The government introduce new measures to clamp down on promoters of tax avoidance schemes

To clamp down further on promoters of tax avoidance, the government is consulting on new draft legislation. Following on from the Promoter Strategy (unveiled in Spring Budget 2020) and existing steps in the Finance Act 2021, a new series of measures will aim to protect public finances by targetting offshore promoters, UK entities and non-compliant umbrella companies. Keep reading to find out more.

Introduction

Over the last 20 years, the government has noticeably stepped up its efforts to clamp down on promoters of tax avoidance schemes. As a result, the tax avoidance gap has fallen significantly from 2005 to 2006. The avoidance tax gap was calculated at £3.7 billion from 2005 to 2006. This fell by over half to £1.7 billion from 2018 to 2019. However, despite the significant reduction, there is still considerable progress required.

Rt Hon Jesse Norman said the following about the government’s efforts to target promoters of tax avoidance:

“The government’s work to tackle tax avoidance is continuing. It is committed to clamping down on promoters and their deliberate non-compliance with anti-avoidance legislation. These measures represent an important next step towards this goal. They are designed to change the balance of risk for those promoting avoidance schemes, deter new entrants, and ensure that the correct tax is paid, in order to support and fund our public services.”

The consultation was launched in March 2021 and closed on 1st June 2021. During this timeframe, the government received 18 written responses and worked with 9 “representative bodies”. The overall feedback on the new measures was positive.

What’s included in the new proposed measures?

In the consultation review, the proposed legislative changes are designed to reduce tax avoidance schemes and the number of parties promoting them. Below is a summary of the measures.

Tackling promoters who hide assets as a way of avoiding penalty payments

It’s well-known that many promoters of tax avoidance schemes avoid penalties and the financial implications of being found by the government. As part of this proposal, the government would allow HMRC to “apply to the court for a security payment or asset freezing order” – making it easier for the government to claim penalty payments. A majority of respondents were supportive of this proposal.

Going after offshore promoters and any UK-based organisations or individuals that support them

Holding offshore promoters of tax avoidance accountable is a momentous task and one that’s proven to be complicated. The government wants to deter UK based parties from engaging with offshore tax avoidance schemes. The changes in the proposal “would create a liability on promoters’ UK associates, to penalise them for assisting offshore promoters’ activities.”

Closing businesses that promote tax avoidance schemes and holding the directors of these businesses accountable

The government want promoters of tax avoidance schemes to be closed down immediately. Therefore, the proposal would allow HMRC to present the court with a winding-up order because the companies in question would act against the public’s best interests.

Providing additional support to taxpayers so they can identify and avoid unethical tax avoidance schemes

The proposal suggests the government will pass more information to taxpayers to help them make better-informed decisions regarding their tax payments.

Put a stop to disguised remuneration schemes (which “constitutes about 98% of the tax avoidance market”).

The government has been working hard to tackle disguised remuneration schemes. Between 21st July to 40th September 2020, they looked for evidence of disguised remuneration schemes and the next steps to tackle them were published in March 2021.

Frequently, disguised remuneration schemes involve unusual payments to workers, often in the form of loans. The government wants to help educate taxpayers on disguised remuneration and the risks such schemes pose. The government also wants to support those who need to settle their tax affairs having engaged with unethical arrangements.

Please click on the following link to read the full consultation outcome: ‘Clamping down on promoters of tax avoidance: summary of responses’.

The importance of engaging with compliant payroll providers

The new measures introduced by the government showcases its commitment to going after promoters of tax avoidance schemes. As a result, contractors, freelancers and temporary workers must engage with compliant payroll providers because engaging with non-compliant providers poses significant risks.

Identifying compliant payroll providers isn’t as complicated as you may think. With over 500 umbrella companies in the UK, it may sound like a daunting task to identify one with your best interests at heart. However, our recommendation is simple – only use an umbrella company or contractor accountant that the FCSA accredits.

The Freelancer and Contractor Services Association (FCSA) is the UK’s leading professional body committed to ensuring the supply chain of temporary workers is compliant with HMRC’s rules and regulations. By obtaining FCSA accreditation, an organisation has successfully passed a strict series of assessments and audits and have proven they operate compliantly. And, it’s worth noting that once a business earns its FCSA membership – the checks don’t stop there. Every organisation must undergo an annual audit to ensure they still operate under the FCSA’s Codes of Compliance.

Churchill Knight

Both Churchill Knight & Associates Ltd and Churchill Knight Umbrella are accredited members of the FCSA. Since our first day back in 1998 – over 20 years ago – we’ve been dedicated to providing efficient and compliant payroll services for the UK’s temporary workforce. We’re proud of our FCSA accreditation and believe it’s the ultimate way to showcase our commitment to compliance within our sector.

If you’re interested in joining one of the UK’s most established contractor accountants and umbrella companies, please call our friendly Sales Consultants on 01707 871622, or complete the short form here.

You can request a limited company take-home pay calculation here or an umbrella company calculation here. Alternatively, if you’re interested in scheduling a call for a suitable time, please click here.

Churchill Knight & Associates Ltd – official FCSA directory listing, available here.

Churchill Knight Umbrella – official FCSA directory listing, available here.