The government has published proposals to crack down on the promoters of tax avoidance schemes based on abuse of National Insurance contributions (NICs)
The new rules will affect promoters including accountants, lawyers, tax boutique firms, banks and other financial institutions, all of whom could be targeted by HMRC as part of the extension of powers.
The proposed legislation is designed to make sure that HMRC can act quickly and decisively when promoters fail to provide information on their NICs’ avoidance schemes under the current disclosure of tax avoidance scheme (DOTAS) framework.
The provisions in Finance Bill 2021 will introduce a two-stage process that would sit within the existing DOTAS regime. The first stage would create an initial notice that can be issued to a wider range of promoters and intermediaries in the avoidance supply chain than is currently possible.
This notice would require the recipient to supply HMRC with the information it needs to determine whether an avoidance scheme is being promoted that has not been disclosed to HMRC under the DOTAS regime. If the information is forthcoming HMRC would be able to use that information as normal within the DOTAS regime.
The second stage is triggered if the information is not forthcoming or is insufficient and would enable HMRC to issue a DOTAS Scheme Reference Number (SRN). This would help bring a scheme into the DOTAS regime quicker and allow HMRC to act faster where avoidance schemes are being promoted.
Finance Bill 2021 also includes provisions that would allow HMRC to publish information from these notices to make sure that taxpayers are sufficiently informed of their interest in the scheme.
The government announced at Budget 2020 that it planned to legislate at Finance Bill 2021 to take further action in this area and the package of measures proposed, Tackling promoters of mass-marketed avoidance schemes, was published on 19 March 2020.
HMRC published a consultation document alongside the draft legislation in summer 2020 and invited interested parties to respond, with the consultation response published on 3 March 2021.
The respondents recognised that these proposals were not aimed at professional advisers providing legitimate advice and were in favour of taking strong action against the promoters of the schemes.
DOTAS is an information regime that aims to obtain early information about tax and national insurance arrangements, how they work and who has used them. It creates obligations on promoters of avoidance to disclose details of the avoidance schemes they are promoting and then further obliges them in prescribed situations to inform would be users of their schemes of a reference number provided to them by HMRC.
Where they do not comply with those obligations the DOTAS regime provides both penalties for such failures and information powers for HMRC to seek information from those promoters.
Promoters are currently responding to the current system by restructuring their businesses in the face of challenge, engaging in protracted circular correspondence, and simply denying they are a promoter even with clear evidence, HMRC said.
This results in formal action taken by HMRC being excessively extended and during these delays there is no effective bar to the promoter continuing to sell people avoidance schemes that in many cases fail.
The legislation will be included in the National Insurance Contributions Bill and amendments to the provisions in the Finance Bill 2021, at clause 118, and Schedule 30, provide for amendments to part 7 of FA 2004 and introduce the two-stage process that would sit within the existing DOTAS regime.