Whilst the recently published HMRC guidance to the 'tax enablers legislation', contained in Schedule 16 to the Finance (No.2) Act 2017, has made clear that the legislation is not primarily aimed at reputable advisers providing services to clients in respect of genuine commercial arrangements, there are pitfalls that professional firms will have to navigate to ensure that tax advice, given by an employee or partner on behalf of the firm, does not unwittingly fall on the wrong side of the line.

The Chancellor of the Exchequer's recent Spring Statement highlighted the recent measures taken by the Government with regards to tax avoidance schemes. Against a background in which we continue to see headlines about the alleged participation of celebrities and others in tax avoidance structures, late last year saw the introduction of 'tax enablers legislation', contained in Schedule 16 to the Finance (No.2) Act 2017 ("Schedule 16"), on 16 November 2017 and, following a consultation, the publishing on 22 December 2017 of HMRC guidance on how the legislation is intended to operate (https://www.gov.uk/government/publications/penalties-for-enablers-of-tax-avoidance-schemes-technical-guidance).

This legislation forms part of a wider drive by the Government to focus on tax evasion and avoidance: 1 January 2017 saw the introduction of penalties against "enablers" of offshore schemes, and the criminal corporate offences of failing to prevent the facilitation of tax evasion under ss 45 and 46 of the new Criminal Finances Act 2017 came into force on 30 September 2017.

Whilst the recently published HMRC guidance to Schedule 16 has made clear that the legislation is not primarily aimed at reputable advisers providing services to clients in respect of genuine commercial arrangements, there are pitfalls that professional firms will have to navigate to ensure that tax advice, given by an employee or partner on behalf of the firm, does not unwittingly fall on the wrong side of the line. We explore some of the key issues below.


It should be noted that the provisions of Schedule 16 only apply to actions carried out after the legislation was enacted on 16 November 2017, and where the tax arrangements are entered into after this date.

Abusive arrangements

The aim of the legislation is to make tax avoidance 'enablers' anywhere along the 'supply chain' of defeated abusive tax avoidance arrangements liable. Gone is any distinction between tax avoidance versus tax evasion: all 'abusive' arrangements are caught.

The test for whether an arrangement is "abusive" is based around the General Anti-Abuse Rule ("GAAR") concept of 'double reasonableness', whereby, having regard to all the circumstances, the entering into or carrying out of the arrangements cannot reasonably be regarded as a reasonable course of action in relation to the relevant tax provisions.

It is welcome that, at paragraph 3(6) of Schedule 16, the Act provides that the fact that tax arrangements accorded with established practice, and HMRC had, at the time the arrangements were entered into, indicated their acceptance of that practice, is something which might indicate that arrangements were not abusive.

Defeated arrangements

A tax arrangement will be deemed 'defeated' either (i) if there is a GAAR counteraction of the tax advantage(s) arising from the tax arrangements, which becomes final or, (ii) the tax advantage(s) arising from the arrangements have been counteracted either by settlement before any counteraction under the GAAR has been taken or under another provision, but could have been counteracted under the GAAR had it not been for the settlement or for that other provision.

The fact that a defeat will include a settlement may raise issues. For instance, if an adviser is still involved in the matter at that stage this may raise conflict issues, as it might be in the adviser's interest that the taxpayer does not settle a case. Another issue is that if a case does settle and the adviser is not involved, they may not be party to the basis for settlement (which may be for reasons other than the merits) and may have difficulty obtaining information from the former client when it comes to the penalty assessment.


A person will be defined as an "enabler" in one of five circumstances, if they are:

  1. a designer of the abusive arrangements;
  2. a manager of the abusive arrangements;
  3. a marketer of the abusive arrangements to the defeated taxpayer;
  4. an 'enabling participant' in the abusive arrangements; or
  5. a 'financial enabler'.

This is wide and potentially places a large number of professional service firms (consultants, accountants, lawyers, brokers, others) in the frame.

The HMRC guidance states that where an employee has carried out the activity in question, it is the employing business who will be the enabler, as the entity carrying on the business and gaining the income generated.

(1) A designer

We anticipate that the first category of enabler, 'designer', is probably the most likely to catch professionals who might not regard their services as that of an "enabler". However, an advisor will only be regarded as a designer of arrangements if: (1) the advice they give is "relevant" (i.e. it is objectively reasonable to assume that the suggested amendments were made in contemplation that a tax advantage might be expected to arise from them); and (2) the advisor knew or reasonably could be expected to have known that their advice would be (or would likely be) used in the design of abusive arrangements.

It may be acceptable for an adviser to comment on an existing abusive arrangement without becoming a designer, subject to certain caveats. An adviser will not be regarded as an enabler if the advice as a whole can reasonably be read as recommending against anything that advice or opinion puts forward for consideration. The question remains as to what constitutes the advice as a whole – it is unclear to what extent cautionary oral commentary on an opinion delivered in consultation would be included within the assessment of the tenor of the advice as a whole.

(2) A manager

A person is a manager of an arrangement, if, in the course of a business carried on by them, they are to any extent responsible for the organisation or management of those arrangements, and at that time knew or could reasonably be expected to have known that the arrangements were abusive tax arrangements.

The HMRC draft guidance indicates that performing a statutory function or service, such as preparing board minutes, completing or filing returns, or auditing statutory accounts will not be managing or organising the arrangements, if that is all that has been done.

Under paragraph 9(2) of Schedule 16 an adviser is not an enabler by dint of advising a client on how to extricate itself from an abusive arrangement, provided its advice on that extrication is not abusive in its own right (for example the adviser devised exit arrangements to secure the same or a different tax advantage). This might present difficulties for a professional adviser habituated to 'adding value' for clients in such scenarios.

(3) A marketer

A person has marketed an arrangement if they make available to a taxpayer a proposal for implementation, or communicate information about a proposal with a view to the taxpayer entering into the arrangements or transactions forming part of the arrangements, and the proposal has since been implemented. This appears to be formulated on a 'strict liability' basis, assuming that anyone marketing abusive arrangements should realise this fact. Yet the abusive aspect is only determined when an arrangement has been defeated. This allows some scope for an adviser to become liable in respect of an arrangement deemed abusive in future which at the time was not regarded as such. Particular care when deciding to market tax arrangements will be very important.

Generally speaking, the categories of enabler (apart from marketing) can be committed if a person could reasonably have been expected to have known that its advice would be or was likely to be used in the design of abusive tax arrangements. There is therefore some scope to be an unknowing enabler, and advisers will need to tread very carefully.

That said, advisers are not required to add additional checks or ask further questions. The guidance seeks to equate compliance with professional obligations with the adviser acquitting itself of the reasonable expectation of not enabling an abusive tax arrangement. That might be considered a 'fudge', as the guidance does not go as far as to suggest that compliance with professional obligations amounts to a cast iron defence – rather it is pre-supposed that there exists a confluence between compliance with one and compliance with the other. Such looseness maybe inevitable where professional codes differ.

Therefore, given the potential gap between compliance with its professional obligations and the risk of being an unknowing enabler, advisers may decide that they do need to pause and ask themselves whether there is any scope that their advice could be used for an abusive purpose. If so, they will need to guard against that risk appropriately (although there is no practical guidance on this).

Finally, it is also notable that the Treasury has power to make regulations to add to the categories of enablers.

Practical application

One issue flagged by the ICAEW in its response to the HMRC consultation on the guidance is that it is not necessarily clear how HMRC will approach cases in practice, given that these sanctions will often be under consideration many years after the avoidance arrangement was designed, and then implemented and defeated. At this time the adviser may no longer be in contact with the taxpayer, those involved might have left the firm, full records may no longer be available, and recollection may be poor by those who advised on the scheme. It will obviously be important for firms to maintain good written records on the file surrounding issues such as the extent of the retainer, and the advice given to the client and for what purpose, and to preserve those records for an appropriate period of time.


The penalty is 100% of the consideration paid (or payable) in respect of the advice provided (including fees, bonuses and so forth). It is welcome that there has been a step back from the possibility of a penalty related to the amount of tax avoided. The penalty for an enabler will not be tied to whether a user also faces a penalty.

There is a time limit. HMRC has 12 months to assess a penalty, the start of which can be triggered by a number of circumstances such as the taxpayer being given a GAAR final decision notice.

The position here becomes more complicated where there are 'cookie cutter' arrangements. In those cases, the arrangement will be 'defeated' when HMRC reasonably believes that over 50 per cent of the users of the related arrangements known to HMRC at the time the required percentage is reached, have been defeated.

This raises several questions:

  1. on what basis does HMRC propose to inform itself of the number of users of the related arrangements;
  2. what happens to related arrangements unknown to HMRC prior to its decision that over 50 per cent have been defeated;
  3. what is a 'related arrangement' in practice?

At present, it appears that HMRC could be aware of three related arrangements, two of which had failed. That arrangement would then be regarded as abusive. All other users of the arrangement hitherto unknown to HMRC would be regarded as users of abusive arrangements, even if the true number of defeated arrangements was less than 50 per cent.

The guidance defines 'related arrangements' as "arrangements that are substantially the same as each other and which implement the same proposal for arrangements" but in practice one can foresee scope for disputes as to whether one set of arrangements is related to another, and therefore whether all such arrangements stand together or apart for the purposes of assessing the required 50 per cent threshold to be deemed defeated (and so abusive).


The legislation introduces the concept of lawyers providing a declaration that the advice given to a client does not make them an enabler, or otherwise liable to a penalty under the legislation where their client is unwilling to waive their right of legal professional privilege in respect of the relevant material. HMRC and any court or tribunal must treat the declaration in relation to the penalty as conclusive evidence of the things stated in it. However, incorrect information given carelessly or deliberately will expose the person named in the declaration to a penalty not exceeding £5,000 (and presumably regulatory action). The detail of what the declaration must contain is set out in a statutory instrument.1


HMRC has the power to name enablers subject to penalties where 50 or more reckonable penalties have been incurred when the particular penalty becomes final, or the amount of the penalty either individually or with other reckonable penalties incurred by the enabler is more than £25,000. However, HMRC must give the person the opportunity to make representations before publishing, and there are time-limits on when and for how long the information may be published.


Extending the reach of sanctions in respect of defeated tax avoidance arrangements beyond principals to advisers, has long been an ambition of HMRC. Although HMRC has indicated that this legislation is not intended to capture those already adhering to professional standards, there is clearly a necessity for those involved in activities that have the potential to engage the legislation at its margins to be aware of the details, and to proceed with them in mind.


1 The Penalties for Enablers of Defeated Tax Avoidance (Legally Privileged Communications Declarations) Regulations 2017

Enablers Of Defeated Tax Avoidance Schemes: Pitfalls Of The New Regime

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.