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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.

The new penalty is designed to stamp out the tax avoidance industry in the UK.

In HMRC's December 2017 response to its August 2016 consultation they confirm 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 the Finance Bill 2017-19 (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.
  • Penalites 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.
  • Whether an arrangement is an avoidance arrangement will be based on the General Anti-avoidance Rule (GAAR) double reasonableness test rather than being linked to schemes notifiable under DOTAS or defeated by a Targeted Anti-avoidance Rule (TAAR).

Legislation introducing the new penalty is included in Finance (No.2) Act 2017.

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. 

 

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