The government is going to create a criminal offence for promoters of tax avoidance who ignore HMRC Stop Notices with potential for a two-year prison sentence
Under the new rules, now out in draft legislation, any promotor who is given a legal notice to cease promotion of schemes from HMRC, known as a Stop Notice, would face criminal charges under a new strict liability offence.
Conviction would result in an unlimited fine as well as a potential prison term of up to two years.
This would be the case regardless of any dispute about the effectiveness of the tax scheme between HMRC and the scheme users. If the promoter continued to promote a scheme covered by a Stop Notice that the courts subsequently found did not break tax rules, ‘the criminal offence would have already been committed’, the policy paper clearly states.
This follows more than a year of publication of the names of egregious promoters of tax schemes, with some individuals appearing on the list on multiple occasions, illustrating how the naming and shaming exercise was not working.
By making the criminal offence a strict liability offence HMRC would be in a position to consider opening a criminal investigation where it had established evidence that promotion of a tax avoidance scheme in breach of the Stop Notice had occurred. The legislation would also provide for the scenario where promoters may seek to get around this new offence, by failing to pass on the Stop Notice within five days to a person who is also subject to the notice and that person continues to promote the scheme.
The Treasury said: ‘The new criminal offence measure is designed to ensure the strongest possible deterrent is in place to ensure promoters comply with a Stop Notice and stop promoting their arrangements. The principal focus of the new offence is to tackle the continued promotion of those avoidance schemes covered by Stop Notices. An offence would be committed by a promoter if a scheme continues to be marketed after they receive a Stop Notice covering the scheme.’
The offence would only be committed where there is evidence that there has been promotion in breach of a Stop Notice taking place on or after Royal Assent of Finance Bill 2023-24.
The criminal offence will have a retrospective element as it would apply to all live Stop Notices issued prior to Royal Assent that remain live. This means that the rules will come into effect during 2024, possibly before the March Budget.
The current enforcement regime has a number of civil penalties under Schedule 35 Finance Act 2014 ranging from a fine of £5,000 for each failure to provide HMRC with information about a relevant client in relation to the scheme in a quarterly return, up to £1m, although HMRC has never used the latter.
New rules will also give HMRC the power to apply to the court for a disqualification order against directors of companies involved in promoting tax avoidance, including those who control or exercise influence over a company. This would mean that HMRC would be able to intervene much more easily to ban individuals from acting as directors.
This would remove these promoters from the avoidance market, prevent them from being directors of any company and deter others from being directors of companies promoting avoidance.
The consultation on the draft legislation will run from 18 July to 12 September 2023.