FB2016: clause 63 to curb serial users of defeated tax avoidance schemes

10 Dec 2015

Anyone participating in a defeated tax avoidance scheme which is ruled as such in the tax tribunal will receive a warning letter from HMRC within 90 days of the defeat, a five-year reporting requirement and the threat of severe penalties if they persist under the new clause 63 of Finance Bill 2016

The new clause 63 in Finance Bill 2016 will tackle those who persistently enter into tax avoidance schemes that are defeated by HMRC with a range of tough sanctions to curb serial abusers.

From April 2017, whenever HMRC wins the argument in any case concerning the veracity of a potential tax avoidance scheme at the First Tier Tribunal (FTT), taxpayers will have to comply with a special reporting requirement which will be in force for a period of five years. Further defeats of an appealed case will result in a surcharge.

Once HMRC wins a case at tribunal, it will have to issue a written warning notice to a person within 90 days of a relevant defeat relating to arrangements the taxpayer has used. The legislation overview states that ‘for these purposes, a scheme is used when a person submits a return or claim, or fails to comply with an obligation, on the basis that the arrangements deliver a tax advantage’.

Under the government definition outlined in the explanatory note to the 26-page clause 63, a ‘tax advantage’ covers all taxes apart from value added tax (VAT) as including relief or repayment of tax, or increases in those; the receipt of a tax credit; avoidance or reduction of an assessment; deferral of tax; or the avoidance of a tax obligation’.

If the taxpayer uses any further schemes while under warning which HMRC defeats, the rate of penalty will be increased to a maximum of 60% of the understated tax.

If HMRC defeats three tax avoidance schemes while the taxpayer is on warning, the taxpayer's details can be published.

If three avoidance schemes which exploit reliefs are used while under warning and HMRC defeats them, the taxpayer will be denied further benefit of reliefs until the warning period expires.

After at least four defeats, the names of the defeated avoiders can be published, and for those whose defeats concern the persistent abuse of reliefs, restrictions on them accessing certain tax reliefs for a period will be applied.

These measures will come into effect on 6 April 2017 and form clause 63 of Finance Bill 2016.

Full details on the legislation is available here

The explanatory note on clause 63 of FB2016 is available here