Spring Budget 2017—Tax administration and avoidance

09 Mar 2017

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This analysis is part of the Lexis®PSL Tax team’s summary of the Spring Budget 2017. Some of the links require a LexisPSL subscription. If you are not a subscriber, you can take a free trial here.

Promoters of tax avoidance schemes (POTAS)

The government is introducing legislation with immediate effect (from 8 March 2017) to prevent promoters from getting around the POTAS rules by restructuring how their business is owned. The POTAS rules are triggered where, within the previous three years, the promoter has met any one of a number of threshold conditions set out in the legislation. Threshold conditions include: being found guilty of certain types of misconduct by a professional body; imposing provisions on clients that restrict the disclosure of information to HMRC; and repeatedly promoting tax avoidance schemes that do not work ('defeated' avoidance schemes).

The POTAS rules were introduced by Finance Act 2014 and were changed by Finance Act 2015 to catch situations where a threshold condition has been met by someone with a defined type of connection, via a company or partnership, to the promoter. The new measures announced at Spring Budget 2017 extend these provisions by amending the definition of control, and introducing the term ‘significant influence’ to ensure promoters cannot get around the rules by inserting a person or persons between themselves and the promoting business.

The OOTLAR refers to this latest measure as having been previously announced at AS 2016 but so far as we are aware this was not the case.

For information on the POTAS rules, see Practice Note: Promoters of tax avoidance schemes.

See: Spring Budget 2017 (para 3.43), OOTLAR (para 1.40) and TIIN, draft clause and explanatory notes: Promoters of Tax Avoidance Schemes: associated and successor entities rules.

Enablers of tax avoidance

The government has confirmed that FB 2017 will introduce the controversial new 'enablers' rules: penalties for persons who enable other persons or businesses to use tax avoidance arrangements that are later defeated by HMRC. This measure was consulted on from August to October 2016 and was included in draft FB 2017 as published on 5 December 2016.

There has been widespread concern in the tax profession that these measures would potentially be relevant in many commercial transactions, although the draft legislation published in December 2016 was less broad in scope than was suggested in the original consultation. At Spring Budget 2017 the government announced further revisions, following 'extensive consultation and input from stakeholders'. The revisions:

provide further details on when and how the general anti-abuse rule (GAAR) advisory panel will consider enabler cases
apply the enablers regime to arrangements that seek to avoid NICs
make consequential changes to the POTAS legislation, and
make further minor amendments to 'improve clarity and targeting'

The revisions will be in FB 2017 when it is published on 20 March 2017, and the rules will come into effect from Royal Assent (expected in July 2017).

For more information on the enablers rules, see News Analysis: Draft Finance Bill 2017—enablers of tax avoidance.

See: Spring Budget 2017 (para 3.44) and OOTLAR (para 1.41).

Measures pre-announced

Disclosure of indirect tax avoidance schemes: as announced at AS 2016 and included in draft FB 2017, FB 2017 will revamp the VAT avoidance disclosure regime. The requirement to make disclosures to HMRC will move from scheme users to scheme promoters, and the rules will be extended to include all indirect taxes (see News Analysis: Draft Finance Bill 2017—VAT avoidance disclosure rules). The new regime takes effect from 1 September 2017. See: OOTLAR (para 1.38)
Reasonable care defence: as announced at AS 2016 and included in draft FB 2017 (clause 91), FB 2017 will prevent taxpayers who face inaccuracy penalties in respect of a marketed tax avoidance scheme from citing generic advice or marketing material to demonstrate that they have taken reasonable care (see News Analysis: Draft Finance Bill 2017—inaccuracy penalties). The changes come into effect at Royal Assent (expected July 2017) and apply to inaccuracies in documents relating to tax periods which begin on or after 6 April 2017‎. See: Spring Budget 2017 (para 3.44) and OOTLAR (para 1.41)
VAT: penalty changes in fraud cases: as announced at AS 2016 the government will introduce a new and more effective penalty for participating in VAT fraud in FB 2017. Minor changes have been made to the draft legislation and a company officer will only be named where the amount of VAT due exceeds £25,000. See: OOTLAR (para 1.39)

Future developments

Conditionality: HMRC consulted in autumn 2016, as part of its proposals to 'tackle the hidden economy', on new rules to make access to certain licences or business services conditional on being registered for tax. At Spring Budget 2017, the government stated that it will develop further proposals in this area. It believes there is a good case for conditionality but recognises that it must minimise any new administrative burdens. No timescale is given for the next step. See: OOTLAR (para 2.32)
Penalties for failure to notify: HMRC will consider strengthening the existing penalties for failure to notify a tax liability, as part of the longer term HMRC penalties review. See: OOTLAR (para 2.32)
Late submission penalties: HMRC will publish a consultation on 20 March 2017 on proposals for late submission penalties (the digital equivalent of late filing penalties) and the charging of penalty interest on late payments of tax. See: OOTLAR (para 2.34)
HMRC large business risk review: The government will consult over the summer on its process for risk profiling large businesses and promoting stronger compliance. See: Spring Budget 2017 (para 3.41) and OOTLAR (para 2.35)