Solicitors are being warned of a potential clampdown on tax avoidance, which could affect lawyers offering traditional tax planning services.
The government has launched proposals that seek to directly penalise lawyers and other agents who advise on tax avoidance schemes that are then subsequently disallowed by HM Revenue & Customs (HMRC) – a move which has drawn harsh criticism from both professions.
Critics of the policy say the proposals have the potential to ‘catch out’ legitimate forms of tax planning and would allow for the creation of retrospective penalties against advice originally provided in good faith.
The proposals are laid out in a discussion document entitled ‘Strengthening Tax Avoidance Sanctions and Deterrents’. A foreword written by Jane Ellison MP, financial secretary to the Treasury, says that those who provide aggressive tax planning services “should bear real risks and costs for their choices.”
The document proposes ‘tax-geared’ penalties, which would see ‘enablers’ of schemes fined according to the amount of tax they sought to avoid, in some cases equating to 100 per cent of the value. It also suggests that the ‘starting point’ for penalties could be up to 100 per cent of the benefit the adviser received.
The paper proposers that ‘enablers’ should be defined as, “those who benefit financially from enabling others to implement tax avoidance arrangements”, which may include “accountants, lawyers and others who are intrinsic in, and necessary to, the machinery or implementation of, the avoidance.”
Safeguards will be introduced alongside this definition to ensure unwitting parties are not included and other safeguards will apply to employees of a promoter, unless they are the only representative in the UK.
Those identified as ‘enablers’ would also face the prospect of being publicly named, in what the documents says is “in the interest of alerting and protecting taxpayers who play by the rules and to deter those who might otherwise be tempted.”
To prevent future avoidance the document proposes measures such as requiring promoters to list to those to whom the scheme is being marketed and to include a statement on the risks of avoidance on marketing material.
These changes will place a significant burden on all aspects of law from the simplest inheritance tax issue through to complex trust arrangements. Having the right accountancy team behind your practice could pay dividends if the Revenue introduces these rules.
At Moore Thompson, we have a long history of assisting a wide range of clients with HMRC investigations and penalties. If you would like to know more about our tax services, please contact us.