Policy paper

Tax administration: serial avoiders special regime

Published 9 December 2015

Who is likely to be affected

The measure will mainly impact on taxpayers who repeatedly use tax avoidance schemes.

General description of the measure

As announced at March Budget 2015, and following a consultation that closed in October 2015, the government will legislate to provide that HM Revenue and Customs (HMRC) must issue a notice to the user of a tax avoidance scheme which HMRC has defeated. The notice will cover a 5 year period, placing an annual reporting requirement on the taxpayer and warning that if HMRC defeats any further tax avoidance schemes used during that period, the taxpayer will face a series of increasing sanctions, including penalties, publication of the taxpayer’s details and denial of access to tax reliefs.

Policy objective

This scheme is one of several measures being introduced that seek to clamp down on the appetite for and supply of avoidance schemes by increasing the deterrent effect of engaging in tax avoidance.

Despite considerable progress in tackling tax avoidance, there remains a small but persistent number of tax avoiders who repeatedly engage in avoidance schemes. Often, these avoidance schemes look to exploit tax reliefs in a way not intended by Parliament or to unfairly inflate the relief gained. This is unfair to the majority of taxpayers who do not seek to minimise their liabilities in this way and also undermines the purpose of the reliefs abused.

Through a series of warnings and escalating sanctions, the new regime is designed to change the behaviour of serial tax avoiders and deter them from continuing on their path of avoidance. The regime will also act to discourage those tempted to engage in tax avoidance from doing so.

Background to the measure

Following a consultation in early 2015, the government announced at March Budget 2015 that it would introduce tougher measures for those who persistently engage in tax avoidance schemes which fail. A further consultation on the details of the measure ended in October 2015.

Detailed proposal

Operative date

The measure will have effect on and after 6 April 2017. Taxpayers who use tax avoidance schemes before the date of Royal Assent to Finance Act 2016 but which HMRC defeats on or after 6 April 2017 will be issued with warning notices, unless they advise HMRC before 6 April 2017 of their firm intention to relinquish their position and settle their case. Such defeats will not incur sanctions.

Current law

There is currently no legislative regime dealing specifically with serial tax avoiders.

Proposed revisions

Legislation will be introduced in Finance Bill 2016 to allow HMRC to send a notice when they defeat a tax avoidance scheme which puts that person on warning for 5 years. During this time, taxpayers will be required to notify HMRC each year that they have not used any further avoidance schemes, or if they have, to give full details of the schemes and the amount of the tax advantage the schemes are asserted to deliver.

For taxpayers who use further avoidance schemes while under warning which HMRC defeat, they will become liable to a penalty of 20% of the understated tax. Subsequent defeats of such schemes will result in increasing penalties to a maximum of 60%.

Taxpayers who use three schemes during a warning period which HMRC defeats will have their names and other details published by HMRC.

Taxpayers who use at least three tax avoidance schemes during the warning period which exploit reliefs in a way not intended by Parliament and which HMRC defeats will have their access to certain reliefs deferred for a period of three years. If they use no further avoidance schemes which exploit reliefs in this time which HMRC defeat, they will be able to claim reliefs in relation to the deferred period, provided they are still in time to do so.

Summary of impacts

Exchequer impact (£m)

2015 to 2016	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021
-	-	negligible	negligible	negligible	negligible

This measure is expected to have a negligible impact on the Exchequer.

Economic impact

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

Impact on individuals, households and families

The measure will mainly impact on taxpayers who engage in or promote tax avoidance.

Individuals who use avoidance schemes will generally be higher rate taxpayers.

This measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

This measure will affect individuals who are likely to share protected characteristics with others of above average means. It is anticipated that equality groups represented in lower income groups are less likely to be affected.

Impact on business including civil society organisations

This measure will have no impact on businesses and civil society organisations who are undertaking normal commercial transactions; it will only impact on the businesses that are engaging in or promoting tax avoidance.

Operational impact (£m) (HMRC or other)

There will be no significant operational impact arising from this measure.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be monitored through monitoring of repeated use of avoidance schemes by new and current users, and through communication with affected taxpayers and practitioners.

Further advice

If you have any questions about this change, please contact Pete Woodham on Telephone: 03000 586533 or email: peter.woodham@hmrc.gsi.gov.uk.