Confirmed: Scheme promoters to be targeted by HMRC’s ‘way-back machine’

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Finance Bill 2019/20

Last month, the Government published the its first edit of Finance Bill 2019/20.

Unsurprisingly, the Government and HMRC’s targeted attack on tax avoidance and evasion has continued.

As most readers will be aware, the recent Loan Charge has created an enormous amount of controversy from scheme users, professionals and an unprecedented number of MPs. Even new PM Boris Johnson was said to have described the measures as “superficially unjust”.

This controversy is mainly due to the fact that it is retrospective in nature.

A theme which has emerged from debate is that whereas HMRC, the Promoters and the Scheme Users are all culpable for the events which led to this fiasco, it is the users who are paying the price.

What about the Promoters?

Well, the Government (or HMRC, depending on who you think is responsible for driving tax legislation these days) has decided that they should wheel out the way-back machine for promoters.

This was something we raised in our initial notes on these measures last month.

Having asked them whether our interpretation of the rules was correct and whether his retro element was intended, HMRC have now confirmed this is the case.

The measures in outline

The new measures will allow HMRC to make certain individuals who work (or did work) for promoters jointly and severally liable for the promoter’s debts where a penalty has been issued under one (or more) of:

An individual can be made responsible where:

  1. The company is subject to or there is a serious risk of the company going into an insolvency procedure;
  2. The individual was either a director, shadow director or participator in the company at the time when the act giving rise to the penalty occurred or the penalty proceedings in the tribunal have commenced; and,
  3. There is a serious possibility that the penalty will be wholly or partly unpaid.

Retrospective?

Importantly, it is the date of the determination of the penalty or commencement of the proceedings that is pertinent.

It is only the determination of the penalty or commencement of the proceedings must take place after Royal Assent. Clearly, these penalties could be issued in relation to actions or omissions that occurred many, many years before this date.

Indeed, the Promoter could have been liquidated several years before this date.

HMRC have confirmed our understanding as being correct.

Potentially, this will provide HMRC with the opportunity to target key individuals who have promoted and enabled schemes behind the guise of the veil of incorporation, whether currently insolvent or not. The key being broadly whether the relevant penalty arose after Royal Assent of the Finance Bill 2019/20.

Those Promoters who went in to liquidation at the prospect of, say, a DOTAS penalty being raised will need to monitor these developments.

Example

Less Tax 4 Everyone (“Less Tax”) sold EBT and contractor arrangements from 2009-2014.

It was investigated by HMRC for 18 months who contended its schemes should have been disclosed under DOTAS.

Less Tax disagreed. However, with a potential £1m penalty at stake the Directors took the decision to pull down the shutters and go off and do something else.

With little point of pursuing the matter, HMRC ceased their investigations and did not issue the penalty.

Under the new rules, it would appear that HMRC would be incentivised to issue the DOTAS penalty and the directors of Less Tax would be jointly and severally liable for it.

Of course, this is merely a first draft and the Finance Bill will not be finalised until Budget 2019 (which we assume will not be before 31 October due to Brexit)

(Back to) the future?

With this now being the second time in recent years that HMRC has demonstrated its capacity for time travel, one wonders what further creations and inventions HMRC may have up its sleeve.

Although few people will argue against the Government’s desire to reduce tax avoidance and evasion, there now must be real concerns over the continued erosion of taxpayers’ rights and the rule of law.

If you have any queries or comments about this article then please do get in touch.

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