Tax avoidance has frequently been in the headlines, with large organisations and well-known names often being implicated. The government is now taking steps to deter not only those that engage in the practice, but also the advisers that help them to do so.
The true cost of tax avoidance
Strictly speaking tax avoidance is not illegal, because it involves sticking to the letter if not the spirit of the law, yet the practice costs the UK taxpayer £4bn in lost revenue each year. That is nearly as much as the £5.1bn lost annually due to the criminal act of tax evasion. In addition, even when HMRC successfully challenges cases of tax avoidance, those who either advised on, or facilitated the implementation of the tax avoidance schemes, face no consequences under the current law. To rectify this situation, the government is now setting its sights on IFAs and other professionals, in proposals currently open to public consultation.
Penalising the “enablers”
Under the new rules, IFAs found to be benefiting from fees or commissions earned by promoting or marketing tax avoidance schemes, could face financial penalties of up to £3000 or the full value of the avoided tax, whichever is higher. Other professional engaged at any stage of the process would also be penalised. For example, a promoter who puts together a tax avoidance scheme and has it added to the many products available to IFAs through their financial adviser software, could, if the scheme was successfully challenged by HMRC, face penalties alongside the IFA, and any other professionals that enabled the end client to exploit the scheme.
The idea behind the proposals, which are currently at the public consultation stage, is that advisers would be deterred from the practice. IFAs might instead use software such as that offered by intelliflo.com, to advise their clients on tax practices in line with the spirit of UK tax rules.
The new proposals, published by the Government in early August, have been largely welcomed. However, Vicky Johnson, president of the Association of Revenue and Customs, has suggested that, for the proposed policy changes to work, the consultation needed to include addressing the issue of pay and reward, for those tasked with implementing it.
The proposal also suggests naming and shaming IFAs involved in the practice, as a further deterrent.