Draft guidance published on penalties for enablers of defeated tax avoidance provisions

On 20 October 2017, the Government published in draft the guidance that will accompany the new penalty that can be applied on those who ‘enable’ tax avoidance schemes that are subsequently defeated.

The penalties on enablers rules are set out in clause 65 and Schedule 16 of the Finance Bill currently being debated in Committee – these particular provisions are likely to be debated on either 24 or 26 October 2017. The new enabler penalty provision will come into force on Royal Assent, which is expected to be in early November 2017 and before the Budget which will take place on 22 November 2017. HMRC has invited comments on the draft by 30 November 2017 and final guidance will follow shortly after that. Like the main enabler penalty provisions, the guidance has already been subject to informal consultation.

The guidance seeks to explain the key concepts, to whom the legislation is intended to apply, and how it will apply. By way of reminder, an ‘enabler’ for the purposes of this new penalty is any person who is responsible, to any extent, for the design, marketing or otherwise facilitating another person to enter into abusive tax arrangements. When such arrangements are defeated in court or at the tribunal, or are otherwise counteracted (eg where the taxpayer amends a return or HMRC does so), each person who enabled those arrangements may be liable to a penalty. There can therefore be more than one enabler and the penalty that can be levied is up to the value of the fee charged.

A tax arrangement will be abusive if it is one that would have fallen foul of the general anti abuse rule (GAAR) set out in s 206 et seq FA 2013, whether or not HMRC actually defeated the scheme using the GAAR. It therefore imports the so-called ‘double reasonableness test’ set out in the GAAR. No penalty can be charged unless HMRC has first obtained an opinion of the GAAR Advisory Panel in relation to the tax arrangements. The enabler can appeal against any penalty imposed.

The guidance mirrors the legislation and covers the following topics with a number of helpful examples including:

  • When a penalty arises
  • Meaning of abusive tax arrangements, with examples
  • What is a defeat for the purposes of the penalty
  • Who is an enabler, with examples
  • The amount of the penalty, including interaction and mitigation
  • How the penalty will be assessed, and time limits etc
  • Referral to GAAR Advisory Panel
  • Appeals
  • Information powers and application of Schedule 36 FA 2008
  • Declarations about legally privileged communications
  • Publishing details of persons who have incurred penalties

 The main concern of tax advisers will be whether they might be regarded as an enabler. As noted the guidance (found in chapter 5) includes a number of helpful examples to help advisers determine whether they might be caught by these provisions. Para 5.9 of the guidance sets out HMRC’s views on the application of the enablers penalty in respect of those who are members of a professional body (including ICAEW) who subscribe to our professional conduct in relation to taxation (PCRT) rules, which were revised with effect from 1 March 2017 and which now clarifies that members should not create, encourage, or promote certain types of tax arrangements that are either highly contrived, highly artificial or which seek to frustrate the clear intention of Parliament.

Para 5.9.6 of the guidance goes on to state:

Although the enablers legislation does not exempt a person from being an enabler if they conduct their business in accordance with the PCRT and act wholly within the spirit of the standards for tax planning, it is unlikely that such a person will come within scope of the enablers legislation. Specifically, such persons will already be taking care and consideration to ensure their conduct complies with the PCRT and so should not be advising on, or otherwise facilitating, abusive arrangements.

This is a helpful clarification and recognition of the role of the PCRT in helping members stay on the right side of this penalty. Members acting within the PCRT should therefore not normally have to worry about this penalty, on the grounds that if they are following the PCRT they are not likely to be undertaking any action that would bring them within the enablers rules. It therefore provides an element of protection and a ‘safe haven’ for members abiding by the PCRT.

  • Please ignore the previous 2 comments.  It appears the wrong box got checked before I keyed 'enter'.

    What I wanted to say is this is all very well but how do I know if a transaction is "highly contrived" or "highly artificial" and not merely "contrived" or "artificial"?

    How do I know if it is "against the clear intention of Parliament"?  Some people from within ICAEW have suggested that Parliament hardly ever expresses its will clearly so that breaches of that particular rule will be very rare.  If that is the case, why write it in the rules?   To appease HMRC?

    How do I know if it will "bring me or ICAEW into disrepute"?  Disrepute with whom?  The Shadow Chancellor?  HMRC?  A Daily Mail reader?  The Tax Director of Amazon?...etc etc.

    Unfortunately on tax avoidance, mitigation, planning, call it what you will, apart from 'evasion', PCRT is no more than empty words that carry no universal meaning and are open to an infinite number of different interpretations.

    Members beware!!  The PCRT can give no "safe haven".  A small "element of protection" - maybe, but what use is that?  The only way to give this section of the PCRT any value to members, or benefit to HMRC and the Government, and the all-important Blairist 'stakeholders' (ugh!) is to include a large number of examples of planning that is respectively within and outside the definitions.  Only then can members obtain a reasonable understanding of where they stand, or protection from possible disciplinary action.