UK: Weekly Tax Update - Monday 3 February 2014

Last Updated: 10 February 2014
Article by Smith & Williamson

1. General news

1.1 Consultation on measures to tackle marketed tax avoidance

HMRC has issued a consultation and draft legislation on tackling marketed tax avoidance (for comment by 24 February 2014), setting out a requirement to pay the tax if a follower notice has been issued.

Data

The document includes some data on current schemes. With respect to DOTAS, HMRC comments that disclosures of tax avoidance schemes have halved in the last two years from 116 to 59, and marketed Stamp Duty Land Tax (SDLT) schemes have almost disappeared from the market. HMRC is currently investigating around 65,000 individuals and small businesses that have used marketed avoidance schemes. Around 85% of the avoidance took place more than 4 years ago, reflecting a market for avoidance products that was very active in earlier years. The largest areas of cases in these investigations (numbering 42,800 of the 65,000 cases) cover the following areas:

Consultation

The consultation includes draft legislation that extends the range of circumstances where the tax is held by the Exchequer while the final liability is determined. Where a 'follower notice' is issued a 'payment notice' will also be issued. The consultation refers to 'follower notices' being discussed in the response document on raising the stakes on tax avoidance, but while that document discusses 'failure notices' there is no mention of a 'follower notice'. The payment notice (requiring 'accelerated payment') would become due on the expiry of 90 day response time required for the follower notice, or the extended period where the taxpayer asks for a review of the follower notice. Separate payment notices will be issued for each tax year where amounts are in dispute covering several years. It is proposed it will apply to all taxes and charges covered by follower notices, and that separate legislation will be introduced for NIC. The amount of the payment notice will be HMRC's best judgement of the amount of additional tax that would otherwise have been paid if the arrangements had not been entered into. It is important to note that this will simply be a form of payment on account and not a payment that determines the amount of the final liability. However there is also a proposal that the issue of a follower notice will constitute an additional criterion for HMRC to amend the amount postponed under TMA 1970 section 55 (for example under s55(4) due to a change of circumstances). Where payment is due, HMRC propose a penalty regime similar to that in FA 2009, based on the amount unpaid:

  • 5% when the due date of payment has passed (the 'penalty day').
  • A further 5% of any amount unpaid 5 months after the penalty day.
  • A further 5% of any amount unpaid 11 months after the penalty day. In addition to those cases where follower notices have been issued, HMRC proposes that 'accelerated payment' could be required in the following cases:
  • anyone who has entered a DOTAS SRN on their tax return or otherwise notified HMRC of the SRN; or
  • whose details feature on a DOTAS 'client list'; or
  • who should have entered a SRN, or should have appeared on a 'client list' but have not done so – either because the scheme was not disclosed as it should have been, or the taxpayer has not entered the SRN when they should have done so.

However a payment notice cannot be issued unless there is an enquiry or appeal, so where the enquiry window is still open but an enquiry has not yet been opened, a payment notice cannot be issued until such time as an enquiry is opened. For existing disclosures (ie, those made before Royal Assent 2014), HMRC will review all disclosed schemes in order to identify any where they are satisfied that no additional liability is due. HMRC will then issue, in time for Royal Assent, a list of DOTAS schemes where a payment notice will be issued. For new disclosures, HMRC will aim within a reasonable time after disclosure to provide information about disclosed schemes where a payment notice will be issued. Time limits for such payments are discussed (as there is no current requirement) and HMRC prefer the option of using the 90 day time limit. It is also proposed that payment notices (with the same determination and time limit criteria) will be extended to GAAR situations. HMRC would propose to issue a payment notice where the GAAR was not the only challenge to an avoidance scheme. www.gov.uk/government/uploads/system/uploads/attachment_data/file/275070/Tacklingmarketed_tax_avoidance.pdf

1.2 Raising the stakes on tax avoidance: response and draft legislation

A summary of responses to the earlier consultation on raising the stakes on tax avoidance has been published, along with draft legislation for measures to give effect to the policy of dealing with this sector. This is further to the document mentioned in last week's update. The draft legislation is intended to take effect from the date of Royal Assent of Finance Bill 2014.

To view the full article, please click here.

We have taken care to ensure the accuracy of this publication, which is based on material in the public domain at the time of issue. However, the publication is written in general terms for information purposes only and in no way constitutes specific advice. You are strongly recommended to seek specific advice before taking any action in relation to the matters referred to in this publication. No responsibility can be taken for any errors contained in the publication or for any loss arising from action taken or refrained from on the basis of this publication or its contents. © Smith & Williamson Holdings Limited 2014.

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