Tax avoidance has been high on HMRC’s agenda for some time and at Budget 2020, the government committed to taking further action against tax avoidance scheme promoters. On 21st July, the government published a policy paper outlining new proposals for tackling promoters and enablers of tax avoidance schemes, on the same date also publishing draft legislation and opening a consultation.
The introduction of these changes is a welcome move. These unscrupulous businesses have been targeting contractors for many years, often leaving unsuspecting contractors with large unpaid tax liabilities plus penalties when the scheme inevitably fails.
The draft legislation, to be included in Finance Bill 20/21, will make amendments to existing legislation, strengthening anti-avoidance legislation, and making it easier for HMRC to act against scheme promoters and enablers.
We have summarised the key changes proposed below.
Promoters of Tax Avoidance Scheme (POTAS) rules
It is already the case that HMRC can issue a ‘stop notice’ which requires a promoter ceases promotion of a tax avoidance scheme once it has been shown not to work.
However, the changes proposed will allow HMRC to issue stop notices sooner, preventing the marketing and sale of schemes that do not give the tax advantage promised before the scheme has been defeated at First Tier Tribunal. This will see these schemes withdrawn more quickly and allow HMRC to take further action if the stop notice is ignored.
Further changes to the POTAS rules are aimed at preventing promoters from abusing corporate structures to avoid their obligations. These proposals place the responsibility for the obligations within POTAS on the people behind the business. The intention is to prevent these individuals from closing one business and setting up new a new one where they can carry on promoting tax avoidance schemes.
Disclosure of Tax Avoidance Schemes (DOTAS)
The DOTAS scheme places an obligation on tax avoidance scheme promoters to disclose details of the scheme to HMRC and in some cases, provide a reference number to the individual taxpayers. Perhaps unsurprisingly, HMRC have found that promoters increasingly fail to make voluntary disclosures.
The proposed changes to DOTAS will introduce ‘information notices’ that can be issued to a wide range of promoters and intermediaries. The notice would compel the recipient to supply HMRC with the information it needs to ascertain whether an avoidance scheme is being promoted. Where the promoter fails to supply this, a DOTAS Scheme Reference Number will be issued, bringing the scheme into the scope of DOTAS quicker and allowing HMRC to take action.
There are also planned updates to General Anti Abuse Rule (GAAR) to allow HMRC to counteract tax avoidance in partnerships, and to the Enablers Penalty Regime, which will make it easier for HMRC to gather information about the enabling of abusive schemes.
The changes also give HMRC more powers to name and shame promoters and enablers of tax avoidance schemes. The intention behind this is that taxpayers will be able to see who has been involved in the promotion of these schemes previously so they can avoid becoming involved in new schemes operated by these individuals. It will hopefully also act as a deterrent. For this to be effective it will need to be done as publicly as possible rather than listed on a government website. Contractors are unlikely to actively seek out this information as they often believe they are engaging with a compliant umbrella company and have no reason to suspect foul play.
A step in the right direction
Parasol welcomes any steps that protect contractors and recruitment agencies from the risks associated with tax avoidance schemes. The move to increase HMRC’s powers to tackle the promoters and enablers of these schemes is good news for the industry, particularly with the reforms to off-payroll working now confirmed for 6th April 2021.
As part of our membership of the Freelancer and Contractor Services Association (FCSA), we will continue to work to raise awareness of this important issue and will keep providing our unwavering support in this area.
If you have any questions about any of the changes announced, please get in touch.