Treasury meeting on anti-avoidance schemes

Senior Treasury officials held a meeting in 11 Downing Street with business representatives, and the accountancy and legal professions involved in work on tax. Their discussions included the new requirement to register anti-avoidance schemes.

The precise details are not yet known and it is not yet clear whether, or which of, the various composite and umbrella schemes operated for freelancers will be classified as tax avoidance schemes and therefore covered by the rules.

The top Treasury Civil Servant, Permanent Secretary Gus O'Donnell, led the meeting and set out further details of the Chancellor's proposals for greater transparency in the market for tax avoidance schemes and arrangements, and of the steps which will be taken to prevent forestalling of the new regime, as well as explaining the outcome of the O'Donnell review of the revenue departments.

The Treasury described the meeting 'as constructive, and focused on the importance of on-going dialogue between the Treasury, Inland Revenue, and HM Customs and Excise, and representatives of business and the professions.'

This follows another recent meeting where the leading practitioners had their knuckles rapped for aggressively marketing anti-avoidance schemes.

At the meeting, Treasury officials set out details for the implementation of the proposed rules covering direct taxes, which will:

• be targeted to catch avoidance schemes and arrangements based on financial or employment-based products;
  
• also target taxpayers that devise and use their own schemes;
  
• be backed by an initial penalty of up to £5000 for non-disclosure by promoters of notifiable schemes, subject to appeal. Continued failure to disclose will attract a further penalty of £600 a day; and
  
• contain transitional provisions to discourage forestalling against the disclosure rules, with a requirement from the date the legislation takes effect to disclose notifiable schemes or arrangements which they have promoted or sold from today. Users of notifiable schemes or arrangements who will have to make a disclosure in place of a promoter (for example, if the scheme was purchased from offshore), would be required to do so for schemes or arrangements dated from 23 April in relation to schemes they have implemented.

The legislation would allow Customs to introduce parallel arrangements for the disclosure of avoidance schemes involving VAT, reflecting the different legal context for VAT law. Officials confirmed that, under the new rules:

• businesses with an annual turnover of £600,000 or more will be required to notify Customs where they use specific VAT avoidance schemes, which will be published in a statutory list. Failure to disclose a listed scheme will incur a penalty of 15 per cent of the tax at stake; and
  
• there will also be a requirement for larger businesses, with annual turnover of £10 million or more, to disclose the use of schemes that meet certain criteria, designed to target the most abusive schemes.
  
• Failure to disclose qualifying schemes will incur a flat rate penalty of £5,000. Non-disclosure penalties will include scope for appeal.

Full details of the measures will be available with the publication of the Finance Bill.

Revenue guidance

The Revenue's own guidance briefing (REV BN 28) says:

REV BN 28: Tackling tax avoidance - disclosure requirements

• Who is likely to be affected?
  1. Promoters who devise and market certain tax schemes and arrangements, and taxpayers who use them.
• General description of the measure
2. The new disclosure rules are designed to provide the Inland Revenue with information about potential tax avoidance schemes and arrangements much earlier than at present to enable swifter and more effective investigation and, where appropriate, counteraction.
• Operative date
  3. Details of when the rules will come into effect will be included in the Finance Bill.
• Current law and proposed revisions
  4. The new rules will require tax scheme promoters to provide details of certain defined schemes and arrangements to Inland Revenue shortly after the scheme is sold. They will be required to provide a description of the scheme, including details of the types of transactions planned which form part of the scheme and the tax consequences of the arrangements and the statutory provisions they rely upon. Inland Revenue will register these schemes and allocate each a reference number. 5. In most cases, taxpayers using schemes and arrangements within the new rules will be required only to include on their tax return the registration number of the scheme, which promoters will be required to provide to them. But where they have used a scheme purchased from an offshore promoter which affects their UK tax liability, or where the scheme has been devised in-house rather than purchased from a promoter, taxpayers themselves will be required to provide details of the scheme to Inland Revenue. Taxpayers will be required to disclose details of schemes shortly after the scheme was purchased or first implemented. 6. The new rules will require disclosure of schemes and arrangements where a main benefit is the obtaining of a tax advantage and where they meet further conditions. These conditions are designed to target schemes and arrangements based on financial products, and employment based products. Full details of these conditions will be published in the Finance Bill. 7. The tax treatment of particular transactions will not be affected by the new rules. 8. There will be penalties for failing to comply with the disclosure requirements. Details will be published in the Finance Bill.