HMRC and ASA to wrestle with misleading tax scheme adverts

Background

HMRC and the Advertising Standards Authority (“ASA”) published details of their new ‘tag-team’ pairing. This duo is now ripped, fake tanned, Lycra-ed up and ready to wrestle with ‘tax arrangement schemes’.

Under the proposals, the ASA will enforce the content of scheme promoters ensuring that:

• misleading claims should not be present on websites; and
• risks should be set out to scheme users

It should be noted that “From 31 January 2021 [they] will start targeted monitoring and enforcement“

HMRC and ASA’s earlier partnership

Of course, HMRC and the ASA have worked together before.

We mentioned three cases in our ‘Ten Weapons of Tax (Avoidance) Destruction‘ back in June 2018 how HMRC had found itself a foot soldier in the Advertising Standards Authority (ASA).

To our knowledge, there have been three pertinent interventions by the ASA:

• Knight Wolffe: We were told that this Company promoted “tax trusts” aimed at health service professionals. It was rather brazenly using HMRC’s logo on its website and had similar imagery implying House of Lord approval for the scheme! A HMRC Spotlight stated that the decision would have a wider deterrent effect by setting “a precedent so other avoidance sellers must not make the same claims about similar schemes”.

• Williams Gordon: this business was ordered to withdraw its advert for a contractor loan scheme. Under the scheme, contractors would receive a small part of their salary as income on which tax would be paid with the remainder made up by a loan. As well as declaring that participants could “take home up to 92% of your pay”, it also stressed that the scheme was “fully compliant with the necessary HMRC legislation and with all current IR35 policies”. Once again, the ASA determined that Williams Gordon had “misled” by omission” its clients.

• Fiducia: This Company provided SDLT arrangements. The ASA determined that a number of claims on its website were unsubstantiated. The nature of ASA’s intervention in this case is slightly different to the others. Rather than having HMRC merely rail against the use of their logo or endorsement, in the papers I have seen, HMRC disputed claims about the use of statutory exemptions and the Company’s arguments that the scheme was not disclosable under DOTAS.

The use of the ASA as tag team partner is interesting for several reasons.

Firstly, ASA adjudications are of interest to the media. The Authority, in other words, cannot only order the withdrawal of offending ads but save HMRC the trouble of spreading the news and scaring off copycats.

Secondly, being able to ‘out’ organisations facilitating tax avoidance is something which HMRC has greater difficulty in doing – absent any naming and shaming provisions. However, merely citing an ASA missive mentioning the relevant firm allows HMRC to escape processes which might be much longer and may even involve multiple court hearings.

Specific requirements

The first requirement is that the promoter must not “make any claims – direct or implied – that are likely to mislead customers”.

This would include not using:

• Statements about the level of take-home pay, such as “Take home up to 92% of your pay”. This is on the basis that such statements are “unlikely to be true”;

• Claims around ‘not tax avoidance’ and ‘uses statutory reliefs’ unless one holds documentary proof of such. This might include statements about whether GAAR or DOTAS applies. In this regard, the holding of a non-categorical opinion by a barrister on the matter would not suffice.

The second requirement is that the website must make clear the risks of entering in to the relevant scheme. It is unclear as to whether this particular part only applies to “schemes under HMRC challenge” or not. Clearly, it would be good practice to include this for any such scheme – whether under challenge or not.

The ASA will look to see that that any scheme contains information about the tax implications and risks of entering into the arrangement. A non-exhaustive list, includes:

• The risk of challenge to a user of the scheme by HMRC;
• Explanations of relevant legislation – including DOTAS, GAAR and Part 7A (Aka disguised remuneration rules)
• Details of any tax penalties that might apply; and
• The consequences of any Follower Notices / Accelerated Payments that might be issued

This information needs to be presented with equal prominence and be clearly signposted from the home page.

The ASA advised that the promoter should lay out on the website “a clear and detailed explanation of how the arrangement works”.

Sanctions under the ASA

Clearly, the success of this duo will depend on the power of its sanctions. Does this leave the new tag-team looking more like Bill and Ben than the Legion of Doom?

Simply put, it does not appear that the ASA has power to issue direct financial sanctions.

However, it does have other powers.

We have mentioned the ability for the ASA to release decisions in to the public domain much faster than HMRC can usually do under current law.

Indeed, the ASA states that “One of our most persuasive sanctions is bad publicity”. However, this only really works in an industry which relies on goodwill and reputation. I don’t believe this is the case for the contractor loan industry. In fact, I imagine a brand is probably one of the last things that they want – instead using new entities for a short period of time.

The ASA can withdraw so-called ‘trading privileges’ from firms. For example, it can ask Royal Mail to withdraw its Royal Mail bulk mail discount. In the age of email and e-signatures, I will perhaps leave you to conclude on the powers of disruption here.

One area which could have some success is the ASA’s ability to petition internet search engines to have paid ads removed where they link to a non-compliant marketer’s website.

Of course, where one is operating outside of these guidelines, then it might have knock on implications in terms of defending any claims for misrepresentation or negligence. However, I will leave this to someone better placed to comment.

Conclusion

The above applies to any promoter who is providing these arrangements to UK individuals and businesses. As such, the rule would apply to an overseas promoter.

As HMRC state in a recent report, 98% of all tax avoidance is now in the contractor loan / disguised remuneration sphere. As such, this new advertisement-based assault is very much targeted at the online contractor umbrella sites that are involved in this type of scheme.

This is perhaps an interesting development and is perhaps designed to shows that HMRC is taking on board a public desire for promoters to be tackled. This follows the uproar surrounding the 2019 loan charge.

However, as it stands, it is difficult to imagine that this will have much impact on this market without any serious financial or practical sanctions accompanying them.

Time will tell whether this new announcement will be quite the Royal Rumble that the announcement seems to suggest.

Full details of the ASA and HMRC initiative can be found here.

If you have any queries about this article or on any tax matters, then please do not hesitate to get in touch.