CIOT welcomes sharper focus of government action on ‘enablers’ of tax avoidance

The Chartered Institute of Taxation (CIOT) was responding to the draft provisions for Finance Bill 2017 published by the government this week.

The Institute had been concerned that the original proposals, consulted on earlier this year, were too widely drawn and could have resulted in some taxpayers and businesses being unable to get expert advice on complicated and often unclear areas of tax law.

The CIOT had argued that the original proposals could have penalised advisers who gave perfectly reasonable and legitimate advice to clients on commercial transactions.

The government has also announced proposals for a change to the existing penalty legislation which applies to those who use avoidance which is exposed and defeated by the tax authority.

The key elements of the new enabling penalty are that it will:

John Cullinane, CIOT’s Tax Policy Director, said: “It is pleasing to see that after a wide ranging consultation with the CIOT and other stakeholders, the government has taken on board our concerns and recognises that the vast majority of tax professionals providing advice on commercial arrangements are in no sense ‘enabling tax avoidance’ but are simply helping their clients to understand as well as comply with their tax obligations.

“It is crucial that they can continue to do so without being exposed to this new penalty.

“The moves outlined in today’s draft legislation present a measured and balanced approach towards tackling those who enable tax avoidance while ensuring that the interests of the overwhelming majority of agents who provide genuine professional advice to their clients are protected.

“By defining ‘abusive tax arrangements’ around the principles of the General Anti-Abuse Rule (GAAR) – which asks whether entering into or carrying out the tax arrangements could have been a reasonable course of action – the proposals are better focussed on the small minority of advisers who profit from devising, marketing and facilitating aggressive tax avoidance schemes.

“We are also encouraged that in proposing these changes, the government has welcomed the progress made by the seven leading tax and accountancy professional bodies in revising the code of conduct for our members, the Professional Conduct in Relation to Taxation (PCRT).

“In particular, it is heartening to note that by adhering to and upholding the standards set out in the PCRT, the government does not expect members to be affected by this policy.”

Mr Cullinane continued: “It is essential that the penalties contained within the legislation for the minority of tax promoters who choose not to play by the rules act as a deterrent for others while remaining proportionate to the nature of the offence

“In this respect therefore, plans to impose a penalty based on the amount of consideration received by the enabler for their role in the arrangements, rather than as had been proposed, the amount of tax avoided, are a much more proportionate approach.

“We also welcome clarification that the penalty will apply to enabling that takes place only after the date that this legislation comes into force.

“We look forward to continuing our engagement with the government in advance of the implementation of these measures.”