 had made all of this clear rather than relying on courts and administrative discretion to clean the mess up, and I argued (rather forcefully) at the time that amendments should be tabled to the Bill. But you can only lead a politician to water…

  7. It’s also worth noting that last year’s decision in the “Project Blue” SDLT case, the judge made the point that the law firm who advised the taxpayer had made a DOTAS disclosure. The judge inferred from the existence of that disclosure that the law firm must have been concerned that the planning was in the nature of avoidance, which weighed in the Revenue’s favour when making his decision.

  8. Thanks. The Project Blue decision can be found here (and the paragraph you refer to is 232). It’s also a feature, e.g. of the Degorce decision (see para 120), the appeal of which I am preping at this very moment.

    I have to say, for my own part, it’s a little lazy to draw inferences from DOTAS disclosures in circumstances where, as it was put in Project Blue “the practice of Clifford Chance and other major law firms was to make a return if there was the remotest possibility of being required to do so.”

  9. My understanding is that HMRC will only issue APNs in respect of live SRNs, which is why they are now listing “withdrawn SRNs” – being the ‘public interest’ or ‘belt & braces’ type disclosures which got a number despite being “legit” for want of a better term; nowadays, they wouldn’t have issued you a SRN, and by withdrawing the SRN they’re effectively confirming that.
    Going forward though, SRN => APN. So the points above about poisoning the well of information are well made; they’ll drive a wedge between compliant/non-compliant behaviours, and lose all the borderline disclosures which were most valuable in letting them know which way the advisers’ minds were working.

  10. thanks. interesting. the point that was being pushed on me around the finance bill time was that when you made a disclosure hmrc took the time to understand it before issuing you with an srn. and, it was said to follow, there was no risk of a purely precautive disclosure leading to an apn. but of course, you and i know that hmrc always issued a srn as a matter of course… if they’re withdrawing them now, they’re seeking to make good the (somewhat unnecessary) defects in the legislation through discretionary administrative action. oh well, better than not at all i suppose.

  11. What about promoters who operate from overseas? In the past I’ve been contacted by various promoters based (or claiming to be based) in Ireland, the Isle of Man, Jersey, Cyprus, and even Dubai. Any clamp-down on domestic promoters is just going to push them to re-incorporate overseas. And in practice it’s impossible to apply DOTAS to foreign operators.

    S309 of the Finance Act 2004 implies that the onus is on the end client to disclose such schemes. However in practice no individual is going to raise a red flag to HMRC saying “investigate me!” This is particularly the case for high-earning foreign workers who only intend to stay in the UK for a short period (no more than five years): there’s an attitude of “I’ll be gone by the time they come chasing after me”.

  12. “Lazy” is putting it somewhat mildly, I think.

  13. Or (to coin my favourite phrase) ‘praising with faint damnation’.

  14. 🙂

    I think I would have gone for “utterly misguided”, but that’s why you are a barrister and I am not!

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