Government plans to introduce two-year jail sentences for tax avoidance abuse could backfire if promoters move offshore to avoid risk, accountants warn Lords committee
Accountants from professional bodies warned members of the House of Lords Finance Bill Sub-Committee that plans to impose two-year sentences on promoters who ignore stop notices, are just one of a raft of measures giving HMRC new powers which do not seem to be working, while there are insufficient safeguards in the draft legislation.
Chair of the committee, Lord Leigh of Hurley questioned whether there was support for the crackdown on promoters.
Dr Emma Rawson, technical officer at the Association of Taxation Technicians (ATT), said: ‘We fully support efforts to stamp out promoters of tax avoidance schemes, but it needs to be looked at in terms of wider standards.
‘It is almost a wacamole approach without looking at the wider issues. We’re doing little changes without looking at the wider picture.’
Lord Leigh of Hurley, chair of the committee, questioned whether the introduction of a criminal offence of ignoring a stop notice would be effective.
‘It will only be effective if the rules are well known, we are concerned about their effectiveness over overseas promoters. We are not clear whether this will require extradition or other extrajudicial proceedings,’ said Richard Jones, senior technical manager at ICAEW. ‘If only UK people can be caught, wouldn’t people just go and set up overseas.’
Ellen Milner, director of public policy at CIOT, said: ‘This is only a deterrent if people know about it. We want to see the avoidance stuff shut down, whilst there are small numbers I don’t think we should stop doing it but on its own it won’t change the world. It is just another tool in the tool box. Stop notices are strict liability criminal notices. HMRC should tell these promoters what the liability is.’
Susan Cattell, head of tax technical policy, ICAS, said: ‘It is now down to a very small hard core of promoters – there’s been a huge deduction in the number of marketed tax schemes that stop notices address. The tax gap says they account for £500m. If it [offence] simply drives UK promoters abroad, then it won’t work.’
A number of members of the Lords committee were concerned about the extension of the civil offence to a criminal offence, and whether this had been thought through by the government.
Lord Palmer questioned what would happen if a company appeals against a stop notice and has it withdrawn while facing criminal proceedings.
Rawson said: ‘We would like to see a stay of proceedings until an appeal is decided over a stop notice.’
Lord Rooker was disturbed by the current wording of the draft legislation, expressing concerns about ‘the idea you can win an appeal on the stop notice but can still be prosecuted for a criminal offence.’
Another area of concern was the lack of safeguards for anyone accused under the stop notice offence.
Rawson added: ‘We have some concerns about the safeguarding – it is a civil offence and they are looking to escalate it to a criminal offence. Wherever you have a strong criminal sanction, you need stronger safeguards.
‘At the moment too much power sits with HMRC – we need more transparency about the issuing of stop notices if we are going to have criminal sanctions on the back of them.
‘Some of the issues around promoters would not arise if we had stronger standards of ethics and conduct, and if these promoters were required to have insurance and professional training. If more firms had to be members of professional bodies this would give us more teeth and they would have to be held to higher standards.