Changes to legislation of enablers of defeated tax avoidance schemes
Find out how the legislation in clause 65 and schedule 16 Finance (No. 2) Act 2017 affects enablers of tax avoidance.
Overview
This guidance relates to penalties for enablers of defeated tax avoidance legislation (‘enablers legislation’). The legislation is set out at schedule 16 to the Finance (No.2) Act 2017 and introduces a penalty for any person who enables the use of abusive tax arrangements, which are later defeated.
This guidance explains the key concepts included in the legislation. It also explains to whom the legislation is intended to apply, and how.
An enabler is any person who is responsible, to any extent, for the design, marketing or otherwise facilitating another person to enter into abusive tax arrangements.
When such arrangements are defeated in court or at the tribunal, or are otherwise counteracted, each person who enabled those arrangements may be liable to a penalty.
The penalty for each enabler is equal to the amount of consideration either received or receivable by them for enabling those arrangements.
The General Anti-Abuse Rule (GAAR) Advisory Panel provides an important safeguard for the purpose of applying the legislation. No penalty can be charged unless HMRC has obtained an opinion of the GAAR Advisory Panel in relation to the tax arrangements or equivalent arrangements.
Any penalty HMRC charges, having considered the relevant GAAR Advisory Panel opinion, is appealable.
Purpose of the legislation
The legislation gives HMRC the power to tackle all aspects of the marketed avoidance supply chains, complementing the suite of anti-avoidance measures already in place.
The legislation will influence and promote behavioural change in the minority of tax agents, intermediaries and others who benefit financially from designing, marketing or facilitating the use of abusive tax arrangements that are defeated.
Throughout this guidance, such arrangements are referred to as ‘abusive tax arrangements’.
The legislation will help ensure that enablers of abusive tax arrangements are held accountable for their actions, while providing safeguards for the vast majority of tax professionals who already adhere to professional standards, such as the Professional Conduct in Relation to Taxation (PCRT) and the Code of Practice on Taxation for Banks.
Those who provide clients with services in respect of genuine commercial arrangements will not be impacted.
The enablers legislation only applies to a person if they enable abusive tax arrangements that are entered into on or after 16 November 2017, which is the date of Royal Assent to the Finance (No.2) Act 2017. The enabling activity must also have been undertaken on or after this date.
A main aim of the legislation is to deter a person from enabling abusive tax arrangements. A would-be enabler should, at the time of providing advice or carrying out any enabling action, consider whether they are in fact enabling tax arrangements, which they know are, or are likely to be considered, abusive.
The Penalties, appeals, and publishing details of enablers guidance explains how the information powers at schedule 36 FA 2008 are modified for the purposes of checking whether a person is liable to a penalty under the enablers legislation.
HMRC will make use of these powers to help check or obtain information that will help determine whether a penalty under the enablers legislation is appropriate for a particular person.
Interaction with other requirements
This guidance sets out how the enablers legislation interacts with:
- the GAAR, operated by HMRC with external scrutiny provided by the GAAR Advisory Panel
- the Code of Practice on Taxation for Banks (the Code) which is published and operated by HMRC
- Professional Conduct in Relation to Taxation (PCRT)
The PCRT is a document produced by 7 leading professional bodies for their members working in tax:
- Association of Accounting Technicians (AAT)
- Association of Chartered Certified Accountants (ACCA)
- Association of Taxation Technicians (ATT)
- Chartered Institute of Taxation (CIOT)
- Institute of Chartered Accountants in England and Wales (ICAEW)
- Institute of Chartered Accountants of Scotland (ICAS)
- Society of Trust and Estate Practitioners (STEP)
It sets out the fundamental principles and standards of behaviour expected of their members.
This guidance should be read in conjunction with the GAAR guidance current at the time the arrangements are entered into.
Parts A to C and part D of the GAAR guidance have been approved by the GAAR Advisory Panel. In particular, part D provides examples of the types of arrangements that may, or may not be, considered abusive in the context of the GAAR. Part E of that guidance sets out the procedure that must be followed before there can be a GAAR counteraction.
You may find the GAAR guidance helpful in understanding what types of arrangements are considered abusive for the purposes of the GAAR, which in turn will help you to identify the types of arrangements that would bring a person who has enabled them into scope for a penalty under the enablers legislation.
Interaction with National Insurance contributions
Where the legislation refers to ‘tax’ this also includes National Insurance contributions.
Throughout this guidance, reference to:
- tax is to a number of taxes which includes National Insurance contributions
- obtaining a tax advantage, includes obtaining a National Insurance contributions advantage
- income, includes earnings within the meaning of part 1 of the Social Security Contributions and Benefits Act 1992, or Part 1 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992
- assessment, includes a NICs decision
Amendment to the promoters of tax avoidance schemes (POTAS) threshold condition
The GAAR threshold condition at paragraph 7, schedule 34 FA 2014, has been amended so that it applies under POTAS for the purposes of the enablers legislation, as well as by reference to the GAAR.
The POTAS threshold condition is met if arrangements have been referred to the GAAR Advisory Panel under paragraph 26 of Schedule 16 FA (No.2) 2017 and, for the purposes of the POTAS legislation, the majority opinion of the GAAR sub-panel is that the entering into or carrying out of the tax arrangements is not a reasonable course of action in relation to the relevant tax provisions.
There’s no further consideration of POTAS in this guidance, but more information about the POTAS regime and its threshold conditions can be found in the POTAS guidance.
Meanings and definitions
Provisions of the Taxes Management Act (TMA) 1970
Unless otherwise specified, the following provisions of TMA 1970 apply in the same way for the enablers legislation as they apply for the purposes of the act:
- section 108 - the responsibility of company officers
- section 114 - want of form or errors not to invalidate assessments, etc
- section 115 - delivery and service of documents
Meaning of Tax
Tax includes any of the following:
- Income Tax
- Corporation Tax, including any amount chargeable as if it were Corporation Tax or treated as if it were Corporation Tax
- Capital Gains Tax
- Petroleum Revenue Tax
- Diverted Profits Tax
- Apprenticeship Levy
- Inheritance Tax
- Stamp Duty Land Tax
- Annual Tax on Enveloped Dwellings
- National Insurance contributions
The Treasury may, by regulations, add to or remove a tax from this list. It may also make supplementary, incidental and consequential provisions and make any transitional provisions.
Meaning of tax advantage
Tax advantage includes:
- relief or increased relief from tax
- repayment or increased repayment of tax
- receipt, or advancement of a receipt, of a tax credit
- avoidance or reduction of a charge to tax, an assessment of tax or a liability to pay tax
- avoidance of a possible assessment to tax or liability to pay tax
- deferral of a payment of tax or advancement of a repayment of tax
- avoidance of an obligation to deduct or account for tax
Assessment of tax
Assessment of tax includes a determination in relation to Inheritance Tax and a National Insurance contributions decision relating to a person’s liability for any relevant national insurance contributions (Class 1, 1A and 1B contributions and in certain cases Class 2 contributions).
Key words and terms
For the purposes of the enablers legislation, the following words and terms have the following meanings:
- ‘arrangements’ includes any agreement, understanding, scheme, transaction or series of transactions, whether or not legally enforceable
- ‘business’ includes any trade or profession
- ‘the Commissioners’ means the Commissioners for HMRC
- ‘company’ takes the meaning provided at section 1121 of the Corporation Tax Act 2010
- ‘contract settlement’ means an agreement in connection with a person’s liability to make a payment to the Commissioners under or by virtue of an enactment - this definition does not apply in the case of paragraph 46(6) of Schedule 16 FA (No.2) 2017, where a contract settlement means an agreement under which the Commissioners undertake not to assess a penalty or to pursue a penalty already assessed
- ‘a defeat’ in relation to arrangements, is to be read in accordance with paragraph 4 of Schedule 16 FA (No.2) 2017
- a ‘designated HMRC officer’ means an officer of Revenue and Customs who has been designated by the Commissioners for the purposes of the enablers legislation
- ‘the GAAR Advisory Panel’ has the meaning given by paragraph 1 of Schedule 43 of FA 2013, as the panel of persons established by the Commissioners for the purposes of the GAAR
- ‘group’ is to be read in accordance with paragraph 56(2) of Schedule 16 FA (No.2) 2017
- ‘National Insurance contributions’ means contributions under Part 1 of the Social Security Contributions and Benefits Act 1992 or Part 1 the Social Security Contributions and Benefits (Northern Ireland) Act 1992
- a ‘National Insurance contributions decision’ means a decision under section 8 of the Social Security Contributions (Transfer of Functions, etc.) Act 1999 or Article 7 of the Social Security Contributions (Transfer of Functions, etc.) (Northern Ireland) Order 1999 (SI 1999/671) relating to a person’s liability for relevant contributions
- ‘relevant contributions’ means:
- Class 1 National Insurance contributions
- Class 1A National Insurance contributions
- Class 1B National Insurance contributions
- Class 2 National Insurance contributions which must be paid but in relation to which section 11A of the Act in question (application of certain provisions of the Income Tax Acts) does not apply, under Part 1 of the Social Security Contributions and Benefits Act 1992 or Part 1 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992
- ‘tax’ should be read in accordance with paragraph 54 of Schedule 16 FA (No.2) 2017
- ‘tax advantage’ should be read in accordance with paragraph 55 of Schedule 16 FA (No.2) 2017
References to an assessment to tax, in relation to Inheritance Tax and Petroleum Revenue Tax include a determination and, in relation to relevant contributions, include a National Insurance contributions decision.