Changes to the promoters of tax avoidance scheme (POTAS) rules seek to amend the existing stop notices powers so that they can be issued to promoters earlier, in order to stop the sale of schemes that are not going to give the tax advantage the promoter has promised before the scheme has been defeated.

Under the proposals, the changes would provide that a stop notice can be issued for new schemes where HMRC has reason to suspect that a person is a promoter, that the promoter is promoting arrangements where at least one of the benefits is a tax advantage, and that HMRC has reasonable grounds to suspect the arrangements do not deliver the tax advantage promised.

Where a stop notice is issued, the names of the promoters, the details of the scheme and the reasons for the stop notice would be published under the proposed legislation but only after a decision has been reached by the First-tier Tribunal (if there is an appeal against the notice being issued) or after that appeal is withdrawn.

The Finance Bill also contains measures aimed at promoters that carry out their activities through different entities or incorporations in order to sidestep the rules.

Persons who operate in the UK and act under the guidance or influence of an offshore promoter would be classified as meeting the definition of carrying on a business as a promoter. This includes where there is a branch or permanent establishment of a UK non-resident promoter.
Where a person with significant influence or control sets up a new entity into which they transfer their promoting activities, HMRC would be able to attribute threshold conditions, conduct notices, and monitoring notices to them where HMRC have reason to believe that the new entity is a promoter.

In addition, the legislation proposes tightening the application of the two year period for conduct notices. The time taken for any litigation challenge would be factored into the life of the conduct notice (so that its effect is actually realised for the full period).

HMRC would still be able to go to the tribunal for a monitoring notice after a conduct notice has ended where it is discovered that a breach was during the period the notice was live. The length of conduct notices would be extended up to a maximum of five years to take account of more significant threshold conditions being met and the number of threshold conditions met.

HMRC would be able to transfer the requirements of conduct or monitoring notices to any entities used by the promoter in the promotion of schemes.

The proposed POTAS legislation would update the DOTAS threshold conditions to include disclosure failures of any nature. It would also update the information powers threshold condition so that DOTAS and other disclosure regimes information powers are included. It also contains other technical amendments that would ensure the efficiency of the POTAS regime such as allowing HMRC the ability to withdraw and reissue conduct notices.

Enablers

The revised legislation would enable HMRC to publish the enabler’s name and address, the number of penalties incurred and their value much sooner where multi user schemes are involved. It also provides for a two-stage process that would sit within the existing DOTAS regime.

The first stage creates a new information 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 in order to ascertain 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 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 take remedial action faster where avoidance schemes are being promoted.

The draft legislation also includes provisions that would allow HMRC to publish information from these notices along with the SRN to ensure that taxpayers are sufficiently informed on HMRC’s interest in the scheme.

The Finance Bill also contains proposed amendments to make provision for the general anti abuse rule (GAAR) procedural requirements to be applied to partners or partnerships who enter into abusive arrangements. This would mean that GAAR notices could be issued to the representative partner in a partnership, mirroring the way partnership enquiries are conducted under the income tax self-assessment regime.

Effective dates

For stop notices, under the POTAS regime, the new legislation would apply to all schemes promoted on or after the date of Royal Assent of the Finance Bill 2020-2021. It would also apply to schemes which are being promoted before Royal Assent but continue to be promoted on or after Royal Assent.

The other changes to POTAS would similarly come into effect on or after the date of Royal Assent.

The proposed changes to the information powers would apply to all current and future investigations into potential enablers.

The proposed changes to when HMRC would be able to issue penalties to enablers would apply in relation to schemes enabled and defeated after Royal Assent.

The proposed change to publishing information about enablers would apply to penalties raised after Royal Assent to this legislation, where the enabling and defeat also occurred after Royal Assent to this legislation.

The legislation for the new DOTAS information requirement would apply to any scheme first promoted on or after Royal Assent or any scheme which was first promoted before that date but is still being promoted on or after Royal Assent.

The amendments to the GAAR would come into effect in relation to any GAAR notices issued to partnerships on or after Royal Assent.

John Cullinane, CIOT tax policy director, said: ‘The government are right to be taking a robust approach to those who continue to devise, promote or sell tax avoidance schemes. There should be no place for such people and their schemes in the tax services market.

‘The draft legislation published today changes rules on DOTAS and the enablers penalty regime to require information to be provided at an earlier stage.

‘While we will be looking at the detail to check that the changes will work practically this does seem a sensible element in HMRC’s strategy.’

The consultation on the proposed changes closes on 15 September.

New proposals for tackling promoters and enablers of tax avoidance schemes is here: https://www.gov.uk/government/publications/new-proposals-for-tackling-promoters-and-enablers-of-tax-avoidance-schemes/new-proposals-for-tackling-promoters-and-enablers-of-tax-avoidance-schemes