Tax advisers who are deemed to be ‘high risk promoters’ under new HMRC rules could face fines of up to £1m for falling to make their status clear, under proposals laid out in the Finance Bill which introduce a series of penalties for both advisers and clients involved with aggressive tax avoidance schemes
Ray McCann, partner at law firm Pinsent Masons, said: ‘£1m fines are a sudden and unprecedented escalation of the sanctions that HMRC have against promoters of tax planning schemes and again makes clear the determination of the government to prevent abusive tax schemes.’
The draft legislation includes a series of sanctions which HMRC says is designed to change the behaviour of promoters and their clients. The first step is where HMRC issues a conduct notice when a promoter meets a threshold condition which suggests their scheme could be open to abuse. There is no right of appeal against the issue of a conduct notice, which can last for up to two years, and which imposed conditions on a promoter that must be complied with.
The second step is a monitoring notice, which may be issued by HMRC where a promoter breaches a requirement in a conduct notice and approval is obtained from the First Tier Tribunal (FTT).
Monitored promoters will be subject to a more stringent regime which includes the requirement to publicise their status on their website and in marketing communications to all current and prospective clients. They also have to provide clients with a promoter reference number (PRN) which clients have a duty to put on their returns and any other communication they have with HMRC.
There will also be penalties for any attempt by a promoter to impose confidentiality on clients in relation to disclosure to HMRC; limitations to the defences of reasonable care and reasonable excuse against the imposition of penalties; extended time limits for assessment on clients; and a new criminal offence of concealing, destroying or disposing of documents.
A monitored promoter who fails to publicise a monitoring notice or include details in publications and correspondence faces a fine of up to £1m, and there are also £1m penalties for failing to provide information and documents.
A monitored promoter who fails to pass the PRN to clients and intermediaries faces a penalty of up to £5,000 per client, which is multiplied by the number of clients concerned.
McCann said: ‘These rules will very publicly stigmatise these tax advisers and mean that they will struggle to win new clients and carry on in business. Since HMRC will be able to apply these rules before any Tribunal or Court has considered the efficacy of the tax planning scheme being promoted the severity of the proposals will raise concerns about the infringement of human rights.’
HMRC said it expects that ‘few promoters will be issued with conduct notices and the great majority of those will comply with the conditions in the notices. So the much more significant sanctions consequent on a monitoring notice will only be imposed in very few cases and subject to prior approval by the FTT that the issue of the notice is justified. Further, the provisions that would publicly identify a monitored promoter do not apply until the promoter’s appeal rights have been exhausted.’
