New powers against ‘enablers’ – those who design and enable aggressive tax avoidance and evasion – are back on the table once again. But new figures show that existing powers are still not being used.
A report published by the Public Accounts Committee this week discloses that penalties against enablers of offshore tax evasion have still not been used a single time since their introduction in 2017.
The Committee calls on HMRC to “assess whether it is using its powers to tackle non-compliance by the wealthy sufficiently, in particular, whether it makes sufficient use of available sanctions”, and to investigate “why it has not been able to issue any penalties to enablers of [offshore] tax evasion”.
Yet information recently provided to TaxWatch shows that HMRC doesn’t even track the use of some new powers against evasion and avoidance. For instance, the 2017 Finance Bill also provided a new criminal offence of failing to disclose offshore tax liabilities to HMRC. HMRC can’t say whether and how often there have been prosecutions or convictions under these new offences — because their use isn’t recorded centrally.
In other cases we can’t even know whether information exists about the use of penalties and powers. Earlier this month, we asked HMRC about penalties they had imposed in each of the last five years on users and promoters of failed tax avoidance schemes, and on dishonest tax agents. They declined even to disclose the number of penalties issued, on the grounds that it could “prejudice the assessment or collection of tax”: an odd argument unless these powers are in reality barely being used, and those violating tax rules therefore assume they can get away with it.
Yet this year alone HMRC has consulted on new civil penalties, criminal offences, or information powers against tax avoidance scheme promoters, providers of services to them, lawyers that help them, and dishonest tax agents.
TaxWatch has previously reflected on HMRC’s proliferation of powers. Many have strong justification: but new powers, like existing ones, may not work if they’re not actually used.
This post looks at a particular suite of powers proposed to challenge unscrupulous advisers: criminal penalties for failing to comply with the Disclosure of Tax Avoidance Schemes (DOTAS) regime, and new powers under Promoter Action Notices (PAN) to starve marketed tax avoidance schemes of financial and online services. Interestingly, this latest campaign also sees HMRC with a new target in their sights: lawyers.
Proliferation
HMRC’s consultation on ‘closing in on promoters of tax avoidance’ proposes a mixture of sharpening existing tools and bringing in entirely new powers.
The proposals would strengthen the DOTAS regime: for example, failing to tell HMRC about a notifiable avoidance scheme under DOTAS would become a strict liability criminal offence – meaning promoters could face hefty fines or even up to 2 years in prison for not telling HMRC about them.
Another new enforcement tool is the PAN, designed to cut avoidance scheme promoters off from their lifelines: banks, accountants, advertising platforms, company formation agents, and so on. Anyone providing services that could enable the continued marketing of a scheme must stop once they receive a PAN. It’s a new take on the existing idea of financial sanctions, common in the international arena. The theory is that if you starve the promoter of oxygen, the scheme dies.
Alongside the PAN, HMRC is also looking to turbocharge its toolkit with new information-gathering powers. The proposed Connected Persons Information Notice will allow HMRC to demand documents from a much wider group of individuals affiliated with a scheme promoter: others involved in the scheme, its marketers and suppliers, its financial beneficiaries. The Promoter Financial Institution Notice (PFIN) likewise aims to speed up the acquisition of bank records, bypassing tribunal approval in the name of efficiency.
Disarmament
As well as tooling up, HMRC is also looking to weaken the defences of facilitators of tax avoidance.
Legal professionals have a hefty shield to defend themselves, in the shape of Legal Professional Privilege (LPP). Currently legal professionals are exempt from promoter obligations of disclosure, if it would breach LPP: if disclosing a scheme would conflict with LPP, the legal adviser is deemed not to be a promoter.
This has created a situation where a small group of lawyers, especially some barristers, have been able to participate in the marketing and design of avoidance schemes while shielding themselves from disclosure obligations, unlike accountants and other tax advisers who must comply with DOTAS rules.
The proposed reform would be to remove this exemption so that LPP could no longer be used to shield tax avoidance promotion. TaxWatch is broadly supportive of this measure, which would align with international best practice: the OECD’s Mandatory Disclosure Rules, for instance, place disclosure obligations on anyone providing relevant services, regardless of their professional background.
Everything changed, nothing solved?
It’s tempting to cheer on HMRC’s new powers: with appropriate safeguards, TaxWatch has broadly welcomed the proposals, and suggested some design tweaks, particularly to allay concerns that legal professionals’ fears of being swept up in the promoters definition might leave individuals without proper legal advice. But the same nagging question remains: will HMRC actually use these powers effectively?
HMRC’s new proposals targeting legal professionals certainly does change the playing field: they close a significant loophole, and send a warning shot that no one, not even lawyers, are beyond HMRC’s investigations. There has been a small group of professionals that some have thought have, for too long, been key players in the tax avoidance ecosystem.
What will also change is the size of the manuals to support how these new powers (and existing powers) will be used, which already run to thousands of pages. In the past the Public Accounts Committee has noted that acquiring new, more complex powers can risk making HMRC “less effective in using the tools already available to it”. It will also mean that there will be another power that HMRC will have to track to determine its effectiveness.
What truly needs to change are the resources and infrastructure that enable these powers to be used effectively, fairly, and consistently. As TaxWatch has pointed out, the 2025 Spending Review suggests that there may be some more resources for compliance, but ultimately the department has been given a real-term budget cut of 1.5 percent annually. TaxWatch will be exploring this more in our upcoming State of Tax Administration Report 2025 (the 2024 version is here)
Tackling tax avoidance and evasion is beginning to feel like a legal arms race: keep building an ever-larger legal arsenal and assume that alone will terrify the enemy into surrender.
HMRC is gaining strategic focus, powers and resources in the fight against tax avoidance and evasion. It has had some major successes, and is increasing compliance yield, particularly from wealthy taxpayers. Nonetheless tax avoiders and evaders, and those who promote and profit from it, have learned to adjust and adapt – knowing that the shiny new weaponry too often remains holstered.
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TaxWatch’s response to HMRC’s latest consultation on tackling tax avoidance promoters is here
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Image: Mariano Mantel/Flickr CC BY-SA 2.0
