UK’s HMRC to rein in rogue financial advisers to curb tax avoidance

Her Majesty's Revenue & Customs (HMRC), the revenue department of the UK government, has come out with proposals that provide for naming and shaming of rouge financial advisers who pushed clients towards tax avoidance schemes that ran afoul of the law.

The proposals would empower the taxman with laws to rein in tax advisers who sought to promote dubious tax avoidance schemes.

Other proposals include investing HMRC with the power to collect more information at an earlier stage of an investigation into tax avoidance schemes as also levying fines up to £1million on companies, for failing to comply with an investigation.

The proposals would serve to discourage companies and individuals from using complex schemes, even illegal schemes, to cut their tax outgo, after it came to light that a number of high-profile multinational corporations, including Starbucks, Vodafone, Amazon and Google, were able to get away paying little or no taxes in the UK.

Starbucks paid no corporation tax in the last three years despite sales of £400 million in 2011. The company only paid £8.6 million after it started trading in the UK 14 years ago.

In June the coffee chain paid £5 million of a £10 million tax bill agreed after the government took a tough stand this year. The company would further pay £10 million in tax next year.

The plans would see tax advisers who pushed aggressive tax planning products categorised as high risk. They would also need to comply with the new rules on reporting and transparency.

Failure on the part of advisers to do so would attract a penalty of up to £1 million with a continuing failure penalty of £10,000 for each day that the failure continued following the imposition of the initial penalty.

Promoters who failed to disclose the nature of tax schemes to advisers would be slapped with a fine of  £50,000.

HMRC also plans to bring in higher standards for a reasonable excuse or reasonable care defence, to make it difficult for promoters to make excuses for dodging fines and not complying with the new rules.

According to HMRC, the new regime would help:

• Curb the use of avoidance schemes from the outset;
• Rein in high-risk promoters and those who were potentially high-risk;
• Force high-risk promoters to disclose their products to HMRC in greater detail;
• Force high-risk promoters to inform their clients of the consequences of their high-risk designation;
• Raise the bar for reasonable excuse and reasonable care; and
• Ensure that clients of high-risk promoter understood the risks and consequences of engaging in these schemes, including the new follower penalties.