Lawyers could face harsher penalties for enabling tax avoidance schemes under new proposals from the Treasury.
HMRC yesterday (17 August) launched a consultation to punish those who assist tax avoidance schemes that are defeated. The document states new measures should ‘send a strong deterrent signal to all those involved in, or considering, tax avoidance’.
The proposals specifically call for ways to discourage those acting as a ‘middleman’ in providing instructions to tax evasion. The document calls for enablers of tax avoidance to pay up to 100% of the scheme’s underpaid tax.
Treasury financial secretary Jane Ellison stated: ‘Those who seek an unfair advantage, or who provide the services that enable it, and who then frustrate HMRC’s efforts to identify, investigate and resolve these cases, should bear real risks and costs for their choices.’
The proposals target lawyers, banks, trustees, accountants, tax planners and independent financial advisers, where ‘each person in the supply chain’ could be subject to penalty so that ‘no one can walk away without consequence’.
Devereux Chambers tax specialist Jolyon Maugham told Legal Business: ‘There is a need to prevent tax advisers from making money by putting clients into schemes that don’t work and being able to walk away from the wreckage of these schemes with their fees intact.’
However, he added there were some missing points in the consultation, with no clear threshold that an adviser would need to meet to be penalised.
‘For a scheme merely to fail ought not to be sufficient to give a penalty to the adviser,’ said Maugham (pictured). ‘Professional advisers get stuff wrong all the time, but we might need to look for additional threshold such as negligence or recklessness, wilfully misleading the client.’
The HMRC document asks for views on whether to extend the burden of proving whether ‘reasonable care’ was taken in paying taxes onto the taxpayer.
Pinsent Masons tax investigations partner Fiona Fernie said: ‘The document as potentially drafted might go too far. Like so much of what has been announced recently you are seeing a blurring between avoidance and evasion. That is a real issue when people need to know where they stand.’
Law firms and tax advisers have come under increased pressure in the wake of a series of tax avoidance scandals.
In April, major UK law firms were implicated in the fallout of the Panama Papers, which detailed hundreds of individuals using Panamanian law firm Mossack Fonseca to avoid tax, including Simmons & Simmons, Holman Fenwick Willan and London firm Child & Child.