By John Hartley, Partner & Head of Business Crime at Primas Law
The Chancellor’s Spring Statement has made headlines for a number of different reasons. Several key issues took center stage including welfare changes, economic forecast, spending rules and defence expenditure.
However, one significant feature which may be easily overlooked was the Chancellor’s pledge to invest in HMRC’s capacity to crack down on tax avoidance – even setting a plan to increase the number of “tax fraudsters charged every year by 20%”.
Interestingly the number of prosecutions of tax enablers (generally individuals or entities that facilitate tax avoidance or evasion schemes) has been falling year on year and only a handful take place. The statistics for companies prosecuted under the Criminal Finance Act (for failing to prevent tax evasion) indicates that they are pretty much non-existent. So, an increase of 20% year on year may not sound like a significant number.
It is also an interesting point that only 5% of Suspicious Activity Reports submitted to the National Crime Agency last year related directly to tax.
It is however clear that HMRC is being given more resources to investigate tax evasion and avoidance across the board – from both a civil, COP9 perspective, and also from a criminal one. The number of prosecutions does not necessarily correlate to the number of investigations or settlements.
Alongside the Spring Statement sit a number of consultations on proposals to close in on promoters and enablers of tax avoidance schemes and to enhance the powers of HMRC when it comes to tax advisors and tax agents. This article will combine both consultation papers.
This announcement will also support the earlier 2024 Budget in relation to tackling non-compliance in the umbrella company market where remuneration may be disguised via tax avoidance schemes.
Tax agents and advisors are of course not limited to accountants but any professional operating that that space.
Part of these consultations will also look at strengthening DOTAS (Disclosure of Tax Avoidance Schemes). Currently under DOTAS a scheme promoter is required to disclose the main elements of the scheme to HMRC. This is so HMRC can stay alert as to the types of scheme that are operating. The new proposals may include:
- a new hallmark to more clearly target disguised remuneration schemes
- a criminal offence for failure to notify arrangements under DOTAS
- updating the DOTAS civil penalty regime
Criminal Offence
The proposed criminal offence would fall into line with other legislation and would create a new strict liability offence where a person, without reasonable excuse, fails to notify arrangements to HMRC under DOTAS. It would be a criminal offence regardless of the person’s intent. It appears that the proposal that such an offence should have a maximum sentence of an unlimited fine and up to 2 years imprisonment or both.
Essentially the government wants to make it clear that promoting tax avoidance schemes is unacceptable and that by increasing the sanctions and risks for those involved in the promotion of these schemes it will help close the ‘tax gap’.
Whilst the civil penalties will continue to play a role, the government has made it clear that criminal sanctions will be considered for persistent non-compliance – not just for failing to notify under DOTAS but as part of a wider deterrence.
Power to investigate and request information
Of course, there are already powers by HMRC to intervene in the tax affairs of a business or individual, most commonly by way of COP 9 and Cop 8. HMRC can also seek information when it is discovered that an advisor has acted dishonestly – a high bar.
The consultation papers are looking at ways in which HMRC can gather and request information is a greater number of circumstances – ie lowering those thresholds. Advisors should therefore be aware that this is something that is likely to come into force
Tax Advisors & Professional Disciplinary Disclosure
HMRC has had the capability of disclosing matters to a regulatory body that relate to likely disciplinary proceedings for some time. However, the government is now looking to expand this to explore what further disclosures that HMRC may make to a professional regulatory body, even when the behavior of a tax advisor may not meet a misconduct threshold. The rationale behind this would be for the professional regulatory body to consider action such as professional development and actions to raise the standards of that particular advisor’s work.
Disclosure of Details & Sanctions for Tax Advisors
As with other areas of regulation, the government believes that it is a powerful deterrent to be able to ‘name and shame’ businesses so that consumers can have an informed choice. Again, the government is looking for way in which the threshold of being able to publish the names of such businesses and advisors may be lowered. For example they might look at publishing the details where Agent Codes have been suspended or where HMRC pauses any repayment claims submitted by an Agent under scrutiny.
Increased Financial Penalties for Dishonest Conduct of Tax Advisors
The current regime includes a financial penalty for an advisor who engages in dishonest conduct that harms the tax system. The fine can range from £5,000 – £50,000. The government now considers that some advisors who repeatedly engage in high value tax enabling / losses to the revenue would consider even the highest fine to be an acceptable loss.
The proposal is to link any potential penalty to the value of tax loss. Therefore, where non-compliance causes significant harm to the tax system, this could result in a penalty of millions of pounds.
Summary
Whilst we at Primas have seen a recent increase in COP9 investigations, this proposed tightening of the tax avoidance framework will affect the wider advisory community and may impact personally on an individual advisor – not just the person or entity receiving the advice.
If you have any queries please contact John Hartley, head of the Regulatory and Business Crime Team at Primas.