Draft legislation aimed at tackling promoters of tax avoidance schemes includes subjective terms and tests which are open to interpretation, says ICAEW. The terms should be amended or HMRC guidance created outlining its interpretation to avoid confusion.
In efforts to clamp down on promotors of tax avoidance schemes the government is legislating four new measures, enabling HMRC to:
- seek freezing orders to prevent promoters from hiding assets;
- name promoters and publish details of how they promote tax avoidance;
- issue additional penalties to UK entities facilitating promotion of tax avoidance by offshore promoters; and
- present winding-up petitions for companies operating against the public interest.
ICAEW’s Tax Faculty has highlighted key areas in the four draft clauses published by HMRC in July, where alternative wording, more objective tests or further guidance could be used to improve the clarity of the legislation and its application.
In ICAEW Rep 85/21, ICAEW acknowledges the difficulties in legislating against the promotion of tax avoidance schemes, given its subjective nature, but suggests that phrases such as “a good arguable case” and “expedient in the public interest” are unclear.
The Tax Faculty raises concerns that such phrasing could potentially cause confusion for the courts and see a broader application of powers than may be intended, before outlining recommendations for amendments or further guidance.
For example, clause 1 details the new freezing orders and the draft legislation calls on the court to satisfy itself that HMRC “has a good arguable case” in relation to the penalties being sought. The faculty suggests that if this phrase isn’t a well-recognised legal term, guidance is created to help courts to interpret it or a more objective test is included instead, such as whether penalties had been raised against the promoter in the past.
Meanwhile, in relation to clause 4, which states winding up petitions can be made “where it appears to an officer of HMRC that it is expedient in the public interest for the purposes of protecting the public revenue”, ICAEW warns that the current phrasing provides HMRC with “a very wide-ranging power with extremely serious consequences”.
ICAEW recommends that: “A statement is published detailing how HMRC will determine whether a winding up petition is expedient in the public interest and what safeguards it will have in place to ensure that this power is properly exercised.”
More support on tax
ICAEW's Tax Faculty provides technical guidance and practical support on tax practice and policy. You can sign up to the Tax Faculty's free enewsletter (TAXwire) which provides weekly updates on developments in tax.Sign up for TAXwireJoin the Tax Faculty
This guidance is created by the Tax Faculty, recognised internationally as a leading authority and source of expertise on taxation. The Faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.