The tax avoidance enabler legislation is effective from 16 November 2017, when it received Royal Assent, and applies to any “enabling” activity that took place on, or after, that date.
On Monday, HMRC confirmed that a person is guilty of helping another party avoid paying tax if they:
- Designed an arrangement;
- Managed an arrangement;
- Marketed an arrangement;
- Enabled participation in an arrangement; and/or,
- Acted as a financial enabler in relation to the arrangement.
A person only needs to meet one of the above criteria to be culpable.
According to the UK taxman, a person who provides advice that is used in the design of a tax avoidance arrangement will be considered a designer “by virtue of providing that advice” if both of the following conditions are met:
- The advice given is relevant advice; and,
- The knowledge condition is met.
Relevant advice is where any part of the advice offers suggestions about tax avoidance arrangements. Recommendations to alter existing arrangements also included.
Further, it will fall under relevant advice where “it is reasonable to assume that the suggestion was made with a view to the arrangements being designed so that a tax advantage, or a greater tax advantage might be expected to arise from them”.
It will not be considered relevant advice where it can “reasonably” be read as a recommendation against implementing an arrangement.
If, at the time the advice was provided, the adviser knew or could reasonably be expected to know that it was a tax avoidance arrangement – the adviser is deemed to have enabled tax avoidance.
This is determined by taking into consideration the adviser’s existing tax and professional knowledge at the time.
Paying the piper
A financial penalty will only be incurred where a taxpayer has entered into an abusive tax arrangement that has been defeated by HMRC.
When that happens, each person who enabled the arrangement is liable to pay a penalty.
The amount of the penalty in each case is the total amount, or value, of all the relevant consideration, which can include such things as fees, commissions and bonuses.
This means the full amount of the consideration is included in the calculation of the penalty, with no deduction for any costs incurred by the enabler.
A financial adviser markets an avoidance scheme that attracts 50 investors, who each pay the adviser £1,000 ($1,368, €1,137).
The tax arrangement is defeated for all 50 clients.
As a result, the adviser is liable to pay £50,000 within 30 days.