Professional penalties

We at Edge Tax have been warning for some time now that accountants, independent financial advisers (IFAs) and other finance professionals are at risk by the widespread crackdown by HMRC on tax avoidance. These crackdowns include those who facilitate offshore “tax evasion” as well as those who promoted tax schemes. With regard to the latter, be warned there is new legislation that could potentially be retroactive!

In July there was a well-publicised case where three tax advisers in the North West and the Midlands were arrested as part of an investigation into a suspected £132m tax fraud.

Now the news has come out from the Treasury that those “enablers” who help people bend the rules to gain a tax advantage may soon face tougher fines than ever before.

The headline grabber is that enablers could be fined by up to 100% of the tax avoided, under the proposals which are currently under consultation.

The Treasury says the avoidance the proposals are trying to root out involves bending the rules to gain a tax advantage that Parliament never intended, an abuse which costs nearly £3bn a year.

It makes sense from the Government’s viewpoint: currently those who advise on tax face little risk other than that of professional care, which is often limited by engagement letters, while their clients face penalties only if they lose in court. The focus has always been on tackling the individuals who don’t pay their tax, rather than clamping down on those who promote such schemes. The Finance Act 2016 moves the goal posts considerably!

The new proposals also include measures to name and shame companies that have been identified as enabling avoidance, with penalties not only for the designers of avoidance schemes, but professionals including IFAs who market them and the lawyers and bankers who facilitate them.

Even for accountants, IFAs and so on who have not breached any rules, the proposals will be of great concern. My fear will be that the risks of penalties for giving advice which has not broken the law will become simply too great to make such activity viable, thereby denying individuals the historic right to honestly arrange their finances in the way which best benefits them, their businesses and their families.

But it is important to remember that tax planning itself is not going to become impossible and I would suggest advisers, who do not aggressively promote avoidance schemes, should not be paralysed by fear. If they are concerned, they should seek advice from someone who has in-depth knowledge of how these new rules are likely to work.

Now, it is the promoters, who have been misled and potentially mis-sold these schemes, who are being targeted. Did the promoters know the complexities of the anti-avoidance legislation? Unlikely. They relied on the representations made by the designer of the planning and now face significant risk by their side. These enablers are at least, in HMRC’s eyes as guilty as those who, knowingly or not, benefit from such tactics.

The consultation document also rebalances the onus of responsibility on to tax avoiders to show that they took reasonable care in avoiding mistakes in their tax returns. Under the proposals, failure to do so will see the easier imposition of penalties, when such avoidance schemes as discussed have been defeated, removing the burden of proof from HMRC.

There is also proposed to be a new, escalating surcharge which would also be applied to firms that hinder HMRC’s inquiries.

Anyone seeking more information on these proposals should take a read of the Strengthening Tax Avoidance Sanctions and Deterrents discussion document. Or, if you don’t want to wade through 32 pages, give us a call to discuss which bits are relevant to you and how they may affect your business.

You can have your say on the proposals by emailing ca.consultation@hmrc.gsi.gov.uk before October 12th. Or alternatively, feel free to let us know your thoughts and we can submit opinions to HMRC on your behalf.

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