This is the second part of this article. For the first part, please read here

Tax avoidance scheme promoters

Background

Perhaps some of the most severe name and powers provided to HMRC have recently been given in relation to tax scheme promoters under

• the DOTAS provisions under new FA 2004, s316C (“DOTAS name and shame”)
• Under Finance Act 2022, s86 (“s86 name and shame”)

DOTAS name and shame provisions

At its highest, HMRC may publish information about the promoter of a scheme or any person otherwise involved in the supply of the arrangements or proposed arrangements. This includes any information that “HMRC considers… appropriate to publish for the purposes of identifying” them or the arrangements.”

It is interesting that the route to name and shaming is a relatively mechanical process and HMRC have already shown themselves to move through the gears quite quickly on this.

Information can be published in relation to a so-called s311(3) case. This kicks in where a notice has been issued under s310D (bear with me!)

Section 310D provides for HMRC to issue a scheme reference number where it is aware that certain transactions have been entered into or are being made marketed. If this is the case, and HMRC has “reasonable grounds for suspecting that the arrangements are notifiable” then they may issue a notice.

This notice effectively requests that, unless the person who is the subject of the notice can satisfy HMRC that the scheme is not notifiable, then HMRC may allocate a scheme reference number. Here, it would be under s311(3).

Effectively, the person therefore has thirty days to provide representations against the notice under s310D. If they do not provide representations within this time, or HMRC remain unconvinced, then they will likely issue a scheme reference number which begins a chain of events..

Firstly, this means that the promoter will become subject to various statutory obligations such as providing client lists to HMRC. In addition, HMRC will also obtain a number of powers in relation to that scheme, including the name and share powers.

Although the scheme reference number may be appealed, for a s311(3) case, the effect of the appeal is purposefully neutered. Under s311B, the making of appeal does not suspend either obligations imposed on the person by DOTAS or HMRC’s powers.

This is of course, rather unusual for an appeal right and perhaps might be contrasted with an appeal by a firm that is alleged to have broken the NWM legislation and has appealed the decision. In these circumstances, no such naming and shaming could take place until the appeal rights are exhausted.

So, in short, on the basis of a “suspicion” (defined by HMRC as not merely ‘fanciful’) of offering tax avoidance schemes then the business (and therefore its owners) can be named and shamed. If one accepts that their activities are not illegal, then this seems wholly disproportionate. Especially where the right of appeal is hollowed out to such an extent that it becomes nothing of the sort.

Section 86 name and shame

But that is not the limit to HMRC’s naming and shaming in this area.

With effect from 24 February 2022, HMRC can publish details of suspected tax avoidance schemes and any person suspected of making the scheme available to taxpayers. This might occur where “an authorised officer suspects that a proposal or arrangements are a relevant proposal or relevant arrangements”

Where this low threshold is crossed, then the officer may arrange for the publication of any information (including documents) the officer considers appropriate.

Prior to publication, HMRC must go through a fairly limited process before publication which broadly constitutes giving “the person 30 days from that notification in which to make representations about whether or not the information should be published.”

However, again, aside from the ability to make representations, there is no ability to appeal the decision prior to any naming and shaming takes place (indeed, there is no right of appeal here at all).

Rationale behind these rules

It is clear from HMRC’s pronouncements that these measures are:

• to dissuade a person from buying services from an umbrella company on the hit list; and
• to persuade those participating in the schemes to seek ‘help’ from HMRC

Clearly it is within the government and HMRC’s gift to challenge undesirable behaviour within the tax system.

Further, and although no sympathy will be asked for by promoters and none shall be granted, these powers seem disproportionate. This is on the basis that they can be invoked on the mere suspicion of being involved in activities that, at the end of the day, are not illegal.

I would also be surprised if any such notices are not challenged on the basis that they may be inconsistent with EU law and the ECHR. Indeed, the fact that most firms listed do not appear to have traded for some time is perhaps an indication that HMRC’s moves have been challenged.

I may be in world’s tiniest violin territory here, but when compared to breaches of NMW and for the position for tax fraud, which both allow one to have their day in Court, it seems that tax promoters are in a less favourable position than those who break the tax law and also serious non-tax criminals.

The media

However, it is perhaps the media that has the greatest power of to use publicity to impact a person’s reputation through adverse publicity. Clearly, some of the formal name and shame ‘content’ generated by HMRC will feed some of this.

However, the press obviously generates its own content. For example, a certain high-profile comedian soon rowed back from his original defence of his use of tax schemes when it was clear that the public were not going to swallow any of it. This was a clear turning point in how the public viewed tax avoidance.

Further, more considered investigative pieces from the ICIJ around the Panama and Paradise Papers have arguably been catalysts for international reforms over transparency (a seemingly unstoppable march until the recent, and surprising, decision of the ECJ regarding public registers of beneficial ownership).

I will consider the role of the press in a subsequent article.

Conclusion

So, why is naming and shaming an increasingly popular tool in HMRC’s armoury?

Of course, as Cersei found out, having one’s ‘affairs’ out in the open is perhaps an uncomfortable experience. It might therefore make someone think twice about pushing the envelope.

But why is it used more for tax misdemeanours than other, criminal behaviour? It seems odd that someone who has had fiddled their VAT return might be placed on a specific and publicly available list of shame as opposed to someone who has committed an armed robbery, is not.

And what about those who have not committed any offence at all? The measures targeted at promoters, although might be justified, seem disproportionate in nature. Disproportionate because it provides for the almost certain destruction of a business and personal goodwill based on the mere suspicion of an officer of HMRC and the denial of a right to a hearing.

As viewers of Game of Thrones know, the public shaming was not the last we heard of Cersei. Let’s hope the measures set out above are more successful.

 

If you have any queries about this article then please let me know.