The Government has published proposals to improve HMRC oversight of financial products used to reduce tax liabilities and schemes used to reduce employment taxes, including forcing advisers to disclose any clients using them.
Under the proposals, published today, stronger client list reporting standards, including disclosure of end users, could be mandated or HMRC could be given the power to require more information on those using schemes that meet the Disclosure of Tax Avoidance Scheme rules. Currently, client disclosure only requires the number and type of clients, not individual identification.
The consultation paper says: “The information that promoters are required to provide on client lists is not sufficient, where the scheme is mass-marketed to individuals, for HMRC to readily match the data to specific customers. Moreover, the client may be merely an intermediary, not the end user who is intended to obtain the expected tax advantage. There is no onward reporting obligation on intermediaries, so in such cases client lists will not inform HMRC who the end user is.”
The paper also proposes that when a financial product delivers a tax efficiency that would not arise “but for” its use, they will become eligible for disclosure to HMRC. The current standard is that the product must contribute a “significant degree” of the tax advantage. HMRC says this is too narrow and can be hard to prove.
Products that will face this test include, loans, derivatives, securities sale and repurchases, stock lending agreements, shares, arrangements which produce returns “economically equivalent to interest”, collective investment schemes and alternative investment funds.
In the wake of Jimmy Carr’s apology over his use of the K2 scheme, tax schemes involving employers paying staff through third parties will also be disclosable.
Scheme promoters will face higher hurdles for not having to disclose details of their schemes and those using them will be expected to report schemes not meeting the disclosure rules.
Treasury exchequer secretary David Gauke says: “These schemes damage our ability to fund public services and provide support to those who need it. They harm businesses by distorting competition. They damage public confidence and they undermine the actions of the vast majority of taxpayers, who pay more in tax as a consequence of other enjoying a free ride.”
The Government is considering mandating scheme promoters to disclose other parties involved in the scheme’s structures. Alternatively, HMRC could be given more powers to require further information from promoters of schemes which meet the conditions.
Additional client list reporting requirements on promoters and intermediaries of such schemes could also be introduced, including disclosure of the end user of schemes. Cambourne Financial Planning director Mark Loydall says: “A few advisers specialise in these kind of schemes, but for most this will probably not affect them. Advisers who want to exist on the fringes will continue to exist, the cleverer the legislation becomes the cleverer they become.”
Last month, the Government published plans for a General Anti-Avoidance Rule that would allow HMRC to require changes to “artificial and abusive” tax arrangements more easily. The paper says that tax avoidance represents almost 14 per cent of the UK tax gap.