Disclosure requirements for ‘high risk’ UK tax avoidance scheme promoters come into force

Promoters of tax avoidance schemes that have been identified as “high risk” by UK tax authorities must now publicise that they are being monitored so that potential customers are aware of the risks of using them, HM Revenue and Customs (HMRC) has announced.10 Mar 2015

Tax Disputes and Investigations Tax Corporate tax Private wealth tax Professional services Financial Services UK Europe

The new rules allow HMRC to issue a ‘monitoring notice’ to promoters that it has already identified as high risk, making them subject to stricter monitoring and disclosure requirements. Promoters that fail to comply with the conditions of a monitoring notice could face fines of up to £1 million.

HMRC already has the power to issue ‘conduct notices’ to promoters that it believes are ‘high risk’; a term that it uses to refer to those who frequently market avoidance schemes that are struck down by the courts. These conduct notices can contain specific steps for the promoter to take to change its behaviour, including details of things that the promoter should or should not be doing.

The new monitoring notices will be sent to promoters that do not comply with the terms of a conduct notice. Monitoring notices will mean that, among other things, the promoter will be publicly named by HMRC and will have to tell its clients that it is being monitored. HMRC said that this would make the risks of using monitored promoters clearer to their potential customers.

“HMRC has recently changed strategy by having more of a direct relationship with users of tax avoidance schemes, typically by hitting them in the wallet using the new, controversial ‘advanced payment’ legislation,” said tax expert Jason Collins of Pinsent Masons, the law firm behind Out-Law.com.

“Whilst this high risk promoter legislation applies to promoters, not taxpayers, it is really there to try to make the selling of tax avoidance ‘schemes’ more difficult in practice. It is the tax equivalent of health warnings on cigarette packaging: it won’t stop everyone but will put a lot of people off,” he said.

According to HMRC, it has already issued its first conduct notice as well as a number of ‘pre-cursor’ letters to promoters it suspects of being high risk, warning them to change their behaviour. Collins said that promoters that received one of these letters, inviting them to comment on whether a conduct notice should be issued, needed to take legal advice before replying.

“Once the conduct notice process has started, it can be very difficult to stop,” he said.
Since last year, HMRC has been able to issue ‘accelerated payment notices’ (APNs) allowing it to demand the payment of disputed tax associated with an avoidance scheme up front. APNs can be issued to schemes that hit certain “avoidance hallmarks”, such as if the scheme is subject to disclosure requirements under the Disclosure of Tax Avoidance Schemes (DOTAS) rules.