Financial advisers and accountants have raised concerns about the scope of a new crackdown on tax avoidance by the UK tax authorities, fearing it could deter clients from seeking legitimate advice on tax planning.
While the onus — and penalties — have previously been on the taxpayer, now accountants, financial advisers and tax specialists could be liable for up to 100 per cent of the tax avoided. In its consultation paper, HMRC said “penalties must provide a credible threat”.
“People who peddle tax avoidance schemes deny the country of vital tax revenue and this government is determined to make sure they pay, said Jane Ellison, financial secretary to the Treasury. “These tough new sanctions will make would-be enablers think twice and in turn reduce the number of schemes on the market.”
Accountants and advisers have protested that the new rules are too broad, fearing that a wide range of tax planning measures could potentially be caught in the scope of the incoming legislation.
“Some aspects of these proposals go too far and could end up capturing traditionally accepted tax planning,” said Fiona Fernie, partner and head of tax investigations at Pinsent Masons, the law firm. “The document lays out a definition of tax avoidance which is far too broad.”
The consultation document entitled “Strengthening Tax Avoidance Sanctions and Deterrents” touches upon the contentious issue of offshore trusts, used by many wealthy families as part of tax planning.
Trustees of “non-doms” — people living in the UK, but domiciled abroad for tax purposes — needed to take advice “urgently”, warned Mark Davies, managing director of tax specialists Mark Davies Associates.
“These latest proposals . . . can apply to offshore trustees, where a trust has enabled a taxpayer to avoid tax in a way that HMRC deems to be unacceptable,” he said.
Advisers see the new legislation as the evolution of HMRC’s clampdown on avoidance, becoming increasingly active in pursuing those who invested in schemes that used losses to offset tax.
Film investors have proved a particular target. HMRC has battled investment company Ingenious Media through the courts for the past decade in an attempt to claw back tax from the firm’s range of film investment schemes.
Two years ago, the former BBC Radio 1 DJ Chris Moyles lost his appeal against the Revenue, after entering a scheme that nominally set him up as a second-hand car dealer with losses incurred by the business then used to offset tax.
Nimesh Shah, a partner at Blick Rothenberg, the chartered accountants, said the new rules were designed to prevent firms from launching aggressive schemes, not to penalise accountants or advisers engaged in their daily business of advising on tax planning.
“They’re not targeting the accountancy profession” per se, Mr Shah said. “But they are saying, ‘We will if you’re engaged in selling these schemes to your clients’.”
While HMRC is focusing on advisers in its new proposals, the consultation paper says clients also need to take “reasonable care” to ensure they have actually understood the advice.
Advisers worry that if they tell a client not to enter into what they regard as an aggressive tax avoidance scheme, yet the client ignores their advice and goes ahead, they could still be considered part of the supply chain.
“It could now be difficult for people to get advice here as they’re going to be in a very grey area,” said Tina Riches, national tax partner at Smith & Williamson.
Mr Davies expressed concern about how broad the definition of an “enabler” would be.
“HMRC says that anyone in the supply chain who benefits from a defeated tax avoidance scheme can be penalised, from the designer of the scheme, to the marketers — for example, IFAs — of the scheme, to the people who assist with the “machinery” of the scheme, [such as] banks, trustees, company formation agents. “Everyone involved can face a penalty.”
Advisers also fear that additional compliance requests will increase the cost of advice.
“Moving the burden of demonstrating ‘reasonable care’ on to the taxpayer would be a significant concern,” Ms Fernie added. “The time and resources it would take are considerable.”
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