This is a freeview  'At a glance' guide to penalties and Enablers of Tax Avoidance.

What penalties apply to Enablers of Tax Avoidance? When do they apply?

Subscribers click here for your more detailed version of this note.

From 2017 new penalties apply to ‘enablers’ of failed tax avoidance arrangements. There will also be a change in the way penalties are applied to users of failed tax schemes.

From 10 June 2021 Finance Act 2021 gives HMRC additional powers to:

  • Use Schedule 36 powers to obtain information about enablers of schemes as soon as they are identified.
  • Ensure penalties can be issued and enablers named without delay.
  • It also makes changes to the number or percentage of defeats which need to take place before penalties can be issued for multi-user schemes. Defeats here does not just mean a defeat in court and can include users settling with HMRC. See Penalties: Enablers of Tax Avoidance (subscriber version)

These penalties are designed to stamp out the tax avoidance industry in the UK.

Finance (No2) Act 2017 provides that:

  • Penalties will apply to abusive schemes defeated by HMRC.
  • A 100% fee based penalty will be imposed on everyone in the supply chain.
  • Penalties will apply to advice provided or actions taken after Royal Assent to Finance (No2) Act 2017 on 16 November 2017.
  • The defence of taking Reasonable care will be removed for those who rely upon non-independent advice.

Penalties for enablers

  • The term 'enabler' is intended to include anyone in the supply chain who benefits from an end user implementing tax avoidance arrangements which are later defeated.
  • The focus will be on those who benefit financially from enabling others to implement tax avoidance arrangements which fail.
  • Whether or not an enabler is given a penalty will not depend on whether a user of an avoidance arrangement receives one or not.
  • Penalties will be linked to the enabler’s fees; HMRC will be able to estimate this if enablers seek to disguise their fee levels.
  • Activities which constitute enabling will include designing, marketing and financing arrangements, or providing advice that is key to achieving the avoidance objective or implementing the scheme.
  • There will be safeguards for those who might unwittingly become involved in enabling avoidance.  

Defeated tax avoidance arrangements

  • An arrangement will be defeated either:
    • When there is a final determination of a tribunal or court that the arrangements do not achieve their intended tax advantage, or
    • In the absence of such a decision, when there is agreement between the taxpayer and HMRC that their arrangements do not work, e.g. reaching a settlement with HMRC.
  • Whether an arrangement is an avoidance arrangement will be based on the General Anti-Abuse Rule (GAAR) double reasonableness test rather than being linked to schemes notifiable under DOTAS or defeated by a Targeted Anti-avoidance Rule (TAAR).

Penalties for enablers of offshore evasion

Finance Act 2016 introduced the first penalties for ‘enablers’ of tax avoidance, focusing on offshore evasion of:

  • Income tax.
  • Capital Gains Tax (CGT)
  • Inheritance Tax (IHT)

Under the provisions a penalty is payable by a person (P) who enables another (Q) to carry out offshore evasion where the following conditions are met:

  • P knew that their actions would be likely to enable (by encouraging, assisting or otherwise facilitating) Q to carry out offshore tax evasion or non-compliance, and
  • Q has been convicted of a relevant offence or found liable for a relevant penalty. 

Useful guides on this topic

Penalties: Enablers of Tax Avoidance (subscriber version)
What penalties apply to Enablers of Tax Avoidance? When do they apply? Who is an enabler?

DOTAS: Disclosure of Tax Avoidance Schemes
What are the on Disclosure of tax avoidance schemes (DOTAS) rules? When should you disclose your use of a tax avoidance scheme? What are the consequences of non-disclosure? How are penalties calculated?

General Anti-Abuse Rule (GAAR)
What is the General Anti-Abuse Rule (GAAR)? When does it apply? 

Promoters of Tax Avoidance Schemes (POTAS)
Who is a Promoter? What are the Promoters of Tax Avoidance Scheme rules?  What does this mean for promoters, intermediaries and clients?

 


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