HMRC are tightening the laws around the facilitation of TAX & VAT avoidance

HMRC are tightening the laws around the facilitation of TAX & VAT avoidance through the revised Finance Bill 2021.

HMRC will be sending out further details with some of them listed below, but it is clear that Government is keen to tackle tax avoidance and so there is no more appropriate time to review and enhance your supply chain due diligence process to ensure it is both secure for your business and your contractors.

Nobody wants to end up with a hefty tax bill that could include fines on top of it.

Due diligence may seem a daunting hurdle but it can no longer be left at the bottom of the agenda and now, more than ever, it should be a key topic of discussion and enhancement across all businesses and sectors.

What Have HMRC said they are looking to do?

• Following Budget 2021 (3 March 2021) a series of responses to consultations were published including Follower Notices and Penalties and Tackling Promoters of Tax Avoidance.
• The government also published a policy paper entitled “Amending HMRC’s Civil Information Powers” introducing a new Financial Institution Notice (FIN) that will be used to require financial institutions to provide information to HMRC when request about a specific taxpayer without the need for approval from the first tier tax tribunal.

Follower notice and penalties

• A Follower Notice (FN) is a legal request from HMRC to a taxpayer who has used a tax avoidance scheme to remove the tax advantage they have claimed. FNs can only be used when the scheme has been defeated in another person’s litigation.
• A consultation opened in December 2020 sought views on how FNs could place a stronger emphasis on any continued appeal being without merit or substance to those who continued their dispute with HMRC following receipt of an FN.
• The consultation put forward suggestions of a reduction in FN penalties from 50% of the disputed tax to 30% and to introduce a further 20% for those cases in which the tax tribunal concluded the litigation was time-wasting, vexatious or otherwise without merit.
• Generally, respondents to the consultation expressed their dissatisfaction with the FN regime but all five respondents supported some level of reduction to the FN penalty.
• In a report published by the House of Lords Economic Affairs Committee, it was recommended that FN penalties should be abolished. Lord Judge commented on that report and stated that it should be left to the courts to decide if litigation was frivolous or time-wasting and whether to penalise litigants in such cases.
• Despite disagreeing with the report, Government did acknowledge that a better balance should be struck between encouraging taxpayers who have used avoidance schemes that are shown not to work and allowing those who genuinely believe their case is different from a previous case to continue to pursue their dispute.
• The government intend to reduce the penalty to 30% for those taxpayers who have received an FN with the scope to apply a further penalty of 20% if strict criteria set out in the legislation are met which includes the following;
  • An FN has been issued.
  • Corrective action has not been taken.
  • An FN penalty has been issued under s208 Finance Act 2014 and not withdrawn; and
  • One of the following conditions is met;
    • The tax tribunal or court strikes out a taxpayer’s appeal on the grounds either that it has no reasonable prospect of success or that there is an abuse of process; or
    • The tax tribunal or court makes a statement that the taxpayer has acted unreasonably in bringing or conducting the proceedings.
    • The draft legislation can be found here.

Tackling Promoters of Tax Avoidance

• The government will be legislating in Finance Bill 2021 to strengthen the existing anti-avoidance powers and tighten the rules designed to tackle promoters and enablers of tax avoidance schemes.
• Some of the proposed changes include;
  • Enabling HMRC to obtain information at a much earlier stage than it can now about tax avoidance schemes that have not been notified under Disclosure of Tax Avoidance Schemes (DOTAS) or Disclosure of Tax Avoidance Schemes for VAT and other Indirect Taxes (DASVOIT).
  • HMRC would be able to issue an initial notice to those that they suspect are promoters providing a thirty-day deadline to provide responses on why the scheme is not notifiable. HMRC will publish guidance on the internal governance processes to ensure that the powers are used appropriately.
  • HMRC will be able to issue “Stop Notices” to promoters of tax avoidance schemes earlier than it can now to prevent a mass rollout of a scheme. We can expect further guidance from HMRC on how they will issue these Stop Notices.
  • Penalties will apply to promoters who fail to adhere to a Stop Notice.
  • HMRC will be able to use its powers under Schedule 36 Finance Act 2008 to check whether a person is or may become, liable to enablers penalties.

New Red Planet is a compliant payroll organisation and adheres to all UK tax laws to ensure that your business and your contractors are fully protected against any litigation through our robust and stress-tested payroll models. New Red Planet is able to offer Umbrella PAYE, CIS, Limited and PAYE options.

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