On 27 April 2023 the UK issued a consultation document on more severe penalties for promoters of tax avoidance, inviting comments from interest parties by 22 June 2023.
Criminal offence for failure to comply with a Stop Notice
The document proposes a new criminal offence that would apply to promoters who continue to promote tax avoidance schemes that have been specified in a ’Stop Notice’ issued by HMRC. The consultation document sets out the scope of the policy and looks at how it can be implemented. If a promoter of a tax avoidance scheme brings a new user into the scheme after a Stop Notice has been issued this would be a criminal offence under the proposed new rule, as it would amount to continuing promotion of the scheme. This would be a criminal offence even if there is a dispute about the effectiveness of the tax scheme between HMRC, the promoter and the scheme users. If the promoter continued to promote a scheme covered by a Stop Notice there would be a criminal offence regardless of any view subsequently taken by the courts.
The offence would apply to any person or company that is subject to a Stop Notice. The promoter of the scheme would have a chance to argue that there was reasonable excuse, but an open appeal or ongoing litigation about the tax scheme would not be a reasonable excuse.
The current civil penalties would still apply. HMRC would choose to go ahead with civil or criminal proceedings according to their existing criminal investigation policy under which criminal investigation is chosen for the most severe cases, situations where a strong deterrent is necessary or cases where civil actions are not effective.
The consultation document points out that a promoter that is subject to a Stop Notice could claim to have stopped promoting a scheme but could be influencing another person to continue promoting the same scheme that was covered by the Stop Notice. In this situation HMRC proposes that if it can demonstrate that a person (e.g. the original promoter) exerts control or has significant influence over the continued promotion of a scheme, that person would be subject to the criminal offence. This could deter the use of complex company structures to conceal the fact that the promoter is ignoring the Stop Notice.
Faster disqualification of directors of companies involved in tax avoidance
The views of stakeholders are also invited on various proposals relating to the disqualification of directors of companies who are involved in promoting tax avoidance.
HMRC could strengthen its ability to tackle promoters who persist in promoting tax avoidance schemes by facilitating the disqualification of directors and others who control or exercise influence over a company involved in the promotion of tax avoidance. The proposal is that HMRC should be able to initiate director disqualification proceedings against the promoters of avoidance schemes in the case of disqualification following a winding-up in the public interest, or disqualification of a director of a ‘live’ company. This would allow the proceedings to be carried out more quickly.