New tax evasion penalties for enablers
Lawyers and advisers who enable tax evasion may be subject to harsher consequences following the introduction of tougher sanctions at the start of 2017.
The powers, which received considerable dispute from the Law Society as well as others, will mean deliberate action from a corporate or individual who has assisted in evading tax, will be subject to fines. This may be up to 100% of the tax they helped evade or a sum of £3,000, depending upon which figure is larger. In addition to this, the taxman will be able to name the enabler publicly.
The introduction of the powers marks the first time that civil penalties can be charged by HM Revenue & Customs on tax evasion facilitators, who also provide advice, planning or other professional services, as well as moving funds offshore.
As one of the first countries to bring in the powers, the UK originally announced their introduction at Budget 2015, with relevant legislation being included in the Finance Bill 2016.
Published in December, the Treasury’s response to the measure’s consultation stated that the powers catch those who enable tax avoidance, separating them from those who offer clients second opinions on arrangements which have been created or enabled by others, as well as those who warn against the arrangement.
The new powers only apply to advice given from 1 January 2017.
Concern was expressed in the Law Society’s response to the consultation, largely in relation to solicitors potentially being punished for giving honest advice. They felt that where a complex legal question was being asked, the powers would hinder their ability to give advice in the first place, meaning the risk of taxpayers entering into unacceptable tax evasion schemes would grow.
The Society was also opposed to proposals to, in some cases, reverse the burden of proof. This would mean the taxpayer or adviser would need to prove they had taken ‘reasonable care’ with their tax arrangements should they be challenged, as a lawyer would be unable to defend themselves in absence of the client’s consent to waive legal professional privilege.
It stated that: “No client should feel pressured to do so, and no penalty regime should rely on an assumption that clients will waive privilege.”
The government responded to this, highlighting the need for lawyers in certain cases, to be able to show they do not fall under the new powers.
“Whilst the government recognises that there are ways in which the terms and conditions under which advice may be given could be drafted to remove [the LPP] issue, it is appropriate to provide a way in which the lawyer could, in appropriate cases, show that they do not fall within the scope of the penalty provisions without disturbing LPP rights. This will involve them making a declaration.
“HMRC will consult on the wording of the declaration to ensure it is both robust and compliant with LPP. The declaration will be subject to a penalty for making a misdeclaration.”
A new corporate criminal offence will also be introduced by the government this year, in order to target the failure of tax evasion facilitation.
Companies will be held liable under this rule, if somebody acting on its behalf as a contractor or employee facilitates evasion of tax. Presently, proof is needed that the board of directors is aware of and is involved in facilitating the tax evasion.
A new requirement to correct past tax evasion will also be introduced alongside this, which will also lead to new penalties being brought in. Anyone who has failed to correct past evaded tax by 30 September 2018 will be liable to face these new consequences.