Policy paper

Clamping down on promoters of tax avoidance

Published 27 October 2021

Who is likely to be affected

The measure will affect promoters and enablers of tax avoidance schemes.

The proposals supporting customers to identify and exit avoidance will benefit taxpayers.

General description of the measure

The measure is targeted at the most persistent and determined promoters and enablers of tax avoidance.

The proposed legislative changes are designed to clamp down on the supply of tax avoidance arrangements. The package consists of:

• a new power for HMRC to seek freezing orders that would prevent promoters from dissipating or hiding their assets before paying the penalties that are charged as a result of them breaching their obligations under the anti-avoidance regimes
• new rules that would enable HMRC to make a UK entity, which facilitates the promotion of tax avoidance by offshore promoters, subject to a significant additional penalty
• a new power to enable HMRC to present winding-up petitions to the court for companies or partnerships operating against the public interest
• new legislation that would enable HMRC to name promoters, details of the way they promote tax avoidance, and the schemes they promote, at the earliest possible stage, to warn taxpayers of the risks and help those already involved to leave avoidance arrangements

Policy objective

The proposals are designed to build on existing anti-avoidance measures. They will reduce the scope for promoters to market tax avoidance schemes, disrupt their activities and do more to support customers to steer clear of and leave tax avoidance arrangements.

The new power to seek freezing orders is designed to ensure that any penalties charged by HMRC under the anti-avoidance regimes can be subject to an order, and that funds can be ring-fenced to make sure that promoters and enablers of tax avoidance schemes cannot escape the financial consequences of their non-compliance.

The additional penalty for UK entities involved in an offshore promoter’s business activities is designed to deter these entities from facilitating the sale of avoidance schemes in the UK. Those that are not deterred may face a penalty up to the total fees earned by the scheme.

The new power to enable HMRC to present winding-up petitions to the court is designed to disrupt the business activities of companies and partnerships and those associated with them who are operating against the public interest by removing them from the market and reducing the harm they cause to taxpayers and the wider economy. The final decision on whether to wind up would remain in the hands of the courts who would decide whether HMRC had sufficiently demonstrated that the actions of the company or partnership were not in the public interest.

New legislation enabling HMRC to name promoters, details of the way they promote tax avoidance, and schemes at the earliest point will help warn taxpayers of the risks involved in getting into tax avoidance and encourage those involved to leave avoidance arrangements.

Background to the measure

The government announced on 12 November 2020 their plans to take further action against those who promote and market tax avoidance, following up on the approach set out in its strategy ‘Tackling promoters of mass-marketed avoidance schemes’, published on 19 March 2020.

A 10-week consultation was launched on 23 March 2021, ‘Clamping down on promoters of tax avoidance’, on a new package of measures to change the economics of promoting tax avoidance schemes and disrupt the business model on which they rely. The consultation closed on 1 June 2021.

On 20 July 2021 HMRC published a summary of responses document alongside the draft legislation for each of the new measures. The consultation on the draft legislation closed on 14 September 2021.

Detailed proposal

Operative date

The changes announced at Autumn Budget 2021 would be operative as follows:

New Freezing order power

The new legislation would apply to all relevant anti-avoidance penalties under the Promoters of Tax Avoidance Scheme (POTAS), Disclosure of Tax Avoidance Schemes (DOTAS), and Disclosure of Avoidance Schemes for VAT and other Indirect Taxes (DASVOIT) regimes assessed or determined on or after the date of Royal Assent of Finance Bill 2021-22.

New additional penalty on UK entities who facilitate schemes provided by offshore promoters

The legislation would apply to any UK entity that incurs a penalty or penalties under the POTAS, DOTAS or DASVOIT regimes of an aggregate value of at least £100,000 in relation to activities carried out on or after the date of Royal Assent of Finance Bill 2021-22. It would also apply to UK entities that incur penalties under the Enablers penalty regime or for breaching a stop notice, without reference in either case to the value of the penalty.

Winding up companies that promote tax avoidance

The legislation would apply to companies and partnerships involved in or associated with the promotion of tax avoidance that are operating against the public interest on or after the date of Royal Assent of Finance Bill 2021-22. HMRC will consider all the information available to it, including information pre-dating Royal Assent when deciding whether or not to present a winding-up petition. This could include evidence of non-compliant behaviour or ongoing action by HMRC or any other public or private organisation.

Supporting taxpayers to identify and steer clear of avoidance

The legislation will be effective on or after the date of Royal Assent of Finance Bill 2021-22 applying to those HMRC knows or suspects of being promoters of tax avoidance, including the entities and individuals that control or influence the promoter or others that are part of the promoter structure. It will also apply to individuals and entities that carry out an identifiable role in selling tax avoidance schemes and to individuals that HMRC consider are necessary to name so that the taxpayer understands the nature of these arrangements.

Current law

Freezing Orders for promoters where there is a risk they will hide or dissipate assets

The current law allows HMRC to apply for freezing orders where there is an existing cause of action, such as an enforceable debt. These orders can be used, for example, where there is a risk that assets will be dissipated before a liability, like a tax assessment, can be enforced.

The government is concerned that this may not be possible for some penalties issued under anti-avoidance legislation. This could frustrate HMRC’s ability to obtain freezing orders, in appropriate situations, to protect the payment of these penalties.

Penalty on UK entities who facilitate tax avoidance schemes provided by offshore promoters

Offshore promoters operate in the UK through a network of willing associates and collaborators and as a result they are able to sell their schemes in the UK and profit from these mass marketed products. Although the offshore promoter is running the avoidance scheme, the UK entity acts as the interface between the underlying promoter and the client.

Changes made to the anti-avoidance regimes in Finance Act 2021 (sections 121 – 124) enable HMRC to pursue these UK entities for failing to comply with DOTAS and POTAS anti-avoidance rules as a result of their own activities, but further measures are needed to address the wider impact the UK entity has on facilitating offshore tax avoidance.

Winding up companies that promote tax avoidance

Section 124A of the Insolvency Act 1986 provides that the Secretary of State (SoS) for the Department for Business, Energy and Industrial Strategy can petition the court to wind up a company where the SoS considers that its activities are against the public interest in England, Scotland and Wales.

Article 104A of the Insolvency (Northern Ireland) Order 1989 gives the Department for the Economy in Northern Ireland a right to petition the court to have a company wound up on similar public interest grounds.

Currently, HMRC can only take action itself against promoter companies under the existing insolvency legislation where there is a tax debt.

Supporting taxpayers to identify, steer clear of and exit tax avoidance

Current law concerning the disclosure of taxpayer information is contained in the Commissioner’s for Revenue and Customs Act 2005 (CRCA). Section 18 of the CRCA broadly restricts disclosure of taxpayer information, with certain limited exceptions.

There are also specific legislative provisions that allow for the naming of promoters and enablers of tax avoidance. This includes provisions within the Disclosure of Tax Avoidance Schemes legislation in Part 7 of the Finance Act 2004 (DOTAS), the Disclosure of Tax Avoidance Schemes: VAT and Other Indirect Taxes legislation in Schedule 17 to the Finance (No. 2) Act 2017 (DASVOIT), the Promoters of Tax Avoidance Schemes legislation in Part 5 of the Finance Act 2014 (POTAS), and the Penalties for Enablers of Defeated Tax Avoidance legislation in Schedule 16 to the Finance (No. 2) Act 2017 (Enablers).

Proposed revisions

Freezing Orders for promoters where there is a risk they will hide or dissipate assets

The proposed changes would enable HMRC to seek a freezing order where they are about to commence proceedings for a tribunal assessed penalty under current anti-avoidance legislation. For instance, where HMRC are about to make an application for a tribunal assessed DOTAS penalty.

The legislation would make it clear that this would satisfy the requirement for an existing cause of action, allowing HMRC to use this position to apply for a freezing order. HMRC would still need to show that it was appropriate for a freezing order to be granted.

Penalty on UK entities who facilitate tax avoidance schemes provided by an offshore promoter

The conditions, all of which must apply, under which the additional penalty may be charged are that:

a) The UK entity falls within the definition of a member of a ‘promotion structure’ (as introduced in paragraph 10 of Schedule 30 Finance Act 2021).

b) A penalty or penalties under anti-avoidance legislation becomes due and payable on the UK entity in respect of their own activities.

c) The activities giving rise to the penalty or penalties under anti-avoidance legislation were undertaken within an offshore promoter structure.

d) The total value of the penalty or penalties under POTAS, DOTAS or DASVOIT legislation is equal to, or greater than, £100,000.00.

A penalty may also be charged where conditions a, b and c above are met and the UK entity is either subject to an Enablers penalty under Schedule 16 to Finance (No.2) Act 2017, or breaches a stop notice given under section 236A of Finance Act 2014. The £100,000 threshold in either instance is not applicable.

The additional penalty for facilitating an offshore promoter’s business would be for an amount up to the total fees or amounts economically equivalent to fees earned by all those involved in the development and sale of that tax avoidance scheme.

Where it was not possible to determine the value of those fees, a best reasonable estimate would be used. There is also provision in the legislation for the additional penalty to be increased or for a new penalty assessment to be raised where further fees come to light at a later date.

Winding up companies that promote tax avoidance

The proposed new power to be included in the Finance Bill 2021-22 will enable HMRC to present a winding-up petition to the court for companies that are operating against the public interest whether there is a debt or not.

The power will apply to companies and partnerships involved in or associated with the promotion of tax avoidance that are operating against the public interest. The court may wind up a company or partnership if it considers it just and equitable to do so.

Supporting taxpayers to identify, steer clear of and exit tax avoidance

This proposed power will allow HMRC to share information about promoters of tax avoidance and tax avoidance schemes earlier than it currently can.

The proposed power would enable HMRC to name a particular scheme, its arrangements and how it is being made available to taxpayers or administered, from when HMRC first learns about it. The power will enable the naming of those associated with the entity carrying out the promoting activity by means of control or influence as well as any persons that carry out a role in selling the scheme to taxpayers.

The new power would also enable HMRC to publish any other information or documents relating to the arrangement, entities or individuals which HMRC reasonably believe will ensure that members of the public can identify the arrangements and understand them and the risks which attach to them.

The proposed changes would require HMRC to provide a 30-day period to those entities or individuals after HMRC have given them notice that they intend to name to allow them an opportunity to make representations as to why they should not be named. A final decision on whether to publish information would be made by an Authorised Officer.

Summary of impacts

Exchequer impact (£m)

2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025	2025 to 2026	2026 to 2027
+5	+25	+30	+25	+25	+20

These figures are set out in Table 5.1 of Autumn Budget 2021 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget 2021.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

The terms used in this section are defined in line with the Office for Budget Responsibility’s indirect effects process. This will apply where, for example, a measure affects inflation or growth. You can request further details regarding this measure at the email address listed below.

Impact on individuals, households and families

This measure is expected to have no adverse impact on compliant individuals or on their family formation, stability and breakdown. The proposals to allow HMRC to share information about promoters of tax avoidance and tax avoidance schemes earlier than it currently can will help taxpayers understand the risks of getting caught up in avoidance and encourage those already involved to leave avoidance arrangements.

Equalities impacts

HMRC do not hold information about the protected characteristics of promoters or those who facilitate tax avoidance, but it is not anticipated that these measures would have an impact on any group with protected characteristics. HMRC will provide extra support to customers as appropriate.

Impact on business including civil society organisations

This measure is expected to have a negligible impact on compliant businesses who will have a one-off cost of familiarisation, ensuring they remain compliant. There are expected to be no continuing costs.

Customer experience is expected to remain broadly the same as there is no change to how compliant businesses interact with HMRC. There is expected to be no impact on civil society organisations.

Operational impact (£m) (HMRC or other)

HMRC will need to make changes to IT systems to implement these changes, and there will be some additional staff costs to administer the new rules. These costs are currently being quantified. There may also be increased costs to HM Courts and Tribunal Service, The Insolvency Service and the Devolved Administrations. HMRC will undertake further work with those bodies to assess the potential costs, although HMRC expect these to be negligible.

Other impacts

HMRC have been working closely with the Information Commissioners Office. A Data Protection Impact Assessment will be finalised before the measures are implemented.

Other impacts have been considered and none has been identified.

Monitoring and evaluation

These measures will be monitored through oversight of tax avoidance interventions and through communication with affected taxpayers and practitioners.

Further advice

If you have any questions about this change, please email: ca.consultation@hmrc.gov.uk.