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ICAEW raises concerns about POTAS and DAC 6 interaction

21 September 2020: ICAEW has asked HMRC to consider appropriateness of including DAC 6 failures in the promoters of tax avoidance schemes (POTAS) rules.

The request is made in ICAEW’s response to a consultation discussing a series of legislative changes to existing anti-avoidance regimes, such as POTAS, disclosure of tax avoidance schemes (DOTAS), penalties for enablers of defeated avoidance and the general anti-abuse rule (GAAR) aimed at clamping down further in the market for tax avoidance.

In ICAEW Representation 69/20, ICAEW reiterates its support of HMRC’s efforts to challenge  individuals and organisations involved in promoting aggressive tax avoidance arrangements, but argues that the promoters targeted by this regime are abusing the tax system and should not be considered as equivalent to bona fide tax advisers.

A significant issue highlighted in the consultation was that these promoters do not cooperate with HMRC and appear to continue to market schemes irrespective of the compliance status of such arrangements. ICAEW argues that many of the behaviours described in the consultation document would be more akin to fraudulent conduct than tax avoidance.

One of the largest issues with the existing system which the changes are seeking to address is that promoters are able to stagnate proceedings for significant periods of time such that they can continue to market schemes to taxpayers who will ultimately face large tax bills. HMRC is therefore seeking the power to name promoters publicly and issue “stop notices” to prevent them marketing arrangements at a much earlier point during an intervention where certain criteria are met.

ICAEW's Tax Faculty has also raised the question of how awareness of “named” promoters will be raised with taxpayers. It is hard to envisage taxpayers checking gov.uk themselves. ICAEW believes that unless taxpayers are told directly and urged to take independent advice this measure might not be hugely effective in changing behaviours. This is even more problematic as some promoters will be prepared to misrepresent the seriousness of any HMRC announcements to their client base.

ICAEW supports any new measures introduced to disrupt the current model provided they are managed with appropriate safeguards to ensure such measures cannot unduly affect compliant tax advisers. For example, members expressed a specific concern around the interaction with DAC 6.

It appears that a failure under DAC 6 could contribute towards inclusion in the POTAS regime. Given that some of the hallmarks within DAC 6 do not even require a tax avoidance motive or indeed any tax advantage, this would appear unreasonable as it is likely that innocent omissions will occur. ICAEW has urged HMRC to consider whether any interaction between the regimes is appropriate.

ICAEW will continue to work with HMRC as this consultation develops and there is more clarity over how the measures will work in practice. 

Read more about POTAS in Bloomsbury Professional’s HMRC Investigations Handbook here.