HM Revenue & Customs has set out how its plans to impose fines on firms promoting tax avoidance schemes will work in practice.
In a consultation paper on strengthening tax avoidance penalties and deterrents, HMRC includes IFAs within its proposed definition of a tax avoidance “enabler” because it says they can benefit through fees and commissions by marketing avoidance schemes.
The paper discusses penalties for enablers of tax avoidance schemes, with HMRC favouring a model where a penalty of either 100 per cent of the tax evaded, or £3,000, whichever is higher.
Each person found to be enabling tax avoidance would be subject to a penalty in their own right, irrespective of any penalty handed to the individual using a tax avoidance scheme.
The paper says: “For example, if a promoter designs a scheme, engages an IFA to market the scheme for them, and engages the services of lawyers and bankers to facilitate the actual implementation of the scheme, then each of those persons in the supply chain would be subject to a penalty in relation to each person they enabled to implement the defeated arrangements.
“For the promoter this would be every user, but for others it could be a subset of that population because different users may be advised or enabled by different persons in different parts of the supply chain.”
HMRC also suggests advisers subject to the new penalty could also be named to protect taxpayers and deter those considering tax avoidance.
Penalties will be triggered by the arrangement being shut down, rather than being dependent on the scheme’s users being sanctioned.
The consultation says: “Our favoured approach is similar to that introduced in Finance Bill 2016 for offshore evasion, but designed specifically to deal with tax avoidance which HMRC defeats.
“In favouring this approach the Government recognises that careful thought is required where a scheme is widely marketed, as an enabler could have enabled tens or hundreds of people to try to avoid tax and would therefore be subject to the new sanctions in relation to each of those persons.”
The consultation closes on 12 October.