The U.K. government is planning to impose large fines for service providers and consultants who advise clients on how to avoid tax with schemes that are found to be unlawful.
A consultation document by HM Revenue and Customs seeks to impose new sanctions for lawyers, accountants, banks and other advisers who design, market or facilitate the use of tax avoidance arrangements which are defeated by HMRC in court.
Under the plans, enablers of tax avoidance would have to pay a fine of up to 100 percent of the tax the scheme’s user underpaid.
Jane Ellison, the financial secretary to the Treasury, who announced the public consultation, said, “These tough new sanctions will make would-be enablers think twice and in turn reduce the number of schemes on the market.”
She said the service providers “who peddle tax avoidance schemes deny the country of vital tax revenue and this government is determined to make sure they pay.”
The vast majority of tax avoidance schemes did not work, she added, and could land their users in court, facing large tax bills and other costs.
Service providers who advise on or facilitate tax avoidance are so far not deterred by existing penalties.
“Indeed, some judge that the business and reputational risks associated with HMRC defeating avoidance arrangements they have helped enable are outweighed by the financial rewards to them,” the consultation document noted. Government is acting now, it said, to root out tax avoidance at its source by targeting the supply chain of tax avoidance arrangements and financial sanctions would provide a tangible response.
The proposals come in addition to similar penalties for offshore tax evasion included in the 2016 Finance Bill.
Last year, members of parliament on the Public Accounts Committee issued a report accusing major accounting firms of promoting tax avoidance “on an industrial scale” by providing complex structures that “bear all the characteristics of a mass-marketed tax-avoidance scheme.”
The consultation document is expected to clarify rules regarding whether proven tax avoiders have taken reasonable care to ensure their tax returns do not contain inaccuracies, making it simpler to enforce penalties when avoidance schemes are defeated.
The new measures are aimed at anyone in the supply chain who benefits from an end user implementing tax avoidance arrangements and without whom the arrangements could not be implemented.
John Cullinane, tax policy director of the Chartered Institute of Taxation, said “The government need to be careful that in their efforts to wipe out avoidance schemes they don’t prevent taxpayers from getting access to honest, impartial advice on the law. Definitions will be crucial.”
It is far from clear that a definition drafted for “enabling” a criminal offense would be appropriate for defining an activity which, even if it is undesirable, is legal, provided all appropriate disclosures are made to the tax authorities, he said.
“We are concerned about a scenario where a taxpayer goes to their tax adviser for advice on risks attached to participating in a scheme, receives appropriate advice setting out these risks and the likelihood of the scheme being defeated, but decides to join the scheme despite this. It would be extremely harsh to penalize a tax adviser in this scenario where all the tax adviser has done is advise the taxpayer on the law as it stands.”
Mr. Cullinane said court cases on tax matters are not only about avoidance, but often simply disagreements between HMRC and taxpayers about how the rules operate and the courts are asked to adjudicate.
“Losing a case of this kind in the courts should not be seen as tax avoidance by the taxpayer or as enabling avoidance by their advisers,” he said.
The public consultation closes on Oct. 12.