In a report on the draft Finance Bill, set to be voted on in parliament next year, the House of Lords called on the government to “keep its focus” on the promoters of tax avoidance schemes, highlighting the vulnerability of lower income taxpayers in the face of some intermediaries.
The Lords economics affairs committee said it was disappointed that despite various powers accumulated by HMRC over the years, a number of promoters — which the Lords calls the ‘hard core’ group — remained in businesses despite the Revenue knowing who such promoters were.
It urged the government to take action against this ‘core group’ as a priority, saying some of its other measures were "disproportionate" and "poorly targeted".
The committee said: “We are troubled that these types of schemes continue to proliferate, and that many of those people unwittingly caught in these schemes are on lower incomes.
“The continued sale and marketing of disguised remuneration schemes [...] shows the need for the government to act more effectively, using the full range of measures at its disposal, if it is to be able to close these schemes down.”
According to the Lords, there were questions around whether HMRC had “struck the right balance” between focusing on individuals who used these schemes rather than the promoters.
The financial secretary to the Treasury told the committee the government was looking to solve the ongoing operation of promoters “by every legal and administrative means we can” in order to “drive these people out of business”.
Under the draft finance bill, HMRC will be able to enforce earlier ‘stop notices’, which halt the promotion of schemes which are not going to give the tax advantage the promoter has promised.
The new rules will allow such ‘stop notices’ to be issued for schemes where HMRC has a reason to suspect that a person is a promoter, that at least one of the arrangements is a tax advantage and there are reasonable grounds to suspect the scheme does not deliver the advantage promised.
It would also allow HMRC to publish an enabler’s name and address much sooner in the process and penalise firms with a fine which could equal 100 per cent of fees earned.
Although changes to the rules in this area were welcome, the Lords committee said it was “unconvinced” they would be sufficient to drive the ‘hard core’ out of business, urging the government to consider new approaches and to keep the effectiveness of such rules under review.
Other changes in the draft Finance Bill include new rules which would see investment advisers, banks, fund managers and other financial institutions strong-armed into providing more information to the taxman.
Draft legislation published in July showed HMRC would gain powers to issue a financial institution notice which would require firms to provide information about a specific taxpayer to HMRC when requested.
The rules would also strip tax advisers of an exclusion which currently removes them from the pool of people the taxman can probe regarding tax avoidance arrangements.
But the Lords committee has found that the removal of such safeguards for taxpayers and institutions was “wrong in principle” and “not justified”.
It said: “We believe the government’s reasoning behind these proposals is flawed and not supported by evidence.
“We note that there is a pattern of new HMRC powers being disproportionate, poorly targeted and without sufficient safeguards.
“In some cases, expansive new powers are being granted to deal with problems that appear to be marginal and only affecting a small minority, increasing compliance costs for everyone.”
The draft Finance Bill is part of the government’s wider push on tax avoidance. Originally announced in the March Budget, the government pledged extra funding to support HMRC’s crackdown on tax avoidance, which the chancellor said would create an additional £4.4bn in revenue over the next five years.
At the time, Rishi Sunak promised to “raise standards” in the market of tax advice and target the promoters of tax avoidance schemes.
imogen.tew@ft.com
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