We have been receiving a steady flow of telephone calls from accountants who have received the same generic letter from HMRC. The letter alleges the accountancy practice represents one or more clients who are under investigation because they have used a tax avoidance scheme, but none of our accountants who have received the letter and rung our tax helplines, have any such clients under investigation!
The generic letter reads as follows:
Dear Sir or Madam
Serial Tax Avoidance Legislation: effective from 15 September 2016
I am sending this letter to you because our records show that you represent one or more clients who we are investigating because they have used a tax avoidance scheme.
I would like to tell you about some of the main points of the Serial Tax Avoidance Legislation to help you give the best possible advice to your clients. You may have already seen this information in official publications or from your professional or trade body. In which case I apologise for any duplication.
The main points are that:
- Clients who are in a scheme that is defeated (see factsheet CC/FS38 for a definition of ‘defeated’) on or after 6 April 2017 will:
- receive a warning notice
- enter a five-year warning period, during which they must give us annual reports of their use of avoidance schemes.
- Clients who enter into tax avoidance schemes on or after 15 September 2016 and go on to use those schemes during a warning period may:
- have to pay a surcharge of up to 60% of the tax due (that is, the ‘understated tax’)
- be publicly named as a serial avoider
- have their access to tax reliefs restricted.
- You and your clients can act now to make sure their existing schemes entered into before 15 September 2016 are not affected by the Serial Tax Avoidance Legislation. You can do this by taking one of the following actions. You can:
- work with us so that we can agree your client’s use of the scheme before 6 April 2017 (so that their use is ‘settled’)
- fully disclose details of the scheme to us before 6 April 2017
- tell us before 6 April 2017 that you’ll fully disclose details of the scheme to us, and then do so within the time limit we set (which can be after 6 April 2017).
You can find further information on GOV.UK. Search for factsheet CC/FS38. You can find the Serial Tax Avoidance legislation under Schedule 18 of the Finance Act 2016.
C R Coles
If any accountancy practices do have clients participating in any such schemes, there is little over a month to go to start the settlement process.
As the letter states, there are penalties and tax relief restrictions placed upon those clients who do not settle.
If a client uses a defeated tax avoidance scheme during their warning period, the penalty loading is:
- 20% for 1 defeated scheme
- 40% for 2 defeated schemes
- 60% for 3 or more defeated schemes.
Tax relief restrictions
As well as receiving penalties and having their details published for up to 12 months, clients could find some of their direct tax reliefs are restricted.
Direct tax relief restrictions can cover:
- Annual Tax on Enveloped Dwellings
- Apprenticeship Levy
- Capital Gains Tax
- Corporation Tax
- Diverted Profits Tax
- Income Tax
- Inheritance Tax
- National Insurance contributions
- Petroleum Revenue Tax
- Stamp Duty Land Tax
Further information is available here . The HMRC Counter-Avoidance Directorate telephone number is 03000 510 350.
Author: Guy Smith, Head of Technical Research