HMRC Loan Charge – Can the Brakes be Applied to this Car Crash Legislation?



HMRC has been involved in a long-running battle against arrangements that it believed were little more than devices to circumvent the operation of PAYE and NIC by employers. Typically, this involved the directors of owner-managed businesses and contractors operating via Personal Service Companies who were rewarded in part via Employee Benefit Trusts (“EBT’s), Employer Funder Retirement Benefits Schemes (“EFRB’s) or Contractor Loan Schemes. These arrangements were heavily marketed by many professional advisers during the early 2000’s, up to around 2014 and were supported by legal opinion that they were a tax-compliant reward mechanism. Typically, such arrangements involved funds being paid gross by the employer into some kind of Offshore Trust mechanism, which was then later made available to directors via a loan, thereby avoiding the need to account for PAYE and NIC on the basis that the payments were not “salary”.

Needless to say, HMRC disagreed with this view, and have challenged all such arrangements they have become aware of via investigation and litigation. The HMRC view is that once it is decided to set aside funds to reward directors or employees then it matters not what mechanism is used for payment, PAYE and NIC are applicable. The Tax Tribunal and the Courts have supported this view and HMRC have been largely successful their challenges. To prevent such arrangements in future there has been a raft of legislation – referred to as “Disguised Remuneration” legislation - to ensure that PAYE and NIC is applied going forward.

A problem for HMRC had been that to investigate and correct users of Disguised Remuneration arrangements they only have a limited period to open investigations, and once they have missed the boat there is little they can do to challenge a historic arrangement, although we are aware that one controversial tactic used by HMRC is to allege that arrangements involved serious fraud, which gives HMRC a 20-year window within which to open an investigation. This has caused uproar as these arrangements were typically supported by legal opinion and were implemented under professional advice. Even if HMRC disagreed with the legal view, this hardly justifies allegations of fraud. It should be up to HMRC to do its job properly and open timeous investigations, rather than use trickery and invent fraud where it does not insist.

However, to circumvent this, HMRC and the Government have effectively enacted retrospective legislation that seeks to tax all unpaid loans in these circumstances made since 6 April 1999 and still outstanding at 6 April 2019. The charge on outstanding disguised remuneration loans, known as the 2019 “Loan Charge”, was announced at Budget 2016 and was introduced in the Finance Act (No 2) 2017.

The charge will apply to all loans made since 6 April 1999 if they are still outstanding on 5 April 2019, and effectively treats the loan outstanding as if it were salary. The charge will not arise on outstanding loans if the individual has agreed a settlement with HMRC under existing law before 5 April 2019. Obviously, if the loan has been repaid or legally extinguished the Loan Charge legislation does not apply.

I have an Outstanding Loan - What are the Consequences for me?

There is still time to engage with HMRC to discuss settlement options, and we can assist with this if possible. Otherwise, HMRC would normally look to collect the tax arising from the employer in the first place as it is the responsibility of the employer/company to pay the 2019 Loan Charge under the PAYE legislation. The employer is then expected to pass this cost on to the individual.

If the employer is no longer in existence, then the tax liability can be passed on to the individual beneficiary of the arrangement. Furthermore, HMRC has indicated that it will pursue any claims to company insolvency very vigorously and will look to transfer liability to director/employee where appropriate.

Failing all else, HMRC would expect a beneficiary to report the details on their 2019 tax return and pay any resultant liability.

HMRC Tactics

HMRC have already flagged up that they will be policing the Loan Charge vigorously, and they have already gone on record as rubbishing claims that there are arrangements that will circumvent the Loan Charge. We expect to see a number of challenges in this area, and it will be interesting to see how HMRC’s enforcement goes here, as HMRC’s robust claims have not yet been tested before the Courts.

HMRC have been writing to all known participants in Disguised Remuneration arrangements to warn them of their obligations, and to ramp up the pressure on participants.

Isn’t Retrospective Legislation Immoral?

In our opinion – in one word – yes!

Imagine driving down a road one day at 50mph in your car, in a 50mph speed limit area, only to be prosecuted for it on the basis that the speed limit was retrospectively lowered after the day you had driven legally at 50mph on that road to change the limit to 30mph. There would be uproar!

There has been uproar on the Loan Charge too – led primarily by a pressure group known as the “Loan Charge Action Group” but supported by a number of politicians. HMRC has also been rebuked by a recent House of Lords Economic Affairs Committee report over its handling of the Loan Charge, and Theresa May was challenged at Prime Ministers Question Time recently over the issue by Sir Edmund Davey MP and as a result a cross-party delegation is due to meet with the Chancellor of the Exchequer to discuss the issue. However, as with Brexit it is cutting things very fine!!

Our view is that whilst the now prevailing view, as expressed by the Courts and Tax Tribunals, is that the pre-existing EBT’s/EFRB’s etc were ineffective, if HMRC has not acted in a timeous manner to open enquiries the dust should be left to settle on those old cases, particularly as subsequent legislation has ruled out similar arrangements going forward. As individuals and businesses must adhere to legislation, so should HMRC rather than relying on moving the goalposts unfairly to paper over the cracks in their performance. Similarly, it is a blatant abuse of process by HMRC to allege fraud in cases where professional advice and legal opinion was followed.

So, what are my Options?

There are still a number of options: -

  • If HMRC are already aware of your arrangement and have competently-opened enquiries, then settlement options should be explored

  • If settlement options are being explored with HMRC but affordability is an issue, HMRC have indicated that there are options regarding Time to Pay arrangements

  • If all else fails, it is worth examining whether palatable insolvency action is possible

  • Dependent upon circumstances, the loan could be extinguished, but care needs to be taken

  • Despite HMRC’s expressed views that arrangements purporting to avoid the Loan Charge are ineffective, it is not possible at this stage to adopt a “one-size fits all” approach as HMRC are seemingly doing. There is an element of “they would say that anyway”. There is no harm in keeping an open mind and being alive to possible solutions. The only cautionary note we would sound here is to seek a professional second opinion upon any arrangements before they are contemplated

  • Above all – keep a close eye on the discussions with the Chancellor to see if there is any softening of approach

If you are affected by the Loan Charge, or if your clients are, please feel free to contact us for advice.

It may be that you or your client is considering whether to implement one of the arrangements aimed at circumventing the loan charge. Despite HMRC’s assertions about the effectiveness of such arrangements a balanced view needs to be taken of the likely effectiveness of such arrangements, and we would be happy to provide an impartial second opinion before any arrangements are implemented, as any weaknesses could prove extremely costly.

The BBC – Moral Guardian of Tax? Or do as I say not as I do?

The debate about tax avoidance continues unabated, with recent headline grabbers including the "Paradise Papers" which revealed that - surprise surprise - individuals and entities held assets and investments through offshore structures and a piece this week on how the likes of Amazon and eBay 'facilitate' tax evasion by not policing the VAT status of traders using the online platforms. The BBC has led the rhetoric on these issues with headlines such as 'Paradise Papers: Tax haven secrets of ultra-rich exposed' (6 November 2017) and 'BBC Panorama: The fraud costing the UK £1bn a year' (27 November 2017). The latter headline was actually from a piece advertising the BBC's own output.

Both these topics that seem to be hobby horses of the BBC are characterised by sensationalist and flimsy journalism (including an ambush of a senior HMRC official in the Panorama programme), and we have witnessed at first hand ourselves how an ill-researched and frankly libellous piece of BBC reporting (including totally unfounded allegations of tax avoidance that were subsequently rebutted) almost put a client of ours out of business jeopardising thousands of jobs. As with much reporting, the mischievous headlines make a splash, but and subsequent demonstrations of inaccuracy are not deemed to be newsworthy and do not merit comment.

Whilst we do not condone tax avoidance or tax evasion, we would at least expect balanced reporting, particularly from the BBC. However, what the BBC seems less keen to comment upon is its own far from blemish-free tax history. You would think that senior BBC presenters such as Fiona Bruce, Jeremy Paxman and Sophie Raworth were on the BBC payroll for example? Well, they are now, but only after it became apparent that previously the BBC engaged with them via Personal Service Companies (a move which had it been any other entity the BBC would no doubt have cried foul over! The Daily Telegraph reported this in some embarrassing detail back on 22 July 2016 as "BBC brings 85 presenters on staff after being told to ditch personal service companies". The uncomfortable details can be read here

Imagine then the subsequent embarrassment by the news that a number of senior BBC figures were caught up in the scandal caused by the 'Christopher Lunn affair' when it became apparent that the accountant of choice for highly rewarded BBC presenters - Christopher Lunn - was complicit in and convicted of fraudulent activity relating to the tax affairs of his clients. The BBC were less keen on reporting this. However, it is worth reading this article which gives some background. The aftermath of Christopher Lunn's actions caused such tax mayhem that HMRC set up a special gateway to enable former client's of Mr Lunn to disclose all irregularities and settle outstanding taxes with HMRC in return for a "light touch" treatment.

Other BBC "stars" using Personal Service Companies included Chris Moyles, who by all accounts was lucky to avoid a criminal investigation into his use of the "Working Wheels" tax avoidance scheme. Really, BBC?

As recently as July 2017, the Mail Online reported that "BBC stars are STILL dodging their income tax: High-profile presenters routing salaries through personal companies despite corporation banning the deals five years ago". This link gives more details.

All of which makes us shrug our shoulders when we read yet another article in the BBC's long-running agenda of unbalanced and ill-informed journalism regarding tax, particularly when, in the case of our client, such an approached was business damaging and almost critical. Real jobs and livelihoods were on the line with no real right of response (the BBC were not interested in the actual facts - why let the truth ruin a good story)?

So, when you read the news, please do take it with a pinch of salt.

If you would like to discuss any tax issues, or have any comments, please do let us know.


Criminal Finances Act


As the Criminal Finance Act beds in, we thought it was worth just pausing to take a breath and see how it affects us and what we are seeing in practice. The general view is very much along the lines of an awareness that there is uncertainty as to how the new legislation will be enforced due to its newness.

The new legislation was effective with effect from 30 September 2017 and can be found at Part 3 Criminal Finance Act 2017. You can find the legislation in full here.

To paraphrase and simplify the legislation, the failure to prevent facilitation of tax evasion offence is founded on tax evasion crimes such as cheating HMRC or other fraudulent evasion offences, i.e. the most serious tax offences there are. Strict liability offences and matters dealt with on a civil basis (such as normal enquiry-related matters) are excluded.

Dishonest intent for the underlying offence as well as dishonest facilitation must be proved. Accordingly, it could be said that the bar is set very high, and the new legislation is likely to be reserved for the most serious cases. According to the explanatory notes accompanying the bill, aggressive avoidance falling short of evasion or inadvertent or negligent facilitation is not criminalised.

Absent of fraudulent tax evasion or cheating the public purse there should be no possibility of exposure under the Criminal Finance Act 2017.

The legislation provides get outs where either businesses have due diligence procedures in place to govern issues they can control or if it is not reasonable to expect them to have procedures in place. We would recommend that all businesses should have risk assessment measures in place, that are documented and auditable, to ensure compliance with the Act. The level and detail of those procedures will vary from business to business dependent upon size and complexity. We can provide advice if needed.

In practice, many businesses are taking the view that the compliance measures they have in place in respect of the Bribery Act are sufficient to give comfort under the Criminal Finance Act, but we would recommend that it is clear within internal documentation that there are references to specific Criminal Finance Act checks and that audit trail records are available.

As with all new legislation it will be interesting to see how it beds in. Given the vagueness we expect there to be challenge from HMRC, although this is likely to be restricted to serious cases. Please do contact us if you require further advice or have any concerns.

GDPR – Be Prepared!


This is a non-tax specific article, but it is regarding an issue that potentially affects us all in practice. Yet more red tape to tie us in practice or an important safeguard – we will let you decide!

GDPR stands for General Data Protection Regulation and is a term that we are starting to hear more and more as companies and individuals start to think about what it means for them. StayPrivate have kindly provided an overview of what GDPR means in practice for your organisation and we wanted to share it with you.

GDPR is an EU Regulation that applies to all member states. We consider the impact of Brexit below, but for now GDPR applies to the UK.

GDPR is not something business entities can ignore – the maximum fine for failing to comply is €20,000,000.

So, what is GDPR and when does it take effect?

GDPR comes into force on 25th May 2018. It reflects the increasing importance of personal data and data security since the previous Data Protection Act was enacted in 1998, and it substantially tightens and toughens the requirements on businesses storing, sharing, sending and receiving the personal data of EU citizens.

Personal data is defined to be “any information relating to an individual, whether it relates to his or her private, professional or public life. It can be anything from a name, a home address, a photo, an email address, bank details, posts on social networking websites, medical information, or a computer’s IP address.”

Businesses are required not only to comply with, but to demonstrate their compliance with GDPR.  Businesses are also expected to implement measures to ensure that data protection is designed into the development of business processes for products and services, adhering to the principles of Privacy by Design and Privacy by Default (Article 25). Such measures may include data pseudonymisation or encryption (Recital 78).

8 things you need to know about GDPR

  1. You need to explain to clients via updated privacy notices why you are collecting data, what you will be doing with it, how long you will keep it, who will have access to it, and where it will be stored. You also need to implement a two-step confirmation process from your clients to confirm they have understood the above.
  2. You need to think about what personal data is stored where and how it is shared both internally and externally. You should start to map customer journeys and contact strategies highlighting every point personal data is captured, stored and shared.
  3. You need a detailed plan documenting how you will deal with a data breach. Make sure that you have processes in place to detect a breach, assess where the breach occurred, stop further breaches and to communicate the breach to all customers affected with 72 hours.
  4. Customers have the right to know what personal data you hold and to request an electronic copy of it at any time. You need to have processes in place to be able to locate and deliver the data securely and in a usable electronic format within 30 days.
  5. Clients also have the right to demand that all their personal data be deleted (within certain parameters) and that proof of such deletion is provided to them. You will need processes in place to locate and delete the data.
  6. GDPR applies to your external communications as much as it does to your internal processes. Sharing of personal data such as name, address, age etc. needs to be done securely, either by encrypting or pseudonymising the data. If you send or receive data from clients or other external contacts via email, you will need to ensure that it is properly encrypted.
  7. If you have not already done so, it would be an excellent idea to appoint a Data Protection Officer. The DPO should be responsible for checking through the new regulation, documenting what new procedures you need to put into place to comply with the new regulations, and ensuring that they are implemented correctly and adhered to on a day-to-day basis.
  8. Instruct your DPO to brief all of your staff on the importance of complying with the GDPR. Encourage all staff to think of personal data as a valuable commodity which needs to be protected constantly and that can only be used for the purpose for which it was obtained.

 So, GDPR is an EU Regulation – what about Brexit?

Yes, the UK is leaving the EU - but the UK government has not yet triggered Article 50, which sets in motion the act of leaving the EU within a two-year timeframe (though it could take longer). This means the GDPR will take effect before the legal consequences of the Brexit vote, meaning the UK must still comply for the time being.

Karen Bradley, secretary of state for Culture, Media and Sport, said recently "We will be members of the EU in 2018 and therefore it would be expected and quite normal for us to opt into the GDPR and then look later at how best we might be able to help British business with data protection while maintaining high levels of protection for members of the public."

The UK government put forward a new Data Protection Bill in August 2017 that largely mirrors GDPR's own requirements. Once passed, this legislation will seek to answer the question of how the UK will protect data once GDPR no longer applies after Brexit - by basically copying the European legislation into British law.

Many thanks to StayPrivate for helping with this briefing, which we hope you find useful. StayPrivate provide QUORUM, a cloud-based communication solution which helps businesses of all sizes communicate over the internet conveniently, securely and compliantly. If you would like an introduction to them, please let us know.

What Can We Learn From The "Paradise Papers"?

So, the "Paradise Papers" - following on from the Mossack Fonseca "Panama Papers" - don't really contain any surprises other than the Duchy of Lancaster obliquely popping up. Lord Ashcroft has been in the spotlight for some time (and we must admit we struggle with his domicile status) but is there anything new in revelations about the way the wealthy manage their affairs? Not really, but it gives the BBC something to write about.

What will be interesting is how the regulators (principally HMRC) deal with the information available as a result. There are tax rules around domicile and beneficial ownership. If the regulators don't police them effectively it is no good wringing hands now.

It will be interesting to see what HMRC have to say when they are next quizzed by the Public Accounts Committee this week.


HMRC Win Rangers EBT Case at Supreme Court

The Supreme Court have today (5 July 2017) found in favour of HMRC with regard to the long-running Employee Benefit Trust ("EBT") case. 

This is the final nail in the coffin that puts beyond doubt that from a PAYE perspective, the use of EBT's by company's was ineffective and that contributions into an EBT should have been subject to deduction of income tax under the PAYE regulations at the time they were made.

Many EBT investigations had been effectively put on hold pending the outcome of the Rangers case, but HMRC are now likely to revisit these with the wind well and truly in their sails. We are likely to see a whole slew of Follower Notices over the next few months in the light of this.

If believe you may be affected by this ruling please do talk to us, as we are expert in resolving EBT disputes with HMRC.


Government Attack on “Enablers” of Tax Avoidance – A Commentary for Professional Practices

Now that the dust has settled on the draft legislation at Schedule 20 of the Finance Bill 2017, entitled “Penalties for Enablers of Defeated Tax Avoidance” we thought it would be interesting to take a look at the detail of the draft legislation and how it is likely to affect professional practices

The legislation will take effect when the Finance Bill receives Royal Assent, most likely in Summer 2017.

Background to the Draft Legislation

The attack on what the government has labelled “Enablers of Tax Avoidance” is part of their ongoing war against those involved in the promotion and marketing of what has been referred to as “Abusive” tax arrangements. As well as going after the users of tax avoidance arrangements the government has the creators of these arrangements in their sights and is looking to hit them where it hurts – in the pocket – and to make the marketplace as toxic as possible.

Professionals Fears and a Word of Reassurance

One unfortunate collateral result of this new legislation though is to make accountants and lawyers extremely nervous as to whether the general tax planning advice they offer is likely to be caught by the new legislation. This has been compounded by the cautious guidance on professional standards being issued by the main governing bodies.

It is our opinion that this is unlikely to be the case, and HMRC themselves have gone on record as saying that advisers engaged in legitimate tax planning have “nothing to fear”. However, given the uncertainty we felt that a review of the draft legislation may offer some clarity for our readers.

A Detailed Look at the Draft Legislation

The draft legislation states at the outset that there will be a liability to a penalty where a person has entered into abusive tax arrangements and incurs a defeat in respect of those arrangements. When this happens, a penalty is payable by each person (our emphasis) who enable the arrangements.

The legislation then goes on to define the terms used.

Firstly, what is a “tax arrangement”? For the purposes of the legislation a tax arrangement is one where, having regard to all the circumstances, it would be “reasonable to conclude” that the obtaining of a tax advantage was the main purpose or one of the main purposes of the arrangement.

The legislation also requires the tax arrangement to be “abusive”. They are regarded as being abusive if the arrangements cannot reasonably be regarded as a course of action in relation to the relevant tax provisions, having regard to all the circumstances. Essentially, it seems that there is almost a “common sense” test, or as we call it a “giggle” test. If you look at the arrangements and it makes you giggle, then it is likely to be abusive!

Subsections 2(3) to 2(7) of the draft legislation go into much greater detail than what is “abusive” than our giggle test, but don’t in our eyes add much more clarity than our giggle test does. They talk about arrangements involving contrived or abnormal tests, whether the tax result of an arrangement is significantly different to the economic result and that the GAAR Advisory Panel can provide opinion in this area.

Having defined the terms “tax arrangements” and “abusive” the draft legislation then looks at what is meant by “defeat”. Defeat, for these purposes, is effectively when any adjustments, assessments etc can no longer be varied on appeal or otherwise.

For multi-user schemes HMRC cannot proceed with a penalty until they have defeated more than 50% of the related arrangements.

The draft legislation then moves on to considering who “enablers” are. Broadly, the term enabler includes designers of the arrangements, managers of the arrangements, marketers of the arrangements, enabling participants in the arrangements and financial enablers in relation to the arrangements. This can bring within the scope of the legislation the accountants devising the arrangements, the marketers, the lawyers (including Counsel) providing opinion and legal advice, banks, lenders or other financial intermediaries, company formation agents etc. Also, and crucially, it is our opinion that care needs to be taken by accountants who may in the past have made their client lists available to scheme promoters in return for commission payments for successful introductions, as if the implementation of tax arrangements that are later defeated result from such introductions then those commission payments are likely to be vulnerable under the terms of the draft legislation.

The next point covered is the quantum of the penalty. Broadly, for each person who enable the arrangements the penalty payable is the total value of all the relevant consideration received. HMRC collect the penalty by raising an assessment, and the penalty is payable within 30 days of date of issue of the penalty, subject to the customary appeal and review rights. HMRC have two years from the date of “defeat” referred to above to actually issue the assessment.

The legislation includes the power to publish details of persons found to be liable to penalties under certain circumstances.

Finally, and crucially, the draft legislation includes a provision that the legislation only applies in respect of arrangements entered into on or after the day on which the Act is passed, and that any action of any person carried out before the day on which the Act is passed is to be regarded.

Our View

It is clear that the “Enablers” legislation is aimed at the devisors and promoters of particular tax avoidance schemes. It is unlikely that high street accountants, lawyers of Financial Advisors are going to be caught up in the main, unless they do offer up their clients to promoters in return for a commission when tax avoidance arrangements are likely to be on the menu.

Care needs to be taken, and it is well worth keeping an eye on developments, as this issue is likely to continue to cause a great deal of disquiet. The big unknown is quite how HMRC will play this, given the often blurry line between tax planning and tax avoidance.

Please feel free to contact us if you have any concerns.

Taxpayers Behaving Badly? Making the Case for Anonymity Before a Tax Tribunal


In a fascinating case, a Tax Tribunal Judge has considered claims by the well-known actor Martin Clunes that his tax appeal in respect of his claims for the tax deductibility of cosmetic surgery should be heard in private to spare Mr Clunes’ blushes. The case reference is and a full transcript can be found by following the link.

Broadly, Mr Clunes was seeking anonymity in an upcoming Tax Tribunal hearing on the basis that otherwise, to quote the Tribunal Judge, “he might become the target of mockery and jokes and, more importantly, his public perception, or what might be described as his celebrity persona, will be damaged”.

The Judge refused Mr Clunes application, commenting that whilst anybody having a case heard before a Tax Tribunal may prefer anonymity to prevent their friends and neighbours from hearing about their financial affairs, “….the public interest in the outcome of tax litigation, whether in the High Court or in this tribunal, outweighs the desire of the taxpayer for anonymity, and the inevitable resultant intrusion into matters which might otherwise remain confidential is the price which must be paid for open justice, however unpalatable the individual taxpayer might find it to be”.

It would therefore seem that at least in terms of tax matters, celebrities and us mere mortals are bound by the same rules!

The related appeal by Mr Clunes in respect of HMRC’s assertion that the costs of cosmetic surgery incurred by Mr Clunes were not an allowable deduction will be heard at a later date, and will be in of itself an interesting hearing. Watch this space for more details.

Tackling Offshore Tax Evasion: A Requirement to Notify HMRC of Offshore Structures

Our Principal - Stephen Outhwaite - was recently interviewed by Alex Heshmaty ( for an article published by Lexis Nexis on Government consultation on tackling offshore tax evasion. We have reproduced that article, with the kind permission of Lexis Nexis, below.

This article was first published on Lexis®PSL Tax on 24 January 2017. Click for a free trial of Lexis®PSL.

Tackling Offshore Tax Evasion: A Requirement to Notify HMRC of Offshore Structures

The Government has long been waging a war against offshore tax evasion, and as part of its ongoing strategy HM Revenue & Customs (“HMRC”) released a Consultation Document on 5 December 2016 seeking views on a proposed new legal requirement that intermediaries creating or promoting certain complex offshore financial arrangements notify HMRC of their creation.

We take a look here at the Consultation in some detail, by answering some questions relating to it.

Q. What is the background to this consultation?

A.         Historically, when tackling tax avoidance and tax evasion, HMRC focussed its firepower on the individuals and entities engaged in avoidance or evasion. Whilst it enjoyed limited success in doing this, it became apparent to the Government and to HMRC that where avoidance and evasion was facilitated by promotors – or “enablers” – a more efficient approach was to target those enablers and then attack their client base, rather than tackling singleton targets.

This led to the approach we have seen under the Disclosure of Tax Avoidance Schemes (“DOTAS”) and Promotors of Tax Avoidance Schemes (“POTAS”) legislation, which has made it much simpler for HMRC to become aware of the end users of schemes that fulfil the notification criteria, and in turn made it much easier and more cost effective to target those end users.

This latest Consultation looks to build upon this approach of targeting the “enablers” of activity the government is looking to tackle, by proposing the enactment of legislation aimed at intermediaries creating or promoting certain complex offshore financial arrangements requiring the intermediaries to notify HMRC of their creation.

Q.   What does the Consultation propose?


A.            The Consultation proposes a requirement for intermediaries who create certain complex offshore arrangements to notify HMRC of the details of such arrangements and to provide HMRC with a list of clients using those arrangements. This would enable HMRC to review the workings of those arrangements to see if they are technically competent (and to challenge them if not!) and to be aware of identity of the end-users of the arrangements.

The consultation document proposes that intermediaries be provided with a “notification number” that would in turn be provided to the clients who were the end users of the arrangement in question, who would in turn be expected to include this notification number on their tax returns or personal tax account.

Failure to comply would result in civil sanctions (presumably financial penalties).

It is worth noting that the current consultation is upon the broad principles of a requirement to notify HMRC of offshore structures and does not go into the minutiae of any intended legislation.

Q.   Who will have to notify the offshore arrangements?


A.            The consultation states that the requirement to notify would rest with the person or business who created the specific offshore arrangements for UK taxpayers that exhibit “certain characteristics”, and refers to that person or business as a “creator”.

Clients of the creator using the arrangements would also be required to notify HMRC on their tax returns or through their personal tax accounts.

The consultation envisages that the proposed new legislation would apply to creators both inside and outside of the UK, stating that to exclude offshore creators would significantly reduce the impact of the proposal, but the consultation seeks views as to whether offshore creators should be within the scope of the proposed legislation.

Q.        Is HMRC expected to take a “hallmarks” based approach to any requirement to notify?

A.         The current consultation, looking at broad principles, does not drill down into any detail on the specific characteristics by which an arrangement would be made subject to notification (known as “hallmarks”), and at this stage no hallmarks have been devised. It does seem clear that hallmarks are likely to feature in any final legislation. The consultation states that “…hallmarks would be used to maximise the policy’s ability to meet its objectives.

The consultation also states that “…the hallmarks will be carefully targeted in order to avoid imposing an unreasonable compliance burden on intermediaries and taxpayers”.

So, whilst it seems likely that there would be a hallmark based approach to any requirement to notify, the consultation does seek views on what those hallmarks should be, whether there is any concern regarding the use of hallmarks and whether there are any alternative approaches that could be considered.

Q.        Does the proposal fill a perceived gap, as HMRC argues?

A.         Notwithstanding recent developments on a global scale aimed at increasing transparency of the beneficial ownership of assets and investments – such as the Common Reporting Standard (“CRS”) and the increasing number of exchange of information agreements between jurisdictions – the Government still believes that more can be done.

The perceived gap that this consultation targets, according to the government, is that it can be difficult to understand highly complex offshore arrangements, especially where beneficial ownership is being deliberately hidden, making it difficult for financial institutions (and regulatory bodies such as HMRC) to establish the identity of the beneficial owner.

The government believes that individuals seeking to hide money or assets offshore are helped by businesses who create complex financial arrangements (the “creators” referred to above).

Whilst it seems likely that if the hallmarks can be set correctly, the requirement to notify may capture UK based creators, on the basis that enforcement action for non-compliance with the proposed legislation is effective, what is less clear is the effectiveness of the proposed legislation on non-UK based creators. Quite what effective enforcement action (if any) can HMRC take? HMRC would then be forced back into targeting end-users of arrangements created by non-UK based creators as it has always done. As long as there is an appetite for offshore tax evasion by individuals there will always be a marketplace to satisfy that market. The proposed new legislation may well make life more difficult for UK-based creators, but it could push such activity offshore.

The consultation proposes that as well as imposing civil sanctions upon and naming creators of such arrangements who fail to comply with the requirement to notify, the end user of an arrangement where the creator has failed to notify has the requirement passed on to them.

The proposed legislation would need to be underpinned by vigorous enforcement action aimed at end-users, using the civil and criminal sanctions available to HMRC targeted at offshore tax evasion. Only by such vigorous enforcement will the proposed new legislation be likely to achieve the aims of the government.

Q.        What could be the impact on offshore jurisdictions of such a requirement?

A.         At this stage, it is difficult to assess the impact of the proposed legislation on offshore jurisdictions. What we do know is that many jurisdictions have signed up to the CRS and are actively seeking to improve transparency of ownership. They are therefore likely to be supportive of the government’s efforts in this direction. However, there are other jurisdictions with a more laissez-faire attitude to transparency and tax compliance. Whether the proposed legislation, along with CRS reporting, forces a migration of creators to some of these less rigorous jurisdictions remains to be seen.

Q.        What could be the impact on advisers in this area?

A.         With DOTAS and POTAS, initially it seemed to be “business as usual” for the promotors of tax avoidance schemes. It has only been after several years of HMRC success at litigating against tax avoidance schemes, allied with controversial legislation such as Accelerated Payment Notices that there seems to be a loss of appetite from end users of schemes, and a contraction of the marketplace of the enablers of those schemes.

This, coupled with proposed new legislation targeting “enablers of tax avoidance”, has caused widespread concern amongst the traditional accountancy sector, with the main accountancy bodies advising their members to be wary regarding tax planning advice and the wording of the Professional Conduct in Relation to Taxation being tightened up in this respect. It is likely that practices governed by the main UK accountancy bodies will by and large look to minimise exposure in this area.

Creators of complex offshore arrangements are more likely to be found in the boutique tax advisory businesses both in the UK and overseas, and it is likely that the proposed new legislation will make life going forward more challenging for them.

Q.        What type of structures are expected to be targeted by this proposal?

A.         The proposed new legislation is aimed at arrangements marketed or supplied to individuals, but the consultation poses the question should the scope be extended to cover corporates.

The type of entity involved in the offshore arrangement is not specified in this consultation, and may well be covered in subsequent consultation on the detail, but it seems likely that nothing will be ruled out and we can expect to see the scope including corporates, trusts, partnerships, foundations and the like. It is likely that the legislation would be widely drafted.

Q.        Do you recommend that stakeholders contribute to the consultation?

A.         Absolutely, yes. If stakeholders have any opinions at all it is worth contributing to the consultation. Recent history shows that the government does consider all representations.

The closing date for comments is 27 February 2017.

The full consultation document can be found at


The Governments Continuing War on Tax Avoidance - an Update

The dust has now settled on the 2017 edition of January 31st – the day when many taxpayers, plus their beleaguered accountants, breathe a collective sigh of relief as the law-abiding will have filed their online returns by today’s deadline.

This year though, it’s a little different, thanks to new and pending legislation announced by the 2016 budget relating to tax avoidance which has sent “shivers” across the accountancy and financial services industry.

Here at Outhwaite Associates we look to keep up to speed on this ongoing battle, and as far as it is possible we can offer some reassurance and clarity relating to the new arrangements. 

Most advisors and taxpayers will be aware of so called tax avoidance schemes which the government believe have allowed global companies, the wealthy and celebrities to seemingly escape paying their “fair share of tax.”

These have collectively run into hundreds of millions of pounds and caused consternation amongst those modest tax payers who pay up religiously, year after year. As recently as last week the Public Accounts Committee criticised HMRC for failing to clamp down on the tax affairs of the ultra-wealthy.

“The Government has announced changes that are aimed to stamp out so-called tax avoidance and ensure that everybody pays their fair share.

It’s been stated before (by the late Denis Healey, former Chancellor of the Exchequer no less) that the difference between tax avoidance and tax evasion can be the width of a prison cell wall.  These new measures aim to introduce clarity and to establish the difference between legitimate tax planning and schemes that are patently designed to evade tax.”

Subject to continuing consultation, the crackdown includes:

- Tackling tax avoidance schemes which can be based on transactions with no commercial purpose, manufactured paperwork, attendance at non-existent meetings and other “creative” means.

- Strengthening tax avoidance sanctions and imposing a financial penalty on “enablers” of tax avoidance schemes including accountants, financial planners and lawyers.

- Removing the defence against penalties of “reasonable care” for those who rely upon advice provided by the enablers of tax avoidance schemes

- Introducing a new legal requirement to correct a past failure to pay UK tax on offshore interests within a deadline.

- Launching extensive industry-wide consultation; details will be published in draft legislation shortly.

These changes have made a lot of people in the profession very jittery but I don’t think anybody who’s running their affairs within current law has too much to worry about. Nevertheless, there is also much nervousness from accountants who are worried about where the line between tax planning and tax avoidance will be drawn

We at Outhwaite Associates would like to see HMRC focusing on tackling the indefensible tax avoidance using manufactured transactions and paperwork and the promoters of such arrangements; they need to pursue these vigilantly by way of measured and balanced investigation underpinned by appropriate legislation rather than what I am seeing from HMRC currently, which is a wholesale pursuit of soft targets for relatively small sums.

When it comes to small businesses and sole traders who are often viewed as these soft targets by tax inspectors, w would urge a proportionate approach to those who are genuinely trying to do the right thing.

And our advice to people considering tax avoidance schemes is that if it appears to be too good to be true, then it probably is! 

Stick to the law, avoid anything that appears artificial or contrived and rely on your accountants’ advice.  In many areas we still await clarity, so always opt for professional advice.

And the best advice for my professional colleagues? Keep an eye on the consultation arrangements, stay engaged and try to have your say.  It’s in all our interests to come up with robust arrangements that are transparent and enforceable.”