At present, says the Government, serial avoiders find themselves in no worse a position than someone who has used only one failed avoidance scheme and has decided not to do it again. They face no additional deterrent to stop them persistently seeking to circumvent the will of Parliament.
With this in mind, the Government announced in the March Budget it will introduce a surcharge on serial avoiders whose latest tax return is incorrect as a result of a further failed avoidance scheme. The Government is determined to address this behaviour by the very small minority not deterred by the current range of sanctions.
The Government has also signalled its intention to develop other measures for serial avoiders. Those who continue to use failed avoidance schemes could be named and those that abuse tax reliefs could also have access to them restricted. So, strong words explaining how serial avoiders will not be tolerated. Such action is expected to have a significant impact in materially reducing the negative impact of serial tax avoiders.
And then there is the general anti-abuse rule. The very existence of the GAAR is intended to act as a further deterrent to those considering designing, promoting or using a scheme that, while within the “letter of the law”, appears to defeat the intent of Parliament. The GAAR, as you will remember, was introduced to put into legislative form the principle of purposive interpretation of legislation being adopted by some of the judiciary in tax avoidance cases.
In the March Budget, the Government announced it would strengthen the deterrent effect of the GAAR by introducing a penalty. The GAAR applies to the worst cases of tax avoidance and has a strong deterrent effect. It is expected there will only be a fairly small number of cases brought under the GAAR.
The new penalty will be based on the amount of tax people sought to avoid in a GAAR case, effectively linking the penalty to the potential seriousness of the amount of tax avoided.
So, attacking serial avoiders and strengthening the GAAR. What else? Well, the Government is also committed to introducing tough measures to deal with promoters of tax avoidance schemes.
Accelerated payment notices address the demand side of avoidance by making the economics far less attractive to users, while the promoters of tax avoidance schemes regime addresses the supply side by reforming the behaviour of avoidance scheme promoters who use uncooperative tactics to attempt to make their schemes succeed.
The Government has announced it will widen the scope of this powerful new regime by bringing in promoters whose schemes are regularly defeated by HMRC.
Conduct notices are also to be introduced to a broader range of connected persons under the promoters legislation.
These new rules will prevent high risk promoters avoiding the consequences of their actions via elaborate or rapidly changing business structures.
And then there is the disclosure of tax avoidance schemes regime. Dotas is a tool which provides valuable information about the use and promotion of tax avoidance schemes, and is a trigger for the issue of an APN to an avoidance scheme user. It is important to HMRC to ensure avoidance promoters and users comply with its Dotas obligations.
The Government is absolutely committed to strengthening the Dotas provisions to give HMRC more powers to identify users of undisclosed avoidance schemes, increase penalties for users who do not comply with reporting requirements under Dotas and provide protection for those wishing to give information about failures to comply with Dotas. We have evidence of this commitment with the issue of two sets of Dotas draft regulations. Those extending the inheritance tax hallmarks have proved to be particularly interesting to the sector.
All this and the further reaffirmation to “continue the fight” against aggressive avoidance post-election should leave us in no doubt the Government will keep avoidance behaviour under close review and act rapidly to close down loopholes that emerge.
Tony Wickenden is joint managing director of Technical Connection