Consultation outcome

Clamping down on promoters of tax avoidance: summary of responses

Updated 20 July 2021

Foreword

The promotion of tax avoidance deprives our public services of the funding they need. The government takes this very seriously and is determined to clamp down on the unscrupulous promoters who market these schemes.

The government has taken strong action to tackle tax avoidance and those who promote it, introducing a number of anti-avoidance measures that have helped reduce the avoidance tax gap from £3.7 billion in 2005 to 2006 to £1.7 billion in 2018 to 2019. Thanks to vigorous activity by HMRC since 2014, about 25 significant promoters have ceased all activity. HMRC now estimate that only 20 to 30 promoters remain, often based offshore, and primarily focused on mass-market avoidance schemes.

Building on the government’s Promoter Strategy, announced at Spring Budget 2020, and the recent changes to the existing anti-avoidance regimes introduced in Finance Act 2021, the measures set out in this document target offshore promoters and the UK entities that support them, including non-compliant umbrella companies.

These measures are also designed to ensure that HMRC can protect the public finances by freezing a promoter’s assets, so that the penalties promoters incur are paid. The measures give HMRC the power to close down companies involved in promoting tax avoidance and help taxpayers to identify and steer clear of avoidance schemes by naming companies, including umbrella companies, which are under investigation by HMRC and controlled by promoters.

The government is consulting on draft legislation to implement the measures outlined in this document and intends to legislate for them in the next Finance Bill. This will give taxpayers greater information about promoters and ensure that those promoters who are determined to continue to operate will face further tough action.

The government’s Promoters Strategy recognised the need for further action to tackle those promoters who are determined to frustrate HMRC’s efforts to clamp down on their behaviour.

This necessitates additional powers for HMRC, but these are not designed to target the majority of tax advisers, who adhere to high professional standards in their support to taxpayers. Instead, they will be tightly focused on the most egregious promoters of tax avoidance schemes, those who leave taxpayers facing large bills and threaten public finances.

The government also understands the need for strengthened HMRC powers to be proportionate and balanced. It has ensured that the proposed measures contain appropriately robust safeguards and also given due consideration to where some of the policy objectives can be delivered through existing legislation.

The government’s work to tackle tax avoidance is continuing. It is committed to clamping down on promoters and their deliberate non-compliance with anti-avoidance legislation. These measures represent an important next step towards this goal. They are designed to change the balance of risk for those promoting avoidance schemes, deter new entrants, and ensure that the correct tax is paid, in order to support and fund our public services.

I am grateful to all those who have taken the time to respond to the consultation document which we have considered carefully. I am particularly grateful that professional advisors, representative bodies and individuals were willing to work constructively with HMRC on the proposals, contributing thoughts and ideas on how to tackle tax avoidance.

Rt Hon Jesse Norman, Financial Secretary to the Treasury

1. Executive summary

1.1 Tax avoidance is bending the tax rules to seek to gain a financial advantage never intended by Parliament. It deprives important public services of the funding they need. Most tax avoidance schemes simply do not work as intended, and those who use them may end up having to pay much more than the tax they tried to avoid, including penalties.

1.2 The government is committed to clamping down on promoters of tax avoidance and on 12 November 2020 announced a package of measures to achieve this aim. The consultation: Clamping down on the promoters of tax avoidance was launched on 23 March 2021 and closed on 1 June 2021.

1.3 The government received 18 written responses and met with 9 representative bodies.

1.4 Respondents to the consultation were broadly supportive of the package and in favour of taking strong action against the promoters of tax avoidance schemes. They recognised that the measures were aimed at the promoters of these schemes rather than businesses that are not involved in tax avoidance.

1.5 Respondents sought assurances on the precise scope of the measures to ensure that they would be properly targeted and contain appropriate safeguards.

1.6 Some comments related to particular measures, with a number of respondents focussing solely or mainly on the measure to support taxpayers to identify and steer clear of or exit tax avoidance. Some respondents raised concerns about how HMRC dealt with disguised remuneration and non-compliant umbrella companies and whether the proposed measures would address these areas. These points are set out in more detail later in the executive summary.

1.7 The government is grateful for all the comments received. Having considered the feedback from respondents, the government is proposing to proceed with these proposals, subject to a number of changes, which are detailed below.

1.8 Draft legislation on these proposals is also being published today alongside this summary of responses. Stakeholders will be provided with an opportunity to comment on the draft legislation. The government is committed to considering carefully any comments and will then make any appropriate amendments to the legislation.

1.9 Where references in this document are made to anti-avoidance legislation or regimes this relates to:

• Promoters of Tax Avoidance Schemes (POTAS)
• Disclosure of Tax Avoidance Schemes (DOTAS)
• Disclosure of Tax Avoidance Schemes: VAT and other Indirect Taxes (DASVOIT)
• penalties for enablers of defeated tax avoidance (enablers penalties)

For ease, all later references to DOTAS include DASVOIT unless otherwise stated

Clamping down on promoters who dissipate or hide assets to avoid paying penalties

1.10 The government wants to ensure that where promoters fail to comply with their obligations under the current anti-avoidance legislation, and penalties are due, the promoter always pays those penalties and cannot escape the financial consequences of their non-compliance.

1.11 The proposals consulted on would allow for HMRC to apply to the court for a security payment or asset freezing order, where a penalty under anti-avoidance legislation is about to be issued or applied for. This would ensure that sufficient funds are available to pay the penalty when it is due and ensure that payment cannot be avoided by dissipating assets.

1.12 One respondent noted that the consultation only referred to Civil Procedure Rules (CPR) and that these only apply to England and Wales. The government recognises this and confirms it is working with the Devolved Administrations of Scotland and Northern Ireland to ensure consistency of approach.

1.13 Respondents to the consultation were broadly supportive of the proposals. Most respondents felt the freezing order would be the most appropriate option to take forward, although some respondents questioned why the government was proposing only one option and suggested keeping both the security payment and freezing order options available.

1.14 The government has carefully considered the responses and has decided to proceed with the freezing order option, because it would be administratively more straightforward and is the most likely option to achieve the policy aim. It has further decided to achieve this by legislating to allow HMRC to use the existing freezing order processes for the relevant anti-avoidance penalties rather than designing a new suite of powers for these.

Tackling offshore promoters and the UK entities that support them

1.15 The government wants to deter UK based entities from acting on behalf of offshore promoters and so make it more difficult for these promoters to sell their schemes in the UK. The proposed changes would create a liability on promoters’ UK associates, to penalise them for assisting offshore promoters’ activities.

1.16 Most of the responses acknowledged the difficulties posed by tackling tax avoidance promoters that are based offshore. There was therefore a lot of support amongst respondents for tackling offshore promoters via the UK entities that support them.

1.17 The government is committed to maximising the deterrent effect of penalties so that facilitating or collaborating with an offshore promoter to sell their scheme in the UK is no longer a viable option for UK entities.

1.18 The government has also acknowledged stakeholders’ concerns about the disproportionate effect of smaller POTAS/DOTAS penalties potentially leading to a much higher penalty, of up to the total fees earned by the scheme. To address this, an additional requirement will be added so that the total value of the anti-avoidance penalty or penalties the UK entity must have incurred, before being liable to an additional penalty, must be at least £100,000. This threshold would not apply to enabler penalties given that an enabling penalty is only issued when it is clear that what has been enabled was avoidance and as part of the process, the case would have been subject to prior consideration by the independent General Anti-Abuse Rule (GAAR) Advisory panel. Where a UK entity is subject to an enablers penalty it would be liable to the new proposed penalty in line with the original consultation document.

Closing down companies that promote tax avoidance schemes and tackling the directors of those companies

1.19 The government wants to disrupt the business activities of companies involved in promoting or enabling tax avoidance.

1.20 The proposals would enable HMRC to present a winding-up petition to court for companies that are operating against the public interest.

1.21 In this context, public interest means protecting the public from the actions of the company or the director causing harm. This could include companies that do not comply with their obligations under the anti-avoidance regimes, and/or those that are selling tax avoidance schemes that will not deliver the tax benefits promised, and which leave individuals using the schemes with large tax bills on top of substantial fees already paid to the promoter.

1.22 Respondents supported the need for HMRC to take action to close down companies that operate against the public interest and cause harm to both individuals and businesses. Most respondents agreed that providing HMRC with a new power was a sensible and effective approach to disrupting those companies, and as such the government will proceed with the proposal to introduce a new power for HMRC to present winding-up petitions to court.

1.23 The consultation included a question on whether there should be a new ground for disqualification for directors involved in tax avoidance. The response to this question was mostly muted; those that did answer the question did not have strong views or simply agreed to continue with the existing approach to promote consistency in disqualification cases.

1.24 HMRC have developed and discussed this further with the Insolvency Service (INSS), who are part of the Department for Business, Energy and Industrial Strategy (BEIS), and have found a non-legislative approach which meets the policy aim of using disqualification more proactively within the current provisions of the Company Directors Disqualification Act 1986 and seeks also to enhance the operational relationship between HMRC and INSS. As a result, the government will not be introducing a new ground for disqualification and therefore will not be proposing any changes to legislation at this time.

Supporting taxpayers to identify and steer clear or exit tax avoidance

1.25 The proposed changes would enable HMRC to share information about the enquiries they are making into specific promoters and tax avoidance schemes earlier than they currently can, or will be able to, under the provisions in Finance Act 2021. The proposals would also ensure that taxpayers better understand whether the information they have been provided by their promoter accurately reflects the information held by HMRC.

1.26 Respondents supported ensuring that taxpayers are better able to make informed choices prior to entering into these arrangements. It was felt that this would help to reduce the size of the avoidance market.

1.27 A number of respondents highlighted the importance of HMRC proactively publicising the list of promoters and schemes, through third party websites, the media and social media, to ensure that they reach as many taxpayers and interested parties as possible.

1.28 Some respondents raised concerns regarding the scope of the measure and how HMRC would look to define “promoters” of tax avoidance. In particular concerns were raised by the legal profession who were concerned that those offering legal advice may be unwittingly caught within the scope of the measure. However, others were keen that the measure caught those within the wider promoter structure, such as umbrella companies, in order to maximise the effectiveness of the measure.

1.29 Respondents were supportive of there being safeguards in place, although there was a lack of consensus about how robust they needed to be. There was a general acknowledgement that there was a need for HMRC to act speedily in order to tackle these schemes.

1.30 The government intends to adopt a definition of the term promoter in line with that used by the POTAS legislation, as amended in Finance Act 2021, in order to ensure that those entities within the structure cannot escape having their details published.

1.31 The government has also given further consideration to how to ensure an appropriate legal avenue to challenge HMRC decisions to publish information:

• about promoters;
• about promoters’ schemes
• that challenges the misleading information that promoters put into the public domain

The government has concluded here that the most appropriate legal avenue is for those named to apply to the High Court for judicial review, which provides those challenging HMRC’s actions with the appropriate access to justice in line with those named by HMRC under similar measures.

Tackling disguised remuneration schemes

1.32 A number of respondents highlighted the issue of disguised remuneration schemes and the effect that they have on scheme users.

1.33 Disguised remuneration schemes are contrived arrangements that pay people amounts that purport to be non-taxable in place of a salary; these amounts are often described as a loan, annuities, shares or another payment. These supposedly non-taxable amounts are no different from normal income and are, and always have been, taxable.

1.34 In terms of scheme usage, disguised remuneration constitutes about 98% of the tax avoidance market.

1.35 Respondents to this consultation were overwhelmingly supportive of the new measures that the government is seeking to take to clamp down on promoters of tax avoidance schemes. However, some respondents questioned the efficacy of these measures with regards to protecting low to medium income earners that are using disguised remuneration schemes.

1.36 These respondents stated that many of these users of disguised remuneration schemes have little or no choice about their use of these schemes with many placed into them by umbrella companies and that some of these contractors are unable to leave these schemes and find alternative employment.

1.37 From 21 July to 30 September 2020 the government called for evidence into tackling disguised remuneration tax avoidance. This exercise involved consulting with a large number of stakeholders, across a wide range of industries. The call for evidence covered a range of topics about how best to stop this abuse, including examining the role of those in supply chains and helping taxpayers steer clear of and exit disguised remuneration schemes.

1.38 A wide range of suggestions about how to tackle disguised remuneration were made by stakeholders and each of these suggestions was carefully considered by officials.

1.39 On 23 March 2021 the government published a summary of responses, including next steps.

1.40 The summary of responses makes clear that HMRC are committed to tackling the continued use of these schemes in line with the wider compliance strategy of ‘Promote, Prevent, Respond’. Our aim is to:

• help taxpayers understand the risks of entering schemes, and convince those who have used the schemes to leave tax avoidance at the earliest possible stage, before they have built up large bills
• stop unscrupulous promoters of tax avoidance schemes and take action to stop the supply of schemes
• where taxpayers have used schemes HMRC will continue to support them to exit avoidance and pay the tax they owe, by agreeing a manageable settlement wherever possible, but through litigation if necessary

1.41 The next steps section of the summary of responses specifically highlighted the awareness campaign, launched in November 2020, targeting certain sectors of the economy where promoters are particularly active, and the work HMRC are undertaking to tackle promoters of tax avoidance, which would include this package of measures.

1.42 The summary of responses also outlined the powers that HMRC have to tackle abuse in supply chains, such as the enabler legislation, and is now seeking to extend these powers with the measure to tackle offshore promoters and the UK entities that support them.

1.43 Regarding umbrella companies, most are compliant with tax rules, but HMRC will take action to tackle the minority that are not. There are legitimate reasons why an agency or individual would choose to use an umbrella company. They can fulfil useful payroll functions and can provide choice for individuals who have multiple engagements but do not want the administrative responsibilities of setting up their own limited company.

1.44 The new powers outlined in this document will mean that HMRC are more able to tackle the type of unscrupulous umbrella companies that are involved in tax avoidance and of concern to respondents.

1.45 For example, under the package of measures to clamp down on promoters of tax avoidance HMRC would be able to:

• wind up umbrella companies where they are involved in promoting or enabling tax avoidance and are operating against the public interest
• name umbrella companies under investigation by HMRC that are controlled by a promoter of tax avoidance. This should assist taxpayers to identify these entities and avoid entering into these schemes in the first place. By publishing information about such entities on GOV.UK it also enables third parties to be aware of these non-compliant umbrella companies and allows them to warn potential schemes users away from entering into arrangements with them

1.46 Alongside this, the government has committed to expand state enforcement for agency workers to cover umbrella companies and to establish a single enforcement body for employment rights to better protect vulnerable workers and create a level playing field for the majority of employers complying with the law. The new single enforcement body will bring together 3 existing bodies: the Gangmasters and Labour Abuse Authority, the Employment Agency Standards Inspectorate, and HMRC’s National Minimum Wage Enforcement.

1.47 The government has also committed to go further on state enforcement of workers’ rights. As well as covering umbrella companies working in the agency worker market, the new body will cover holiday pay for vulnerable workers and statutory sick pay. Primary legislation will be required to create this new body and so timing will be dependent on the legislative timetable.

1.48 HMRC have also published a guide to help contractors engaged through umbrella companies understand how these arrangements work, how they can expect to be paid, and how to challenge if unauthorised deductions are made.

1.49 The government continues to monitor the extent of the use of disguised remuneration schemes, with reports published on the use of marketed tax avoidance schemes in the UK, and other forms of tax non-compliance in contingent labour supply chains. This matter is kept under review by the government and further action may be taken in the future, if considered necessary.

2. Introduction

2.1 This document sets out the government’s response to the consultation on clamping down on the promoters of tax avoidance which ran from 23 March to 1 June 2021.

2.2 The consultation asked for views on a range of proposed new measures including additional HMRC powers and strengthened sanctions to disrupt the business model on which promoters rely by:

• clamping down on promoters who dissipate or hide their assets by ensuring HMRC can protect their position and secure a promoter’s assets to pay any relevant penalties
• tackling offshore promoters through the UK entities that support them by charging penalties to the onshore entities who are associated with, and who facilitate, the promoter’s activities, linked to their involvement in the offshore promoter’s business
• disrupting the business activities of companies involved in promoting or enabling tax avoidance by closing them down where it has been shown they are not operating in the public interest and disqualifying the directors at the earliest point possible
• supporting taxpayers to steer clear of tax avoidance schemes, or exit tax avoidance quickly, by providing more information on the promoters and their schemes so they can make informed decisions

2.3 Chapters 3 to 6 of this document covers each of the 4 proposals outlined above. Each chapter summarises the responses given to the questions posed in the consultation and sets out the government’s response.

2.4 Annex A details the organisations that responded to the consultation. The government wishes to thank all those external stakeholders that engaged with this exercise.

Background

2.5 The government is committed to tackling promoters of tax avoidance and has introduced a number of measures in recent years in pursuit of this aim.

2.6 Following the publication of Lord Morse’s Independent Review of the Loan Charge in December 2019 the government responded by announcing that it would take further measures to tackle promoters of tax avoidance.

2.7 On 19 March 2020, HMRC published their strategy for tackling promoters of mass-marketed tax avoidance schemes. This sets out how HMRC will tackle promoters, including working closely with partner bodies to do so, and how HMRC will support taxpayers to steer clear of avoidance. It makes clear the government’s commitment to take action to ensure HMRC get the information they need to investigate tax avoidance schemes and to reduce the scope for promoters to market tax avoidance schemes, whilst enabling tax advisers who adhere to high professional standards to go about their business unhindered. The strategy also provided details of the future steps that the government has committed to take. The document signalled that additional policy measures would be announced at Autumn Budget 2020 that would:

• disrupt the business model of promoters
• disrupt the economics of tax avoidance
• give HMRC additional powers to tackle promoters

2.8 On 21 July 2020 the government launched its consultation, Tackling Promoters of Tax Avoidance, which introduced proposals to strengthen existing anti-avoidance measures and reduce the scope for promoters and enablers to market tax avoidance schemes. A summary of responses was published on 3 March, and these measures were introduced in Finance Act 2021.

2.9 These new measures will enable HMRC to act faster, get information sooner, name non-compliant promoters earlier, and make it easier to secure significant penalties from enablers of tax avoidance. They will bolster existing anti-avoidance regimes and support HMRC in tackling the determined group of 20 to 30 promoters who are behind most of the tax avoidance schemes that are marketed to the UK public.

2.10 However, the government wishes to go further still in tackling this remaining group of promoters. This explains why in the March 2020 paper Tackling promoters of mass marketed tax avoidance schemes the government trailed a second package of measures, which was formally announced on 12 November 2020, which this response document covers.

2.11 The government wants to ensure that tougher action can be taken against promoters and that HMRC are able to alert taxpayers to the risks of avoidance schemes at the earliest possible time. Such an approach was supported by many of those who responded to the Call for evidence: tackling disguised remuneration tax avoidance.

2.12 The government is listening to powers and safeguards concerns to ensure it is not extending powers where it does not think it necessary. Paragraphs 3.16 and 5.17 in this document outline examples where the government considers it can use existing legislation to deliver its policy objectives.

Respondents to the consultation

2.13 The government is grateful to everyone who took the time to respond to the consultation. Eighteen written responses were received from a wide variety of stakeholders across a range of sectors.

2.14 The government was pleased to see responses from trade sector groups; trade unions; tax professional bodies; educational institutions and Parliamentary groups.

2.15 Due to COVID-19, HMRC officials were unable to meet face to face with stakeholders. However, despite these challenges HMRC held 6 calls with 18 different organisations, hosting both virtual round table discussions and one to one calls. The government is grateful for both the input and flexibility of all those HMRC spoke to.

2.16 In the consultation 38 questions were posed. Some respondents provided general comments, others answered some or all of the questions. In some cases, respondents made the same points in respect of several questions.

3. Clamping down on promoters who dissipate or hide assets to avoid paying penalties

Overview

3.1 The changes proposed in the consultation would enable HMRC to apply to a court or tribunal for a security payment or a freezing order to ring-fence the assets of a promoter of tax avoidance where 2 conditions are met.

3.2 First, HMRC would be able to seek a security payment or freezing order where a penalty under anti-avoidance legislation is about to be issued or where an application to the tribunal is about to be made for a tribunal assessed penalty.

3.3 Secondly, HMRC must consider there is a risk of the promoter dissipating their assets and not paying the penalty.

3.4 This change would protect HMRC’s ability to collect the penalties that are charged on promoters of tax avoidance and seeks to make sure the promoters cannot escape the financial consequences of their non-compliance.

The consultation asked a number of questions about this proposal.

Question 1: are the circumstances outlined in paragraph 2.18 of the consultation document reasonable situations for seeking an order to ring-fence assets?

Question 2: are the conditions outlined in paragraphs 2.19 and 2.20 reasonable for determining the grounds that need to be met before HMRC can seek a court order to ring-fence a promoter’s assets, or are there other conditions that you think HMRC should meet before seeking an order?

Question 3: is the timing outlined in paragraph 2.19 the most appropriate point at which HMRC should be able to request an order to ring-fence assets, or do you consider this could apply at an earlier point in the POTAS, DOTAS or Enablers penalty regimes?

3.5 Most respondents agreed that the circumstances outlined in the consultation were reasonable situations for seeking an order to ring-fence a promoter’s assets. They considered that the proposed conditions that needed to be met before HMRC could seek a court order were sufficient and reasonable. One respondent emphasised the wide-ranging nature of the circumstances for the proposal and suggested consideration of a threshold penalty amount, below which a freezing order would not be appropriate.

3.6 The 2 conditions outlined in paragraphs 2.19 and 2.20 of the consultation document that would need to be met before an order could be applied for, were considered reasonable and no further grounds or conditions were suggested. These conditions are that HMRC must be about to issue or apply for one of the penalties for non-compliance with anti-avoidance legislation, and there must be a risk of the promoter dissipating their assets before the penalty can be collected. Some respondents did point out that there would need to be sufficient proof of the risk of asset dissipation and relevant recourse to appeal. It was also felt that it would be useful to clarify the threshold for the risk in the second condition, for instance whether it is a ‘reasonable’ or ‘significant’ risk.

3.7 There were a range of views expressed in response to question 3 on the timing and first condition for using the proposed measure. One respondent agreed that the speedier timing outlined in the consultation would be appropriate. Another agreed with the proposed timings and did not favour an earlier point due to the need for the necessary due diligence that would be required.

A further view was that earlier points to apply for an order should be explored as there was a concern that within the current proposal there would still be time for assets to be dissipated and another response did not consider it necessary to wait until HMRC were ready to commence penalty proceedings.

Comments included:

… it is reasonable to allow an order to be sought at an early stage, but subject to the caveat that it must be possible to demonstrate a prima facie case at the point the order is sought.

…the condition should simply be that it is reasonable to treat the promoter as liable for the penalties.

The government’s response

3.8 The government acknowledges that until a penalty is finally due and enforceable it cannot be collected and that this may not be until the point where a tribunal determines the penalty in question. However, the government also recognises the risk that those who promote and enable tax avoidance will seek ways to avoid having to pay any penalties charged and side-step their obligations. This proposal seeks to achieve a balance by ring-fencing assets to cover the value of the penalty so that, as and when it becomes due, it can be collected.

3.9 This proposal seeks to use the earliest reasonable point to ring-fence the assets. The government welcomes the views of the respondents and believes that the timing point proposed, once a penalty position is established and proceedings are about to commence, strikes the right balance between being able to act early and ensuring that any freezing order is proportionate.

3.10 Having considered the proposal further the government also now considers that it is not necessary to make specific reference to promoters of tax avoidance when designing the new measure. One of the conditions when applying for an order to ring-fence funds is that a penalty under anti-avoidance legislation will be about to be applied for. The relevant penalties would be outlined in the legislation and would all be penalties that apply to promoters, so in practice, only promoters could be subject to this new freezing order. The government will therefore continue with the measure on the basis of the proposed conditions, but without specific reference to promoters.

3.11 The government also recognises the useful points raised about ensuring there is sufficient proof and a prima facie case that relevant due diligence has taken place, clarification on the risk threshold for the second condition relating to asset dissipation, and the suggestion of a threshold penalty amount. The government is proceeding to largely use existing legal procedures, with provision to ensure that they apply to the relevant anti-avoidance penalties. The government considers the details within the procedural rules, associated case law and practice directions provide sufficient information on these points and provide the necessary safeguards and protections.

Question 4: do you agree with the principle of requiring a security payment or obtaining an asset freezing order in the circumstances described?

Question 5: which option do you think would best achieve the policy aim to ensure that promoters could not escape penalties or use the time taken to determine appeals to dissipate their assets?

3.12 Respondents generally agreed with the principle of requiring a security payment or obtaining a freezing order in the circumstances described in the consultation and that either would achieve the policy intent. It was noted that the equivalent procedures in Scotland and Northern Ireland would need to be taken account of.

3.13 Most respondents considered that a freezing order would best achieve the policy aim, but some respondents questioned why the government is proposing one or the other and suggested that both options, of a security payment and a freezing order, should be retained allowing HMRC to decide which would be the most effective remedy based on the circumstances in each individual case.

Comments included:

Both the security payment and freezing orders are certainly appropriate…

…unclear as to why the government proposes to take forward one or the other, not both. If both remained as options, then HMRC could decide what would be most effective in the circumstances of each individual case.

We are not sure why it has to be one or the other – would it not be better to have both options available so that the remedy can fit the circumstances?

We consider that the freezing order option is likely to be most appropriate. This is the process adopted in all disputes where there is a risk of dissipation of assets…

3.14 Respondents considered that a freezing order would be the most administratively straightforward of the 2 options, and while it could have an effect on the running of the business, the requirement to provide security may be even more burdensome for businesses. There was a concern that any requirement to access funds to pay a security could affect the cash flow of a business, whereas a freezing order can be monetary or non-monetary and would provide a wider range of assets available for the proposed measure. A freezing order can be enforced against both the respondent and any third parties, such as a bank, who knowing the terms of a freezing order, wilfully breach or assist a breach of it. Whichever option the government chooses, it was commented that the principles of proportionality in implementing freezing orders should be adhered to.

The government’s response

3.15 The government consulted on 2 options so that it could carefully consider which would be most straightforward to administer, most likely to achieve the policy aim, and not be over-burdensome either to businesses or the courts. Having reviewed the responses and carefully considered the options, the government agrees that the freezing order option would be the most administratively straightforward option to both legislate and implement. This option also takes into consideration any Human Rights Act concerns in relation to a security payment which would place the monetary assets with HMRC, rather than just securing them until the penalties are finally due and payable.

3.16 The government is listening to powers and safeguards concerns to ensure it is not extending powers where it does not think it necessary. It has further considered the first condition relating to both HMRC issued and tribunal issued penalties that the security payment or asset freezing order would be sought to protect. It now considers that it is not necessary to include the HMRC issued penalties, such as enablers penalties, as its opinion is that these already give an immediate and present right to a debt, which is a requirement when applying for a freezing order. The government is therefore not proposing to include HMRC issued penalties in the new freezing order measure, as it considers a freezing order can be applied for under current procedures for those penalties.

3.17 The government considers the most straightforward way to legislate for a freezing order for tribunal issued penalties would be to make provision in a Finance Bill. This would ensure that the application to a tribunal by HMRC for the relevant penalties could be considered an immediate and present right to a debt and a freezing order could be sought at that point.

Question 6: do you consider the sanctions that currently apply in respect of security payments and asset freezing are appropriate to apply to promoters of tax avoidance in the circumstances outlined above?

3.18 Respondents agreed that the sanctions that currently apply to freezing orders were appropriate in the circumstances outlined in the consultation document. Failure to comply with a freezing order is a contempt of court and can result in a fine, imprisonment, or assets being seized. The government will therefore continue with the proposed measure including sanctions in line with current legislation.

One respondent commented:

With the prospect of imposing harsh penalties such as imprisonment, this may go some way to ensuring that promotors of such schemes will cease operation.

Question 7: is the High Court or Upper Tribunal the appropriate court for seeking either a security or asset freezing order, or would another court be more appropriate?

3.19 Most respondents agreed that the High Court would be the most appropriate for seeking a freezing order in England and Wales. One respondent noted that the equivalent Scottish courts would be the Outer House of the Court of Session and the Sheriff Court.

Comments included:

…the High Court has by far the greatest experience in this area. It already deals with HMRC applications as well as those for the Serious Fraud Office, National, Crime Agency and Financial Conduct Authority and so would appear to be the most appropriate channel.

… is not commenting on which court or tribunal should be used in such an event but believes that the process should be swift and certainly ex-parte.

3.20 Respondents commented that due to the seriousness of freezing orders, and the complex factors that need to be balanced, any hearing for a freezing order should only be made by a judge with the authority to do so, which is generally the High Court. This will ensure there is consistency in applying the principles of making freezing orders.

The government’s response

3.21 The government welcomes the views relating to which would be the most appropriate court for the new freezing orders to be heard, and will continue with its proposal to follow current procedures which are generally heard in the High Court in England and Wales, the Sheriff Court or Court of Session in Scotland and the High Court of Justice in Northern Ireland.

Question 8: do the provisions set out above provide appropriate safeguards for freezing orders or securities for promoters in penalty proceedings?

Question 9: to what extent would this opportunity to present evidence and the later review, alongside existing appeal rights for the penalties, provide adequate avenues for challenge by promoters?

Question 10: are there any other safeguards that HMRC should consider, to ensure the proposed power is only used in appropriate cases?

3.22 Most respondents agreed that the provisions and safeguards set out in the consultation document do appear to be appropriate and reasonable. These include a detailed review by both a solicitor and a designated officer from within HMRC’s Insolvency governance to ensure the evidential test and requirements are met. Independent oversight would then be provided by the relevant court hearing.

3.23 It was confirmed by some respondents that they agreed with the proposal that the decisions to ring-fence assets must be in line with the principles identified in the HMRC Powers Review and must be taken at a senior level. The independent oversight that would be provided by application via the High Court was also welcomed.

Comments included:

We agree that the existing requirements that must be met for freezing orders provide a helpful model for the standards to be met as part of this new measure.

…include fairly strong safeguards through independent oversight by a senior court or upper tribunal.

Given the serious impact a ring-fencing order could have on those affected, there should be some route to redress if HMRC is not acting expeditiously after a security payment/freezing order is made. In that regard, the ability of the promoter to ask for a later review is an important safeguard.

3.24 Most respondents commented that the proposals presented a reasonable opportunity for promoters to challenge the security payment or asset freezing order and no further or additional safeguards were suggested.

3.25 Some respondents commented that sufficient financial resources should be retained by, or made available to, the promoter to ensure they can fund their rights of appeal against the security payment or freezing order and the penalties in question. It was also suggested that it would be appropriate for the evidence on which the security payment or freezing order is granted to be served on the promoter along with the order. Another respondent also felt that the ex parte hearing was appropriate, but that the process must also be clear and open to challenge.

Comments included:

The opportunity to present evidence and the later review, alongside existing appeal rights for the penalties, provides more than adequate avenues for challenge by promoters.

It is likely… that such promotors are refusing to cooperate with HMRC and ignore any communications to try to delay the process. It is therefore important that, once the relevant court has decided, the freezing of assets should proceed.

The government’s response

3.26 The government welcomes the views of respondents about the safeguards and protections that should be included with the freezing order proposal. It recognises that freezing orders are a serious tool and that they should be used with caution and only in appropriate cases where there is a risk of asset dissipation. This will be achieved by ensuring that the 2 conditions specified have been met. HMRC would not seek to use a freezing order to deny a promoter or enabler of tax avoidance access to funds to defend their appeal rights or access to justice. The government intends to proceed with the freezing order option as described in paragraphs 3.15 and 3.16, and the associated safeguards that are provided with this process. As the intention is to build on existing procedures, any promoter or enabler of tax avoidance subject to the new freezing order would benefit from the well-established safeguards that apply.

Question 11: are there any other steps that would be appropriate in this process?

3.27 Most respondents agreed that the steps outlined in the consultation document were reasonable and no other steps were suggested. It was suggested by one respondent that the avenue of appeal following the granting of a security payment or freezing order should be clarified. For instance, that any right of appeal or request to review could also be directed at HMRC in addition to the court or tribunal issuing the order.

The government’s response

3.28 The government recognises the general agreement with the process outlined for applying for an order to ring-fence funds to safeguard the payment of anti-avoidance penalties. It considers that it is right that where HMRC consider there is a risk of assets being dissipated, it should be able to apply for a freezing order at an early enough point to protect the collection of penalties, and that sanctions for non-compliance with anti-avoidance legislation should not be side-stepped. HMRC welcome contact from promoters and enablers who are willing to provide further information about their activities and to support HMRC with their enquiries, but the hardcore of promoters and enablers that this measure is targeted at rarely wish to engage or comply with HMRC requests. Once a freezing order is granted, there are well established routes of appeal against decisions to grant a freezing order and the government considers these to be sufficient for this new measure.

4. Tackling offshore promoters and the UK entities that support them

Overview

4.1 The consultation proposed an additional penalty on UK entities that facilitate an underlying offshore promoter’s business here in the UK. The government wants to deter UK based entities from acting on behalf of offshore promoters in order to make it more difficult for these promoters to sell their schemes in the UK.

4.2 There is already provision in legislation for penalties to be charged on UK entities facilitating the use of tax avoidance schemes. However, these sanctions are for the UK entity’s own activities within the promotion structure. The additional penalty proposed in the consultation would be chargeable where the UK entity has:

• undertaken activities to facilitate the use of a tax avoidance scheme
• been subject to a penalty under one of the anti-avoidance regimes in respect of its own activities in relation to that tax avoidance scheme, for example, an enablers penalty for marketing abusive tax avoidance arrangements or a POTAS penalty for not complying with a stop notice
• undertaken its activities in relation to that tax avoidance scheme within an offshore promoter structure

4.3 The additional penalty would be for an amount up to the total fees earned by all those involved in the development and sale of that tax avoidance scheme. This would include fees paid directly to the offshore promoter, together with fees paid to any other entities or persons who formed part of the “promotion structure” for the scheme. 

4.4 There would be a right of appeal against HMRC’s decision to charge the additional penalty and to appeal against its value.

Question 12: do you think that applying the ‘promotion structures’ definition is the best way to capture UK entities facilitating offshore promoters’ activities? 

Question 13: do you agree that UK entities who are unconnected with the offshore promoter for tax purposes, as outlined in paragraph 3.15, should be included within the scope of this proposal?

4.5 Most respondents agreed that applying the promotion structures definition is the best way to capture UK entities facilitating offshore promoters’ activities. However, one respondent was concerned about the lack of clarity of the promoter structure definition and that it could potentially be interpreted very widely. Two respondents felt that those UK entities that were unconnected with the offshore promoter for tax purposes should not be included within the scope of these proposals as in their view there was a risk of the net being cast wider than intended. In their view, if unconnected entities were to be in scope, the boundary for becoming liable to an additional penalty would need to be made clearer.

4.6 One respondent suggested making the UK entities jointly and severally liable for the offshore promoter’s liabilities.

The government’s response

4.7 The government is grateful for the responses. The government’s view is that the definition of who is in scope needs to be sufficiently wide to (i) ensure that those who should be caught by this measure are caught and (ii) at the same time including rigorous governance procedures so that advisers who are providing advice on tax or company law for example are not caught.

4.8 This measure is aimed at UK entities acting under the instruction or guidance of the offshore promoter or working in collaboration with them. This would include tax or legal advisers who have presented transactions in a particular way in order to facilitate the sale of the offshore promoter’s scheme and unconnected umbrella companies that have been remunerated by the offshore promoter to manage the implementation of the scheme.

4.9 The government considered making UK entities jointly and severally liable for the offshore promoter’s liabilities but concluded it was not a viable option as it would ultimately contravene the rights of the individual under Human Rights legislation and UK domestic law.

Question 14: do you think that applying the conditions outlined above is an effective approach in determining when the additional penalty would apply? 

Question 15: can you see any practical difficulties with this approach? 

Question 16: is the basis for calculating the additional penalty a fair approach? 

4.10 There was a mixed reaction to the proposals for calculating the additional penalty and who it should be applied to. Some stakeholders commented that it may be unfair to charge UK associates a penalty that encompasses activity carried out by someone else. Others pointed out that these entities usually enter these arrangements with a good understanding of the consequences and without their activities the promotion of such schemes would not occur.

4.11 There was also some concern about the proportionality of smaller penalties under DOTAS for example, leading to a more severe additional penalty based on the total fees earned by all those involved with the scheme.

4.12 One respondent commented that the requirement that the UK entity is itself subject to a penalty under anti-avoidance legislation is not a very high bar if it included a failure to disclose under DOTAS given that some of the DOTAS hallmarks, such as the financial instruments hallmark, can be triggered relatively easily. The respondent added that it would quite difficult to impose a penalty by reference to the total fees especially for UK entities that are unconnected with the promoter. They suggested that the UK entity should only be liable for the fees generated in respect of their own clients rather by reference to all users of the scheme. Furthermore, they felt that where there was more than one UK entity involved, the penalty could amount to a very substantial sum and would no longer be linked to the work being done by the entity subject to the penalty.

4.13 However, other respondents took a different view and agreed that the approach outlined in the consultation for determining the additional penalty would be effective and that the basis for calculating the additional penalty was fair. One respondent remarked that the additional penalty would do no more than reflect the amount of the total fees earned by all those involved in the development and sale of the tax avoidance scheme and that a genuinely additional penalty would be a sum (say 25%) in addition to all the fees earned by all those involved.

4.14 One respondent was concerned that there was a danger of double recovery i.e. from the underlying offshore promoter and the UK entity. They suggested that if a penalty is recovered from the offshore promoter, the additional penalty imposed on the UK entity should be repaid.

4.15 Another respondent suggested that HMRC should publicise the new penalty as widely as possible so that UK entities that may be affected are aware of the change and have time to take appropriate action to reduce their risk of an additional penalty.

The government’s response

4.16 The government is grateful for the views expressed. The additional penalty is to penalise the UK entity specifically for the behaviour of facilitating an offshore promoter’s business activities in the UK. It is therefore appropriate that a separate penalty is imposed on each UK entity that fulfils the conditions for the penalty.

4.17 The penalty is distinct and separate from any penalties imposed on the offshore promoter. The UK entity would be charged the full amount of the penalty based on the total fees earned by all those involved in the development and sale of the scheme so that it acts as a strong deterrent to make UK entities stop what they are doing. Where it is not possible to determine the total fees earned by the scheme, HMRC would use a best reasonable estimate.

4.18 As mentioned at paragraph 1.18 the government has decided to amend one of the conditions for applying the additional penalty. This is to address concerns about the additional penalty being a disproportionate response where a smaller initial penalty is incurred by the UK entity for, say, a DOTAS information penalty. The condition instead will stipulate that the total value of the initial penalty or penalties incurred by the UK entity for their own activity must be equal to or greater than £100,000. Where a promoter displays a pattern of behaviour that leads them to incur a penalty or series of penalties totalling £100,000 or more, this clearly demonstrates a determined willingness to facilitate an offshore promoter’s scheme. The figure of £100,000 is in line with the Stop Notice penalty and ensures that the subsequent additional penalty is both proportionate and justified.

4.19 The government intend to continue with Enabler penalties being a trigger for this new penalty without being subject to this threshold. Unlike the other penalties in scope here, the enablers penalties are assessed by reference to the fees received for the enablement activity, this being the case there would be a risk that the promoter and the UK entities would structure their business in such a way that each individual UK associate’s Enabler penalty would be less than £100,000 to try to escape the additional penalty.

4.20 The proposed new legislation would apply to any UK entity that incurs a penalty or penalties under the anti-avoidance penalty regimes up to the value of £100,000 on or after the date of Royal Assent for Finance Bill 2021/22. In the case of enablers penalties, the enablers penalty that gives rise to the additional penalty must relate to arrangements enabled on or after the date of Royal Assent for that Bill.

4.21 With regard to raising awareness amongst the groups that would be affected by these changes, draft legislation is being published alongside the summary of responses together with a Tax Information and Impact Assessment and Explanatory Note giving all those within the scope of the new legislation the necessary information they would need ahead of implementation. Guidance will also be published before implementation explaining how the rules for the additional penalty will work in practice. In addition, HMRC are also developing a plan for ensuring that there is good awareness of this measure to ensure the maximum deterrent value of the penalty.

Question 17: do you think it is an appropriate approach in all scenarios regardless of the type of anti-avoidance penalty incurred by the UK entity?

Question 18: what other methods could be used for calculating the penalty?

4.22 Most respondents did not express a view as to whether the approach outlined in the consultation was appropriate regardless of the type of penalty incurred by the UK entity. One respondent suggested that where there was more than one UK entity involved only one additional penalty should be imposed across all the entities involved, although they agreed there should also be a joint and several liability on each entity. The same respondent also suggested that the function of the onshore entities in the supply chain of the promotion structure should be taken into account in determining their additional penalties.

The government’s response

4.23 The government is grateful for the responses. Avoidance orchestrated from offshore is problematic because the offshore promoter is protected by the UK entity facilitating the avoidance. The government wants to make it more difficult for offshore promoters to sell their schemes in the UK, by no longer making it economically viable for UK entities to facilitate offshore promoters. For that reason, the government has concluded the penalty should be for an amount up to the total fees earned by all those involved in the scheme.

4.24 The purpose of the additional penalty is to act as a strong deterrent to UK entities involved in facilitating or those considering facilitating offshore promoters to sell their avoidance schemes in the UK. For the deterrent to be truly effective, the penalty should apply to each and every UK entity that satisfies the criteria for the additional penalty.

Question 19: do you agree that UK entities who are liable to the additional penalty for facilitating offshore arrangements should be subject to a security or asset freezing order where there is a risk that assets will be dissipated before the penalty was paid?

4.25 All of those that responded to this question agreed that UK entities liable to an additional penalty for facilitating offshore arrangements should be subject to a security payment or asset freezing order where there is a risk that assets will be dissipated before the penalty is paid.

The government’s response

4.26 The government has decided that a freezing order would be the best option (see paragraph 3.14) for protecting HMRC’s penalty position where there is a risk that assets will be hidden or dissipated. This new power would be applied to the additional penalty in the same way it would be applied to other counter avoidance penalties as outlined in paragraphs 3.1 to 3.4.

Question 20: do you consider that the proposed approach outlined in this chapter would be an effective deterrent to UK entities facilitating, or contemplating facilitating, offshore promoters’ activities? 

Question 21: do you consider that the proposed approach outlined in this chapter is proportionate to the harms caused by offshore promoters?

4.27 Respondents were broadly supportive of the government’s aims to tackle offshore promoters but they also expressed the need for the measure to be appropriately targeted for it to be effective and proportionate.

4.28 One respondent suggested that one way of limiting concerns about targeting would be to restrict the application of the proposals to mass marketed schemes or to offshore promotion activities that amounted to marketing. This way UK advisers would find it easier to identify potential problems.

4.29 One stakeholder also raised the question of when this measure would take effect and whether UK entities that had stopped their own involvement before the new measure was implemented would still be caught by it. Other stakeholders suggested that the measure should only catch those cases that involved abusive avoidance or where GAAR type arrangements were involved.

The government’s response

4.30 Promoters set up their businesses offshore in order to make it harder for HMRC to challenge the schemes they are promoting. But they are only able to profit from their activity because of the individuals and companies based here in the UK that make that possible. The additional penalty is intended to act as a significant deterrent to UK entities who are thinking about facilitating an offshore promoter and to encourage those already involved, to stop providing them access to the UK market.

4.31 The additional penalty would be applied on the merits of each case and provided that the necessary conditions were met. This, along with strict governance procedures, would ensure that the penalty was appropriately targeted.

Question 22: do these safeguards strike the right balance between tackling overseas promoters and fairness towards their UK associates who become liable to a charge under these proposals? 

4.32 Most respondents commented that the proposed safeguards are fair and reasonable and that the decision as to whether a penalty should be imposed by a senior HMRC officer would give an independent and unbiased view. One stakeholder supported the view that the safeguards outlined in the consultation document should be clear in any new legislation.

4.33 However, one stakeholder felt that the safeguards were excessively generous. In their view the underlying acts leading to the penalty constitute a criminal offence therefore the fact that the measure is treating them as civil offences is itself a sufficient safeguard.

The government’s response

4.34 The government agrees that the proposed safeguards should be clearly stated in legislation. This measure is necessarily robust to counter the behaviours of promoters who base themselves overseas and the activities of the UK entities that facilitate their access to the domestic UK market. But it is also balanced by strong and appropriate safeguards which will ensure that anyone affected by the measure has the right to make representations to an independent senior HMRC officer and a further right of appeal to the tribunal or court.  

5. Closing down companies that promote tax avoidance schemes and tackling the directors of these companies

Overview

5.1 The consultation outlined 2 proposals:

• HMRC to have a new power to present a winding-up petition to the court on the grounds of public interest for companies that are involved in tax avoidance
• to introduce a new ground for the disqualification of directors on the basis of their involvement in the promotion and enabling of tax avoidance. The Insolvency Service (INSS), part of the Department for Business, Energy and Industrial Strategy (BEIS) would remain responsible for considering the case for disqualification

The consultation asked a number of questions about these proposals, that follow.

Question 23: where there is a significant breach of the anti-avoidance regimes and it is in the public interest to do so, do you agree that HMRC can act to present a winding-up petition to the court?

Question 24: do you agree that a company’s significant breach of the anti-avoidance rules warrants consideration by INSS for disqualification of the company’s directors?

5.2 Most respondents agreed where there was a significant breach of the anti-avoidance regimes and it is in the public interest to do so, HMRC should present a winding-up petition to the court and that any significant breach warranted investigation and consideration for disqualification of the company’s directors. They considered that a breach or a failure to comply with the anti-avoidance legislation was a sufficient and reasonable trigger for HMRC to take action as quickly as possible. One respondent felt that robust conditions were needed for a sanction that could be significant for certain businesses.

Comments included:

There are precedents for petitions by other authorities (such as the FCA) in appropriate circumstances, and it would make sense to avoid the double procedure of having to refer the case to the Insolvency Service.

Providing there is sufficient evidence, the process of winding up such promoters’ companies should be as swift as possible.

The government’s response

5.3 The government will take the proposal forward for HMRC to have a new power to present winding-up petitions to court for companies operating against the public interest, so these companies can be removed from the market and any harm to the public and businesses can be prevented.

Question 25: do you consider that the proposed approach will effectively target those in the tax avoidance supply chain? And are there other options which could help better target entities that are connected to the promoter company?

Question 26: are the significant breaches outlined in paragraph 4.29 the right ones to enable HMRC to consider whether a winding-up petition should be presented?

Question 27: are there significant breaches, other than those outlined in paragraph 4.29, that should constitute a threshold condition?

5.4 Most respondents to question 25 agreed that the approach would seem to effectively target limited companies and limited liability partnerships (LLPs). One respondent suggested there may be an issue with partnerships other than LLPs which are subject to different winding up type arrangements. Another stakeholder was concerned with the lack of clarity of the proposed promotion structures definitions which they suggested could be interpreted in different ways, some relatively narrow, but others potentially very wide.

5.5 Most respondents to questions 26 and 27 agreed that the significant breaches outlined in the consultation were the right ones for HMRC to consider potential winding up action against a company and did not offer any additional breaches. One respondent questioned whether the DOTAS disclosure and reporting requirements were too low a bar to constitute a significant breach for winding up action. Another stakeholder suggested that winding up might be more appropriate where a penalty is final as the court might not grant the winding-up order if there are outstanding penalty proceedings.

One respondent commented:

These seem reasonable, although it might be questioned if it is necessary to specify them or whether the broad concept of public interest is sufficient without further specification.

The government’s response

5.6 The consultation outlined the conditions for HMRC considering winding up action against a company. This was based on using significant breaches of the anti-avoidance regimes as the trigger for seeking to wind up a promoter company. The government has considered the replies received and following feedback and further policy development, the government’s view is that a trigger that focusses on identifying the public interest grounds for winding up using the information held by HMRC would better meet the policy objectives. Under such an approach, HMRC would take into account all of the information it holds, and apply for winding up, where it holds sufficient information to evidence the public interest grounds.

5.7 This approach to demonstrating public interest grounds operates within the Insolvency Act 1986 and as such is in line with established practice and is well understood by the courts. HMRC would consider a wide range of material such as the nature of the promoters’ scheme, the number of users, the fees charged by promoters, their promotional material, correspondence with other promoters/enablers, previous non-compliant behaviour, compliance or enforcement action taken by HMRC or information received from taxpayers and other government departments, all of which would be used for building the case to consider winding up action on public interest grounds.

5.8 Although each case is different and would be assessed on its merits, it is the totality of this evidence that HMRC would use to determine which cases are considered for winding up action. This would include considering where a promoter has failed repeatedly to respond to HMRC requests for information, where they have failed to comply with the anti-avoidance rules over a sustained period and/or where their non-complaint behaviour is persistent and egregious. Taking this approach would give HMRC the discretion to target action where it is most appropriate to pursue the types of serious cases that this policy is aiming at in line with the consultation. The final decision on whether to wind up would remain in the hands of the courts based on whether HMRC had sufficiently demonstrated the public interest.

5.9 As outlined in the original consultation document, there would be strong governance and review processes in place. Furthermore, there are strong and robust existing legal safeguards (see below at 5.19) to ensure that companies can defend themselves against potential winding up action being brought by HMRC.

Question 28: what other factors should HMRC take into account when considering whether a winding-up petition is in the public interest?

5.10 Some respondents stated that all relevant factors should be considered, but these would vary depending on the circumstances, and as such suggested there was not a need to specify the factors. One stakeholder suggested that these relevant factors should be considered in the wider context of business in question, so that isolated failures in responsible businesses do not result in winding-up petitions being presented.

One respondent commented:

The proposed factors are suitable, but an open-ended and flexible attitude should be taken, so that as other relevant factors become apparent, they are acted upon in the same way.

The government’s response

5.11 The government will take into account all relevant factors in considering if winding up action is warranted against a company. By taking the approach mentioned above, HMRC would consider the breadth and depth of that information, both held within HMRC and received from other government departments to reach a decision as to whether to present a winding-up petition to the court.

Question 29: do you agree that there should be a new ground for disqualification for promoters involved in tax avoidance?

Question 30: are there any circumstances where the current approach to disqualification periods might not be appropriate for tax avoidance related disqualifications?

5.12 Most respondents did not respond to question 29. Those who did answer did not have strong views or simply agreed that there should be a new ground. Another respondent suggested that there was a need to continue with the existing approach to promote consistency in disqualification cases.

5.13 In response to question 30, most respondents agreed with the current periods of disqualification ie 2 to 5 years for misconduct of a less serious nature, 6 to 10 years for more serious conduct and 10 to 15 for the most serious misconduct, though some commented that Sevenoaks Court of Appeal guidance, though reasonable in practice, was rarely followed by the courts providing examples of high value frauds receiving only 5 to 8-year disqualifications.

5.14 One respondent suggested an alternative approach of applying fixed periods depending on the level of tax avoidance i.e. for smaller sums (less than £100,000) 1 to 5 years, reasonably large sums (£100,000 to £1 million) 6 to 10 years and very large sums (£1 million plus) 10 to 15 years.

5.15 One respondent considered that any involvement in egregious tax avoidance should be treated as tantamount to involvement in fraud.

The government’s response

5.16 Throughout the consultation, the government has engaged with a wide range of internal and external stakeholders to assess if there should be a new ground for disqualification for directors involved in tax avoidance or if the current disqualification regime is sufficient and robust.

5.17 The government has decided not to introduce a new ground for director disqualification. Following further detailed discussions with internal and external stakeholders, the government has concluded the current provisions within the Company Directors Disqualification Act 1986 (CDDA) are broad enough to cater for all circumstances including cases where HMRC believe disqualification action against the directors of a company is warranted.

5.18 The government considers that the policy aim of using disqualification more proactively can be better met within the current provisions of CDDA and by exploring how to enhance the existing operational relationship between HMRC and INSS. HMRC and INSS are working together to maximise the effectiveness of the existing referral process so that HMRC director disqualification promoter cases can be assessed and adopted more effectively.

Question 31: do you consider the current safeguards outlined above are sufficient and provide adequate protections for individuals and companies?

5.19 The current established legal safeguards outlined below, which are part of the existing process for winding up a company, ensure that a company is able to explain, clarify and defend itself against the proposed actions by the government:

• the company has a right to apply for an injunction to stop the petition being advertised by the petitioner before the court hearing takes place
• the company has the right to make representations during the court hearing which can include filing evidence during the proceedings, and evidence which HMRC need to consider in order to reassess the public interest aspects of the decision to continue with the petition
• the company has the right to apply to the court to rescind the order or stay the winding up process

5.20 Most respondents felt that the current legal safeguards were sufficient and robust, and struck the right balance between providing individuals and companies with the necessary protections to defend themselves and the government taking appropriate action against companies that break the rules. Furthermore, all respondents felt no changes were needed to the current safeguards and did not propose any new ones for this new power.

5.21 One stakeholder had concerns about the presentation of the petition having a detrimental effect as they felt that applying for an injunction may be beyond the means of some businesses, but they acknowledged this is the case for any winding-up petition and were unable to offer additional safeguards which could be introduced that would avoid this risk without also potentially weakening the proposed power to an undesirable extent.

The government’s response

5.22 The government believes that these safeguards are adequate and is not proposing any changes to them or new ones. The government understands that winding up a company is a serious action and recognises the need to have robust legal safeguards in place so that appropriate action is taken and to ensure those who are involved in legitimate activity or who have acted appropriately are not caught by these proposals.

5.23 Furthermore, the government recognises the importance of having strong governance in place to ensure an appropriate level of HMRC internal governance is applied to cases being considered for winding up action. A key part of that governance and review process is the role of the authorising officer, independent of the investigation team, who would consider all the facts and evidence provided to make the decision as to whether to petition the court to wind up a company or not.

5.24 As the ultimate safeguard, winding-up orders can only be granted if the court is satisfied that it is just and equitable to do so.

6. Supporting taxpayers to identify and steer clear or exit tax avoidance

Overview

6.1 The consultation proposed new powers that would allow HMRC to:

• inform taxpayers of HMRC’s enquiries into specific promoters and schemes, including at an earlier stage than it can currently, or will be able to under the provisions in the Finance Act 2021
• ensure that taxpayers understand better whether the information they have been provided by their promoter accurately reflects the information held by HMRC.

Question 32: how helpful would this information be to taxpayers?

Question 33: how can HMRC ensure that taxpayers do not incorrectly assume that if a promoter or scheme was not on the list then they cannot be involved in tax avoidance?

6.2 Most respondents were supportive of this new power. Many felt that providing potential scheme users with more information and earlier than is currently possible would assist taxpayers in being able to avoid entering into these schemes in the first instance.

6.3 A number of respondents highlighted the need for HMRC to proactively publicise the list of promoters and schemes to ensure that it reached as many taxpayers and interested parties as possible. A number of stakeholders highlighted the need for HMRC to send the details of those it suspected of promoting these schemes to various third parties such as tax representative bodies; employment agencies; businesses; Companies House; and the Charities Commission. The rationale for sharing information with these third parties was that these organisations would either be able to take action against the promoter or would be able to warn potential scheme users about the risks of entering into these schemes.

6.4 One tax professional body stated the following:

Feedback from our members indicates that it would be helpful for advisers to know, as soon as possible, that HMRC is actively enquiring into particular schemes and promoters – so that they can explain the possible consequences to clients who have been approached by promoters. The client may not have been given accurate information by the promoter – and may have been led to believe that HMRC has approved the scheme in some way.

6.5 In terms of how to share information with interested bodies, one tax professional body suggested that HMRC use social media and the mainstream press to publicise those schemes and promoters that would be named. The respondent proposed using industry magazines and newsletters, webinars, professional websites, along with issuing letters directly to known users or previous users of these schemes.

6.6 Some respondents raised concerns regarding the scope of the measure and how HMRC would look to define ‘promoters’ of tax avoidance. A body representing the legal profession raised concerns that those offering legal advice may be unwittingly caught within the scope of the measure. They were also unsure whether the name of the scheme or promoter would necessarily be known to taxpayers. Alternatively, they felt that it might be more helpful to describe the sort of transactions involved or the effects that it purports to deliver. They also queried whether it was justified to name those HMRC are investigating prior to reaching a final conclusion as to whether the arrangements constitute avoidance, given the potential reputational impact.

6.7 A number of respondents acknowledged that there was a risk that some would assume that if a promoter or scheme was not on the list then they might be viewed as not being involved in tax avoidance. However, the prevailing view was that this risk could be mitigated by including an appropriate disclaimer on both the GOV.UK page, containing the names of avoidance schemes and those entities that promote them, as well as in any related correspondence.

6.8 One respondent was keen that HMRC provide a landing page for this information, which could also include signposting and hyperlinks to relevant editions of Spotlights as well as other useful material such as the Tax avoidance - don’t get caught out frontpage.

The government’s response

6.9 The government recognises the importance of HMRC being able to provide taxpayers with as much information as possible to ensure that they are aware of the risks of tax avoidance schemes prior to entering into them. In order to do this HMRC need new powers to allow them to share this information.

6.10 The government is grateful for the suggestions as to how the information could be shared with taxpayers and third parties, who may be able to take action against those that promote avoidance and will seek to ensure that the appropriate channels will be used so that this information reaches the widest audience possible.

6.11 HMRC already share information about tax avoidance schemes through their Spotlights publications, although due to existing rules about taxpayer confidentiality those involved with and behind these schemes are not named. Therefore, the government accepts that there is a need to go further and provide taxpayers with more information, so they are better able to identify these schemes and avoid entering into these arrangements.

6.12 With regards to the scope of the measure, the government is of the view that the measure should seek to capture all those that promote avoidance schemes. It is important that HMRC are able to name those individuals and entities, such as non-compliant umbrella companies, that are in the promoter structure. HMRC will ensure that there is a robust governance process in place to ensure that the correct people are named.

6.13 Therefore, having considered the matter further and listened to respondents to the consultation exercise the government intends to include the following within the scope of the measure:

1. individuals and entities that control or influence the promoter
2. the promoter and other persons that are part of a promoter structure and are controlled by or influence the person in (1.)
3. individuals and entities that carry out an identifiable role in selling the avoidance scheme to taxpayers, where it is necessary to name these so that the taxpayer understands the arrangements or people that are being named

6.14 This might, for example, include umbrella companies that operate the avoidance schemes, and those individuals working for the umbrella companies to market these schemes to UK taxpayers. Such a definition would permit HMRC to name those entities and individuals that the scheme users are most likely to directly interact with.

6.15 The government accepts that there is a risk that some taxpayers may see the list of suspected schemes and promoters as a complete list and may view those promoters and entities that are not on the list as compliant. However, it is not possible for HMRC to provide real time information about every entity involved in the promotion of tax avoidance. There will always be a delay between the promotional activities of these bodies and then HMRC identifying these promoters and then subsequently naming them. Therefore, any list will need to include a prominent warning that the list is not exhaustive so taxpayers understand that it may not capture all schemes and promoters.

6.16 Despite the limitations of any list of schemes and promoters, the government is firmly of the view that such a list will still improve taxpayers’ knowledge of the avoidance marketplace and should assist taxpayers in being able to identify many of the current tax avoidance schemes being sold and those promoters selling them. This should help taxpayers to steer clear of them.

6.17 Finally, the government agrees with the suggestion that information to warn taxpayers should be in one place maximising usability for readers. HMRC officials are actively considering how best to ensure that this measure is integrated with existing communications products such as existing naming measures and Spotlights publications.

Providing taxpayers with clarity on the claims made by promoters about the chances of success of their schemes

6.18 The consultation document proposed that HMRC should have a new power that would allow it to share information with taxpayers that would clarify or correct incomplete, false or misleading claims to ensure that taxpayers have a fuller picture of the risk of these schemes.

6.19 The consultation document provided some examples of the type of information that HMRC might share, this included:

• actions HMRC are taking under DOTAS, including, where relevant, whether they believe that the scheme is disclosable
• confirmation that similar schemes have been found to not give the benefits claimed
• details of where relevant schemes have been defeated where a promoter had suggested that the schemes always worked
• details of where a promoter had been successfully challenged under POTAS, DOTAS or the enablers penalty regime
• details of a promoter’s previous defeats under different names, or organisational structures, where they claimed to be a new promoter or fail to draw attention to their failure under that name

Question 34: to what extent would information of the sort described here help taxpayers understand the risk of entering into tax avoidance?

Question 35: what other information would be helpful for HMRC to share with taxpayers to clarify claims made by promoters?

6.20 Most respondents felt that providing taxpayers with this sort of information would assist them with steering clear of tax avoidance schemes.

6.21 Some respondents highlighted the lack of market power that some of the users of these schemes have. They highlighted that some low-income scheme users can be pressured into moving into a non-compliant umbrella company. Some respondents stated that some contractors involved in disguised remuneration schemes are unaware that they are taking part in tax avoidance. These respondents highlighted that some contractors lack knowledge of the tax rules and that many have English as a second language making it more challenging to access and understand HMRC’s communications.

6.22 One tax professional body stated that it would be helpful to share the information outlined above with taxpayers. However, it was important that it was explained in non-technical language unless aimed specifically at tax professionals and agents. They thought it would be helpful to explain the consequences of entering into the tax avoidance scheme. They stated that promoters of disguised remuneration schemes often do not make any claims to users that there is a tax avoidance arrangement, therefore it is important for HMRC to highlight that there is a scheme to this population.

6.23 One respondent, who was supportive of this proposal, thought there was an argument that if HMRC take steps to correct what it believes at the time to be inaccurate information that subsequently turns out to be accurate then HMRC should publish a retraction in an equally public way.

6.24 With regards to other information that HMRC might share with taxpayers to clarify claims made by promoters, one respondent highlighted that it would be helpful for HMRC to seek to challenge misleading information relating to legal advice. Some promoters highlight advice from Queen’s Counsel (QC) to demonstrate the efficacy of the schemes to potential users. The respondent suggested that HMRC could challenge certain “myths” about such advice by highlighting that:

• other legal professionals may disagree
• the advice may be case specific
• the advice may not be accurately relayed to the potential scheme user

6.25 Three respondents thought it would be helpful for HMRC to publish and promote information which clarifies how to check the correct tax is being deducted from an employee’s wages and warning signs for employees to watch out for that could indicate that they are involved with a disguised remuneration scheme or other tax avoidance.

The government’s response

6.26 The government is keen to help taxpayers leave these schemes and to avoid entering into these arrangements in the first place. The government is of the view that this measure should support this objective. The government accepts that any HMRC communications targeting taxpayers needs to be pitched appropriately in a way that can be easily understood.

6.27 The government is grateful to those respondents that suggested additional information for HMRC to share with taxpayers and third parties. There are already legal gateways which allow HMRC to disclose information, subject to certain conditions being met, to third parties such as tax agents and professional bodies. HMRC will look to use such gateways where appropriate, with any decision by HMRC to disclose information to third parties dependent on the facts of each case.

6.28 With regards to assisting taxpayers in knowing whether they are involved with tax avoidance and helping them to avoid these schemes in the first place, HMRC launched a campaign in November 2020 to educate taxpayers in certain sectors of the economy where promoters are particularly active. The campaign advises taxpayers on how to spot avoidance schemes, what the risks are to them, how to report schemes and promoters to HMRC, and where they can find more information to make informed choices. This online campaign is being promoted through working with external partners and online advertising.

Safeguards

6.29 The consultation document proposed the following safeguards for the measure:

• HMRC would give promoters an opportunity to make representations as to why their name, the scheme or other information correcting their claims should not be shared under these new naming powers. The consultation proposed a 30 day period to make representations
• there would be a right of appeal to a tax tribunal once HMRC had taken action to share the information. The tribunal would consider issues of inaccuracies such as where incorrect facts were published or whether the correct person had been named. Where information was published on GOV.UK and was under appeal it is proposed that this would be flagged on the list. The tribunal would have the power to agree, amend or overturn the decision and also, where overturned, to require HMRC to clarify this on the GOV.UK list
• any information published would be factual in nature
• HMRC would update the GOV.UK list to remove details from the list at the earliest opportunity should they conclude that the arrangements are not tax avoidance and would note separately that the details had been removed and were no longer being considered by HMRC
• where HMRC have written to taxpayers using these powers, they would direct recipients of the letters to the GOV.UK websites for any material updates, such as removal from the list. It is proposed that HMRC would write again to taxpayers where it was subsequently found that those letters included a factual error

Question 36: do you agree that a 30 day period strikes the right balance between giving promoters sufficient time to make representations and ensuring that taxpayers can be informed quickly?

Question 37: do these proposals strike the right balance between safeguarding promoters and acting swiftly?

Question 38: to what extent do the safeguards described above, provide adequate protection for those on whom information is shared?

6.30 With regards to safeguards, respondents expressed mixed views. Most respondents felt the safeguards outlined in the consultation document would provide the robust protection required. However, other respondents felt that the safeguards could be bolstered to provide further protection to those that might be named under this measure. Others felt the safeguards were too generous to the promoters.

6.31 Many respondents acknowledged the need for HMRC to be able to act swiftly in order to ensure the efficacy of the measure. The quicker HMRC can identify these schemes and promoters, and put correct information into the public domain, the quicker taxpayers can either avoid entering or exit these schemes.

6.32 One respondent stated that as this measure was targeted at the remaining hardcore of promoters, they did not think that there was scope for genuine tax advisers to be affected by this measure.

6.33 There was widespread support from respondents about the proposed measure containing an opportunity for those that could be named to make representations to HMRC as to why they should not be named. Many respondents felt that 30 days was the right amount of time. One tax professional body stated that a 14-day period to allow the alleged promoter to make representations as to why they should not be named would be more appropriate than 30 days. Contrary to this another respondent stated that the period for representations should be extended to 60 days, and another respondent felt that there should be a provision to allow for extensions in appropriate cases.

6.34 One respondent raised concerns that lawyers would be unable to make representations fully because they are obliged to protect the legal professional privilege of their clients. They proposed a provision to protect lawyers.

6.35 With regards to the appeal right some respondents felt that this was an important safeguard. Some respondents raised concerns that this was not being offered prior to the promoter’s name being published. The concern here appeared to be that HMRC would be naming an entity or individual prior to them being able to exercise their right of appeal. Once the name of the promoter was in the public domain it was felt that the reputational damage to them was done and it was then too late to undo this by offering a subsequent right of appeal.

6.36 One respondent suggested that should HMRC conclude that a scheme named under this measure was not tax avoidance, that it should, when removing the information from their website, include the reasons for removing this information. In addition, this respondent asked whether there would be a time limit under which information about individuals named will be automatically removed.

6.37 A few respondents felt that there would have to be a provision for issuing corrections. Related to this point, a number of respondents questioned whether it was reasonable not to provide compensation in circumstances where HMRC were clearly at fault.

6.38 Given the potential effect on individuals as a result of publication one respondent stated that HMRC should clarify their process for ensuring that information on the published list of current inquiries is kept up to date. The respondent suggested that HMRC will need to consider whether additional communications might be required, such as when HMRC have proactively shared information with users at an earlier stage to inform them that a scheme was under investigation.

6.39 One respondent highlighted the need for HMRC to comply with data protection obligations.

The government’s response

6.40 The government thinks that it is important that this measure contains appropriate safeguards. However, this needs to be balanced against the ability for HMRC to respond quickly when it identifies these schemes. This is important as it allows HMRC to flag concerns about certain schemes or entities to taxpayers, enabling them to be fully sighted on the risks of entering or remaining in an avoidance scheme.

6.41 The government is pleased that respondents were supportive of the safeguard to allow those that could be named to make representations to HMRC setting out as to why they should not be named. The government views this as an important safeguard in ensuring that the right individuals and entities are named and allowing consideration of other reasons as to why these promoters should not be named.

6.42 There was no consensus from respondents on whether a 30-day period to make representations is too long, too short or the right amount of time. As there was no widespread support for alternatives, the government intends to keep the 30-day period as a safeguard to any individuals or entities that would be named under this measure, as outlined in the consultation document and in line with other representation periods.

6.43 The government intends to ensure that there are appropriate safeguards for those in the legal profession with regards to the effect that legal professional privilege might have on their ability to make full representations ahead of being named.

6.44 With regards to the right to legal recourse, the consultation included details of an appeal right for this measure that would provide those named with a right to appeal after their information was published. After further consideration the government has decided that a more appropriate avenue for those that have been named would be to apply for a judicial review to be heard by the High Court. This would be consistent with other similar measures, such as publishing details of deliberate defaulters and other provisions which allow for promoters to be named. This option still provides those named with an accessible route to challenge the decision to publish information about them. Therefore, this would still provide an appropriate safeguard.

6.45 Should HMRC need to issue corrections or remove individuals or entities from the list then HMRC will set out the reasons why these actions are being taken.

6.46 The government is not intending to offer those incorrectly named a bespoke compensation scheme. Instead, those incorrectly named can make a complaint to HMRC if they have made a mistake. In some instances, this can lead to an apology and payment being made if HMRC’s actions have caused worry and distress. Furthermore, those incorrectly named would also have the right to apply for compensation via the appropriate legal avenues.

6.47 HMRC will ensure they comply with the law governing the sharing of personal data.

Annex A: list of stakeholders consulted

Aberdeen University

All Party Parliamentary Group on Anti-Corruption and Responsible Tax

Association of Accounting Technicians

Chartered Institute of Payroll Professionals

Chartered Institute of Taxation

City of London Law Society

Information Commissioner’s Office

Institute of Certified Bookkeepers

Institute of Chartered Accountants in England and Wales

Institute of Chartered Accountants Scotland

Law Society

Low Incomes Tax Reform Group

NASUWT

Professional Passport

R3

STEP

Tax Aid

Tax Law and Financial Services