HMRC's list of powers to tackle tax avoidance continues to grow, with the introduction of a new offence targeted at persons who "enable" tax avoidance.
Under draft legislation published on 13 September 2017, a penalty is payable by each person (other than the taxpayer) who enables abusive tax arrangements where those arrangements have been defeated by HMRC.
For these purposes, an "abusive tax arrangement" is an arrangement entered into for the main purpose (or one of the main purposes) of obtaining a tax advantage which 'cannot reasonably be regarded as a reasonable course of action in relation to the tax provisions'. This double reasonableness test is similar to that used in the General Anti-Abuse Rules (GAAR) which came into force in 2013. Several examples of abusive and non-abusive arrangements are provided in the Bill.
The rules only apply to arrangements which have been defeated either by the final determination of a tribunal or court or through a final settlement agreed between the taxpayer and HMRC.
An "enabler" is anyone who has designed, managed, marketed, participated in or financially enabled the defeated arrangement. Each activity type is drafted widely to cover all enablers in the avoidance supply chain. Those unwittingly involved should not be caught by the rules.
The penalty is a fine equal to the fee charged by the enabler, although HMRC has discretion to mitigate this. HMRC may also "name and shame" enablers who have been penalised at least 50 times or given an aggregate penalty of over £25,000.
The original proposals received a concerned response from the legal and accountancy professions who rightfully feared that the legislation could catch bona fide advice. The government responded by emphasising that the legislation was aimed at those selling abusive tax avoidance schemes and has taken steps to reduce the breadth of the offence in the draft legislation.