Enablers of Abusive and Defeated Tax Avoidance Schemes

The ‘tax enablers’ legislation introduced in the Finance bill of 2017 by the Her Majesty’s Revenue and Customs (HMRC), forms a part of the Government’s focus upon tax evasion and tax avoidance. It provides the rules and regulations to be followed by reputable advisors along with professional firms. Such entities will have to ensure that the tax advice provided by an employee or partner on behalf of the firm falls in line with the HMRC’s stipulated guidelines and not to be caught up in definition of Enablers of Abusive and Defeated Tax Avoidance Schemes. The actions carried out prior to the enactment of the legislation (16th November 2017) are not included within the provisions of the said legislation, rather the inclusion is based upon those tax arrangements entered into, after the aforementioned date.

Contractors, individuals who are specifically recruited to achieve a specific objective or complete a particular defined task for their client, have to especially be cautious of enablers of abusive and defeated tax avoidance schemes. Since under the pretence of ‘favourable tax schemes’ such enablers can involve contractors into their dubious tax avoidance schemes, leading to the said Contractors potentially falling under the scope of aiding an ‘enabler’. In addition to this, Contractors themselves have to be wary of the ‘low salary-high dividends model’ (if operating under limited or umbrella companies) whereby the so called efficient tool to opt for the most tax efficient way to take remuneration may fall within the scope of tax arrangement or, abusive tax arrangements.

In order to further understand the concept of Abusive and Defeated Tax Avoidance Schemes, we have outlined all there is to know about the said schemes and individuals, upon whom heavy penalties can be levied upon in case the individual is proven to be a enabler.

Abusive and Defeated Tax Avoidance Schemes

Any tax avoidance scheme / tax arrangement is said to trigger the penalty, if it is said to be an abusive tax arrangement and is defeated by the HMRC for the same. Tax arrangements are said to be abusive when, they could not possibly be considered as a reasonable course of action in accordance with the provision of the relevant taxation laws. In addition to this, the arrangements can only be defeated in case the tax advantage claimed, through a taxation document submitted to HMRC has been counteracted. Further to this, such counteraction is considered to be final either by appeal or by virtue of settlement, as the case may be. It is in such an instance when the HMRC has issued an assessment whereby if the said assessment is upheld and cannot be varied by any further appeal, then such an assessment is said to be a defeated arrangement.

Tax Avoidance Enabler

In accordance with the legislation an enabler is said to be such an individual / entity who is the designer, manager, marketer, enabling participant or financial enabler of abusive arrangements. Generally speaking, an enabler is said to be any individual or entity who could have reasonably expected his / her advice to be used in the creation of an abusive tax arrangement. A further bifurcation amongst a few of the aforementioned titles is provided below.

A designer may be termed as an advisor who either, knowingly provided advice aimed at help the client with incurring a tax advantage / abusive arrangement or provided advice in such a capacity which, with reasonable surety, could have resulted in a tax advantage.  In addition to this, a person is said to be the manager if he / she is responsible for either the management or the organization such arrangements, whereby at the time of management it could have been known that these arrangements were tax abusive arrangements. Though the performance of a statutory function will not be considered as organizing or managing the arrangement. Furthermore, a marketer is said to be such an individual who has knowingly marketed an arrangement with the purpose of implementation by the tax payer or has communicated about such an arrangement with the purpose of implementation, knowing it to be an abusive tax arrangement.

Penalty on Enabler

A penalty will be levied upon each and every individual who has enabled the arrangements i.e. which has resulted in an abusive tax arrangement. The amount of penalty will be one hundred percent of the fee which was received by the enabler, by the tax payer. However, upon the imposition of the penalty, the right to appeal has been given to the enabler. It further has been said that upon the discretion of the HRMC, the penalty may be mitigated however the circumstances under which this is applicable have not yet been clarified.

In addition to this, perhaps one of the most prominent aspects under the legislation comes in the form of the HMRC being empowered to an extent, whereby they can make an example of the enablers through being allowed to name such enablers under certain circumstances. Thereby, derailing an individual who could potentially undertake activities, classifying himself as an enabler with the threat his / her reputation being at stake. This provision is expected to have a deterring effect upon the individual, and further serve as an example to future potential enablers to be cautious of their wrong doings.

Concluding Note

The need for such type of legislation was not only felt within UK, but also within numerous countries, who are either actively pursuing such legislation in their regimes or are in the process of thinking of implementing to have one as their persistent requisite overdue. Besides hinting at morality, the irony of the fact is that in a broader perspective tax avoidance was considered to be a legal tax practice whereas tax evading is classified as a crime. However, as such the difference between avoidance and evading is minuscule, thus the necessity of this perspective legislation is considered to be a necessitating demand and / or perhaps the objective of the legislature. Since, on the other hand serious falling revenues are eminent for the Country’s resulting adverse balance of payments, for the States to sustain unnecessarily and that too for an indefinite period of time.

If you have been part of tax avoidance scheme or have been marketed any such tax avoidance scheme which seems too good to be true, call our office today for a free and no obligation advice.


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