Policy paper

Tackling promoters of mass-marketed tax avoidance schemes

Updated 23 March 2020

Foreword

Over the last 15 years, HM Revenue and Customs have devoted huge energy to identifying and litigating avoidance schemes. As a result, they have been able to close the avoidance tax gap from £4.9 billion in the tax year 2005 to 2006, to £1.8 billion in the tax year 2017 to 2018.

Over this period, public norms and expectations have changed as well. Tax avoidance schemes are no longer mainstream products, and their creation and promotion have moved to the more disreputable and shadier end of the market. Their targeting has also changed, away from bespoke arrangements designed for the wealthy and towards mass-market schemes targeted at people on middle incomes, with more limited access to good advice. In his independent review into the loan charge, Sir Amyas Morse painted a stark picture of the impact of scheme use on end users.

To address this changing market, and to combat the promoters of these tax avoidance schemes, the government now wants to go further still. Accordingly, HMRC are publishing their tax avoidance strategy, with a specific focus on tackling the promoters and enablers who have used every opportunity to get around disclosure rules, often leaving clients high and dry with large tax bills.

The UK has one of the world’s highest rates of tax compliance, with over 94.4% of tax collected that is due under law. HMRC’s role is to ensure the whole tax system functions well – allowing them to bring in no more, and no less, than the tax revenue that is due. They are focused on creating an environment where all taxpayers step forward to meet their obligations, and where everyone trusts HMRC to act fairly, consistently and professionally.

To maintain public trust and consent, we all need to be confident that those who pay tax will not be disadvantaged by those who do not. This new strategy is designed not merely to collect tax due, but to generate that vital wider public confidence.

We know that promoters will continue to devise new schemes to try to get around the tax rules, and that no strategy can be the final word. The government will continue to welcome new and ambitious ideas for tackling promoters of tax avoidance, including through the forthcoming Call for Evidence on Tackling Disguised Remuneration.

The Rt Hon Jesse Norman MP

Financial Secretary to the Treasury

1. Executive Summary

Tax avoidance is bending the tax rules to gain a financial advantage never intended by Parliament. It involves contrived and artificial transactions that serve little or no purpose, other than to reduce the amount of tax someone pays, and it deprives important public services of the funding they need.

A promoter of a mass-marketed tax avoidance scheme is generally someone who designs or markets the tax avoidance scheme or is responsible for its organisation. Promoters often use a network of enablers to sell their schemes^{[footnote 1]}.

The government has taken action to tackle promoters of avoidance schemes, through the introduction of robust measures that penalise promoters for their activities.

These tools have helped address the problem, with around 20 promoters leaving the tax avoidance market since 2014. However, the tax avoidance market is evolving and while a small number of promoters still target wealthy taxpayers, the majority of promoters focus on the mass marketing of avoidance schemes to those on middle incomes.

HMRC actively monitors the avoidance market and prioritises promoters for compliance interventions, based on the numbers of schemes they are promoting, the amount of tax at risk and the number of taxpayers using the schemes, amongst other factors.

Today’s promoters are rarely members of professional bodies and will take every opportunity to sidestep the rules, so that they can continue to market their schemes. The vast majority of the schemes they are promoting do not work.

Promoters sidestep their obligations to notify HMRC of their tax avoidance schemes under the Disclosure of Tax Avoidance Schemes (DOTAS) regime. Despite what some promoters tell their clients a DOTAS scheme reference number is not a badge of approval by HMRC and neither the existence of, nor the absence of, a DOTAS number indicates that a tax avoidance scheme is approved by HMRC. HMRC never approves tax avoidance schemes or their promoters.

Promoters rarely tell taxpayers that they are in an avoidance scheme, and they do not explain the risks of entering tax avoidance schemes. Instead, the promoter may give assurances that their schemes cannot be successfully challenged by HMRC.

Taxpayers may not ask the promoter sufficient questions to understand the risks and some do not know where to get objective advice, so rely on the advice from the promoter. However, it is the taxpayer who remains accountable for getting their tax right and will eventually need to pay the additional tax they owe on the schemes, often having already paid out substantial fees to the promoter.

While tackling promoters is a key element of how HMRC will approach the mass-marketing of tax avoidance schemes, we are also committed to helping taxpayers steer clear of avoidance through targeted communications, or by making early interventions, where we suspect a taxpayer has entered a tax avoidance scheme. Our aim is to help taxpayers move out of avoidance schemes before they build up large tax liabilities.

1.1 Collaborating with partner bodies

HMRC will step up its work with partner bodies to make sure that all government and regulatory powers are used to tackle promoters, and to protect taxpayers. This includes the Advertising Standards Authority, who have previously taken action against promoters for misleading advertisements and who are now considering a wider strategy to tackle those advertising tax avoidance schemes. HMRC will also work more closely with the Insolvency Service, building on the referrals made already, to combat promoters who seek to use insolvency as a way to escape their obligations. HMRC will assist the Insolvency Service in considering the disqualification of company directors who promote avoidance.

1.2 Supporting taxpayers to steer clear of avoidance

HMRC is setting up a team to contact customers early, where they have potentially entered into an avoidance scheme. HMRC will highlight the risks they face if they remain in the scheme and provide advice on how they can leave it. This is a step change in approach. Early intervention will allow taxpayers to leave the avoidance scheme before they have built up significant tax liabilities.

Promoters are using advertising material that sounds convincing and can easily draw in taxpayers. HMRC will step up its communication plans to educate taxpayers so that they are less likely to be caught up in avoidance in the first place. This will help reduce the demand for the promoters’ products and is a key part of undermining their business model.

As a first step, in 2020 to 2021 HMRC will run an awareness campaign targeting certain sectors of the economy where promoters are particularly active, for example, the IT, medical and oil and gas industries. This will advise people how to spot avoidance schemes, explain the risks involved and point out where people can get more information to enable them to make informed choices.

HMRC will explore opportunities for early publication of tax avoidance schemes and promoters that it is challenging, including through a list on GOV.UK.

HMRC already has information for taxpayers on the pitfalls of avoidance. In its guidance Ten things a promoter of tax avoidance will not always tell you HMRC warns taxpayers that:

• most schemes do not work
• it could cost you more than you bargained for
• you may have to pay significant legal fees
• you could face a criminal conviction
• you could face publicity as a tax avoider
• your scheme is never approved by HMRC
• you could be marked out as a high-risk taxpayer
• HMRC is likely to beat your scheme in court
• the risk is normally all your own
• you’ll have to pay the tax upfront anyway

HMRC has also published guidance for contractors and agency workers on how to identify tax avoidance schemes that wrongly claim to increase your take-home pay.

If you want to report an avoidance scheme or a promoter of tax avoidance to HMRC you can:

• inform your own tax office
• write to:

HMRC Fraud Hotline
Cardiff
CF14 5ZN
United Kingdom

• use our online fraud reporting form
• call HMRC to report a tax avoidance scheme, a promoter, or tax arrangements you know about:

Phone: 0800 788 887
Outside UK: +44 203 080 0871
Monday to Sunday, 8am to 8pm

Find out about call charges.

1.3 Tackling promoters and their supply chain

HMRC will continue to pursue the 20 to 30 active promoters currently operating in the market. As part of this we will co-ordinate intensive investigative efforts on the tax affairs of the individuals behind the promotion, and their business entities.

Where promoters base themselves offshore, HMRC will utilise exchange of information agreements to gather the information we need to take offshore promoters to task.

We will examine the roles and responsibilities of all parts of the supply chain (those individuals and organisations between the promoter and the taxpayer) to explore how we can help taxpayers to remain compliant. This could include considering the extent to which the supply chain should bear the burden of non-compliance.

Criminal powers

HMRC’s published criminal investigation policy makes clear that HMRC may consider any case of suspected fraud for criminal investigation, and criminal investigation is more likely where that fraud is committed by those holding positions of trust or responsibility, or where tax schemes operate with reliance on false or altered documents or rely on the misrepresentation of material facts. This is so even where the fraudulent tax scheme is marketed as “avoidance”. HMRC will use the full range of criminal powers and civil sanctions to tackle those enablers who fraudulently design, promote or market tax schemes that facilitate tax evasion, or who fail to prevent the facilitation of tax evasion.

1.4 Future policy to tackle tax avoidance and promoters

HMRC is committed to using all of its powers to tackle promoters and enablers and help taxpayers to avoid the pitfalls of avoidance by:

• enforcing the legal obligations of promoters
• targeted and intensive enquiries into promoters, enablers and their business entities
• using its full range of criminal powers and civil sanctions for those who fraudulently design, promote or market tax avoidance schemes
• working closely with partner bodies
• running an awareness campaign on tax avoidance and helping taxpayers spot avoidance
• making it easy to report tax avoidance schemes and promoters
• using real-time information (RTI) and early interventions to help taxpayers out of avoidance

In addition, the government announced measures to clamp down on promoters, in response to the Loan Charge Review. We set out these measures in more detail at Budget 2020, including the timetable for bringing them into effect. These measures will enable HMRC to take action more quickly against promoters to stop them continuing to profit from selling their schemes by:

• strengthening HMRC information powers
• minimising delays to the imposition of enabler penalties
• empowering HMRC to act faster to obtain DOTAS information
• equipping HMRC to more effectively stop promoters from marketing and selling avoidance schemes
• ensuring promoters fulfil their obligations under the Promoters of Tax Avoidance Scheme (POTAS) regime
• changing the POTAS regime to prevent spurious legal challenges and clarifying GAAR rules for avoidance using partnership structures

At Budget 2020 the government has also committed to take further action with additional policy measures to be announced at Autumn Budget 2020, which will:

• disrupt the business model of promoters
• disrupt the economics of tax avoidance
• give HMRC additional powers to tackle promoters

Disrupting the business model of promoters

Promoters rely on certain structures and conditions for their businesses to thrive. For example, they commonly:

• include gagging clauses in contracts or dissuade taxpayers from talking to HMRC
• use internet sites to advertise their products
• pay enablers to sell their schemes
• do not tell their clients when schemes are being challenged by HMRC

We will disrupt the promoters’ business models and stamp out the elements that help to make those business models work.

Disrupting the economics of tax avoidance

Promoters can reap substantial rewards from the sale of mass-marketed avoidance schemes. They charge significant fees and the promoter may perceive there is little risk to them continuing to market their schemes. They often will leave the taxpayers without support when HMRC challenges their scheme.

We want promoters to face the financial consequences of their actions with their financial risk more closely linked to the tax that their schemes are designed to avoid

Giving HMRC additional powers to tackle promoters

The government has announced at Budget 2020 a package of measures to tighten the rules that apply to promoters. However, the tax avoidance market is constantly evolving. The government will continue to monitor the market and will further strengthen any legislation where promoters seek to build in delay or obscure transactions to avoid complying with the rules.

Government action over recent years has already helped to reduce the tax gap associated with avoidance from an estimated £5 billion in 2005 to 2006, to an estimated £1.8 billion in 2017 to 2018. The government will continue to consider whether further action is needed in the future, drawing on insight from the calls for evidence announced at Budget 2020 on:

• how to improve standards among tax agents, so that people will know that they can get trusted and reliable tax advice
• how to tackle ongoing use of disguised remuneration schemes, the most common form of marketed avoidance^{[footnote 3]}

The government is committed to taking further action against promoters, and to helping taxpayers stay out of tax avoidance schemes. The government will shortly issue a call for evidence seeking views from stakeholders on what further action is required to address disguised remuneration tax avoidance. The call for evidence will include questions on tackling promoters of tax avoidance. Specifically, the call for evidence will support and advance the work on disrupting the business models and economics of promoters, disrupting the supply chain of avoidance and areas for strengthening the tools to tackle promoters.

If you wish to comment on the strategy, please email HMRC at ca.consultation@hmrc.gov.uk.

2. HMRC’s approach to compliance

The best way to tackle non-compliance is to prevent it happening in the first place, while cracking down on the minority who break the rules. HMRC’s compliance strategy is to:

• promote good compliance by helping taxpayers get it right first time by educating and providing guidance to taxpayers before they file returns or claim a repayment, and by giving taxpayers the opportunity to correct their mistakes before they reach HMRC

• prevent non-compliance at or near the time of filing a return by designing it into the systems and processes, preventing both mistakes and deliberate attempts to defraud the tax system

• respond to non-compliance by tailoring our activity to address compliance risks, focusing our face-to-face interventions on tackling those who bend or break the rules

Responsibility for getting tax right rests with the taxpayer and HMRC know that the vast majority of taxpayers comply and pay the right amount of tax at the right time. HMRC will promote good compliance by providing information to taxpayers so that they know how to stay out of avoidance schemes. We will help taxpayers to find advice that they can trust, so they are not tempted into avoidance by promoters.

Where taxpayers have been drawn into a scheme, intervening early to advise them what they need to do to get out of it will prevent them building up tax bills and incurring penalties.

HMRC will tackle the supply chain for promoters by promoting compliance by enablers who facilitate the avoidance, highlighting the risks of what they are doing to deter them from this activity.

HMRC will respond vigorously, using all of its tools, to tackle promoters and enablers of mass-marketed tax avoidance schemes. This includes using its powers under the DOTAS, POTAS and Enabler regimes.

Over the course of this Parliament, HMRC will drive down:

• the number of taxpayers using tax avoidance schemes and the number of times a taxpayer uses avoidance
• the number of taxpayers being attracted into marketed avoidance schemes for the first time - we estimated that there were around 3,000 new users of disguised remuneration tax avoidance schemes in the 6 months from April 2019

HMRC will achieve this by deploying the full range of operational, engagement, communications, and policy approaches to robustly tackle the promotion of tax avoidance schemes from all parts of the market.

3. The challenge

3.1 What the government has done

Over the last 10 to 15 years the avoidance market has evolved. The market has changed from well-known accountancy firms and financial institutions marketing avoidance schemes that seek to exploit grey areas or loopholes in tax legislation to high net worth taxpayers, to the mass-marketing of tax avoidance schemes to the less wealthy. In the vast majority of cases these schemes do not work, and promoters do not make the tax risks clear to taxpayers.

Since 2004 promoters have been required to disclose the details of avoidance schemes, they are promoting promptly under the DOTAS rules. This enables HMRC to establish the tax risks involved quickly, and to take action against the scheme.

The government has driven changes over the past 10 years, including changes to place significantly more responsibility, and potential penalties, on tax advisers operating outside of the spirit of the law. This is changing the economics of avoidance. These changes include:

• the General Anti-Abuse Rule (2013)
• POTAS rules to address the highest risk promoters, with penalties of over £1 million if they fail to change their behaviour (2014)
• Code of Practice on Taxation for Banks (2014)
• Enablers’ penalty to tackle other people involved in the design and sale of abusive tax avoidance schemes (2017)
• Professional Conduct in Relation to Taxation (2017 revision)

This legislation, and HMRC action, have increased the financial and reputational risk of being involved in avoidance. HMRC has seen a significant reduction in the number of promoters. We have also seen a general shift away from the involvement of reputable agents and banks in promoting marketed tax avoidance.^{[footnote 4]}

Case study of a promoter leaving the avoidance market

A promoter issued a statement on its website that it was not going to be offering tax avoidance schemes in the future and will cease to trade.

The promoter said that the main factors that had contributed to their withdrawal from the avoidance market were recent and announced changes in the tax avoidance market:

• the Promoters of Tax Avoidance rules
• the Professional Conduct in Relation to Tax and the Memorandum of Understanding (under which HMRC can refer promoters to their professional body)
• the enablers’ penalty
• the reputational risk of being promoters of tax avoidance

3.2 Promoters today

Tax avoidance is bending the tax rules to gain an advantage never intended by Parliament. It often involves contrived, artificial transactions that serve little or no purpose, other than to reduce the amount of tax someone pays.

A promoter of a mass-marketed tax avoidance scheme is generally someone who designs or markets the scheme or is responsible for its organisation.^{[footnote 5]}

They either use a network of enablers to sell their schemes, approach taxpayers directly or make their scheme available for others to implement. There is a much smaller group of promoters active in the market in 2020 than there was in 2014, with around 20 promoters leaving the tax avoidance market in that period.^{[footnote 6]}

HMRC estimates that there are currently between 20-30 promoters, who are behind the promotion of most mass-marketed tax avoidance schemes. Each of these is supported by a network of related businesses controlled either directly or indirectly by the promoter, which means HMRC is required to investigate a much greater number of entities. These remaining promoters are not generally members of the accountancy representative bodies.

In the current avoidance market, promoters are less likely to meet their obligations to disclose their tax avoidance schemes. The number of new schemes disclosed under the DOTAS has fallen from around 600 in 2005 to 2006, to 16 in 2018 to 2019, and of those 16, 11 were only disclosed following action by HMRC.

A typical promoter will:

• sell schemes that do not deliver the tax breaks that promoters claim they do, but charge clients a high level of fees for participation
• sell their schemes online and market at scale to people on middle incomes including contractors, often using comparison websites to encourage taxpayers to select schemes that promise a higher level of take-home pay
• not help their clients settle their tax affairs when challenged by HMRC and actively discourage them from engaging with HMRC
• obscure their identity behind different entities, including entities that are offshore
• try to hide their activities from HMRC by not complying with their legal obligations to disclose their scheme
• delay HMRC action as long as possible with a range of tactics, such as ignoring or only partially answering HMRC enquiries and information notices
• only settle a case just as it is going to court to delay the courts ruling publicly on the tax avoidance scheme
• use insolvency as a way of seeking to escape the repercussions of their actions

3.3 The avoidance supply chain

Although the promoter may market their tax avoidance schemes directly to taxpayers, there are often many players who sit between the promoter and the taxpayer who uses the scheme. They all have a part to play, alongside the promoter, in encouraging the taxpayer not to comply with their tax liabilities, often resulting in the taxpayer owing significant sums.

Not all of these parties will know the full picture and understand the part they play, and not all will be receiving fees in respect of the avoidance scheme. For example, a technology company buying the services of an IT programmer through an employment agency may well not be a party to the underlying tax avoidance scheme. In the example below the high-tech company is the engager of services.

The government is exploring the roles and responsibilities of each part of the chain with a view to helping taxpayers stay compliant. This could include requiring parts of the chain to bear some of the burden of non-compliance, particularly where they do not comply with their own responsibilities.

Example of a contractor loan scheme supply chain

A supply chain for a contractor loan scheme may look as follows:

The diagram illustrates how contractors are directed by enablers to an umbrella company operating an avoidance scheme. The umbrella company is owned by an offshore promoter:

1. the enablers in the example are an employment agency, take home pay comparator website and a financial adviser
2. when approached by contractors looking for assistance in finding employment or advice the enablers direct the contractor to the umbrella company operating the avoidance scheme. The enablers may receive a fee for each referral to the umbrella company
3. a potential employer approaching the employment agency for contractors may be unaware that the contractors it is employing are using the umbrella company to avoid tax

This is a simplified version of the structures we have seen supporting the promoter which invariably include additional entities to obscure their identity. The umbrella company in this example is owned by the promoter of the avoidance scheme and the enablers are paid fees for their services.

3.4 Enablers

Not all agencies and umbrella companies facilitate tax avoidance. Umbrella companies provide a legitimate business structure which can be more efficient for contractors and are compliant with their legal obligations, but in some instances, as in the above example, the umbrella company is facilitating avoidance schemes.

Enablers are any person who facilitates the use of a tax avoidance scheme. Enablers are broadly defined as anyone who plays a part in designing, marketing, managing or financing the arrangements.

Enablers can include agencies, such as recruitment agencies, who supply organisations looking for staff with flexible labour, and umbrella companies who are facilitating the avoidance scheme to avoid PAYE. We want to see standards raised so that the best practices of those organisations that help taxpayers meet their tax obligations are adopted across the board.

4. Working with partner bodies

Other bodies play an important role in maintaining standards in tax advice and combating the tax avoidance market. Working with partner bodies to leverage our joint interest in tackling promoters of tax avoidance and debunking misleading communications around tax avoidance is increasingly important. To this end the relationships that HMRC has already built with partner bodies will be enhanced with closer working so that promoters face the full range of sanctions if they continue to sell their schemes.

We will expand our work with the following external bodies:

Advertising Standards Authority (ASA)

We have been working with the ASA to remove misleading advertisements for marketed avoidance schemes on a case by case basis. We will continue to engage with the ASA and are exploring development of a wider strategy going forward.

Accountancy and Taxation Bodies

Most promoters are not members of professional bodies, but we will continue to work with the accountancy and taxation bodies on communications for their clients focused on highlighting the risks involved in using the schemes promoters sell. We will continue to make use of the Professional Conduct in Relation to Taxation standards, which set out the principles and standards of behaviour that all members of professional bodies must follow. For any promoters or enablers who are members of professional bodies, we will make referrals under the relevant Memorandum of Understanding (MoU) that is in place between each professional body and HMRC. These MoUs allow HMRC to report concerns about misconduct of any of the members of the professional bodies.

Financial Conduct Authority (FCA)

We will work with the FCA to develop a process for referring persons or activities which may fall within FCA’s remit on a case by case basis. We will also explore other avenues for better protecting consumers from harmful schemes.

Employment Agency Standards Inspectorate (EAS)

We will be working with EAS (part of the Department for Business, Energy and Industrial Strategy) to explore opportunities for better educating agency workers about the risks of tax avoidance.

Insolvency Service

We will continue to make referrals to the Insolvency Service, so that they can consider disqualifying directors of companies promoting and facilitating the sale of avoidance schemes.

Case study – working with the Insolvency Service

A company promoting tax avoidance schemes went into liquidation owing HMRC £150,000. Before going into liquidation, the shareholders who were also directors of the promoter company, used an avoidance scheme to try to move the assets of the company out of the reach of HMRC who was the sole creditor in the liquidation. HMRC worked with the Insolvency Service to challenge the liquidation and the directors were both disqualified from acting as directors for 5 years.

5. Supporting taxpayers to steer clear of tax avoidance

HMRC is setting up a team to contact taxpayers so that as soon as it becomes aware that a taxpayer may have entered an avoidance scheme, HMRC will contact them to highlight the risks they face and provide advice on how they can leave the scheme.

This is a step change in approach. Previously HMRC would wait for taxpayers to file their Self Assessment return, before enquiring in to the scheme. Going forward, HMRC will be using employers’ PAYE RTI returns and other data to spot avoidance risks, meaning HMRC will not always have to wait until the deadline for Self Assessment returns before identifying taxpayers who may be using tax avoidance schemes.

Taxpayers will then be contacted early, where possible within a couple of months of them potentially entering a scheme or before they submit a Self Assessment return, to make them aware of HMRC’s concerns and help them to understand what they need to do to pay the right amount of tax. This will mean that we can help them out of their avoidance schemes before they have built up large tax bills.

Case study on the use of real time information

Jenny: 34 year-old home care worker

In November 2019 Jenny was engaged via an employment agency to work on a contract worth £33,000 per year.

Jenny was told that to get the job she needed to be employed by an umbrella company. Her employment agency recommended an umbrella company that promised higher take-home pay. Jenny was not told this was an avoidance scheme.

The tax avoidance scheme split the income she received into separate items. She was paid a ‘wage’ said to be from the UK and the rest of her income was said to be tax free loans from another company based offshore

HMRC received information, based on RTI data, that suggested Jenny was involved in an avoidance scheme. A HMRC officer, Anne, wrote to Jenny in early December telling her of the suspicion that she was involved in avoidance.

Jenny went straight to the umbrella company asking about Anne’s letter and was told she had nothing to worry about. The umbrella company said, the tax avoidance scheme was approved by HMRC because it had a reference number and that the loan element was not chargeable to tax.

Anne explained to Jenny that she will be receiving 2 amounts for her earnings, the wage that is subject to PAYE and NICs and the loan which is not. Anne asked Jenny to compare her November payslip showing her taxed earnings for November and her bank statement.

Anne explained that if she was paying tax on her earnings the payment into her bank account would match her payslip, the difference between her bank account and her payslip was the untaxed loan.

Jenny was upset at receiving conflicting advice from HMRC and the umbrella company and told Anne she would never use that umbrella company again.

Jenny may still be subject to formal investigation. Luckily the early intervention meant that Jenny only received the untaxed loan payments under the avoidance scheme for a short time.

Promoters and enablers are using advertising material that sounds convincing and can easily draw in taxpayers, particularly if they do not ask the right questions to understand the risks of entering the scheme. Typically, we have seen promotional material on the following lines:

Example of typical promotional material used by promoters and enablers

Disguised Remuneration Strategies Ltd

We lead the market in providing legitimate strategies for reducing tax liabilities. Our strategies are reliable and well researched.

The scheme has been disclosed to HMRC and given an approved reference number.

As a taxpayer you are entitled to arrange your financial affairs to pay minimum tax.

This is your personal calculation of the tax you could save using this reliable strategy. You have said your income is on average £60,000.

Using this strategy, you can expect to receive 82% of this tax free which is £49,200.

Our strategy is simple and easy to use. Part of your earnings are paid to you using the PAYE system, the other part is put in an offshore trust and paid to you tax free as a capital repayment, or an annuity, or gambling winnings.

Our strategy is different from others and is legal because it uses a different type of payment than that caught by current tax law.

It is easy and free to join – all you need to do is sign these documents and we will do the rest.

You will receive faster payments and a personal account manager.

We are experts in tax legislation and our strategies are vetted by tax counsel, financial advisers and accountants.

A lot of the claims made by promoters in their advertising and marketing information are misleading. Taxpayers will be told that the avoidance scheme is legal, but most avoidance schemes do not work, and the taxpayer will have made an incorrect tax return which will not be in accordance with the law. Taxpayers often end up paying more than the tax they would have paid if they had not entered scheme through paying the promoter’s fees, and legal fees if the scheme is litigated, as well as interest and penalties on the tax they should have paid.

HMRC never approves avoidance schemes and if an avoidance scheme is given a reference number it just means that the promoter has told HMRC that the scheme exists. It is not a badge of approval. If the marketing material promises to give a higher take-home pay it is most likely an avoidance scheme.

Taxpayers should always try to understand exactly what is happening with their money and what they have signed up for. For example, in the case study above, why is part of the earnings going into an offshore trust? Taxpayers should always be wary when they are being asked to sign documents without understanding what the documents mean. Taxpayers should not rely on the word of the promoter, the enabler or any legal advice provided, but should seek independent advice from a qualified body.

We will continue to make information available about new avoidance schemes as they come to light, including publishing Spotlight articles on tax avoidance aimed at informing the public. We would encourage people to read articles describing the misleading claims made by promoters in Spotlight 29 and on what to do if an umbrella company offers to increase your take-home pay in Spotlight 45.

In addition, during 2020 to 2021 HMRC will run an awareness campaign, particularly targeting certain sectors where promoters have been active active, for example the IT, medical, and oil and gas sectors. This will inform people on how to spot avoidance schemes, explain the risks involved and point to where they can get more information to make informed choices. It will provide information that:

• brings it to life:
  • sample case studies, based on real life stories, highlighting the risks that others in their same industry and profession have already experienced
  • information on the hallmarks of tax avoidance schemes, in easy to understand communications
  • warnings that if a tax avoidance scheme is too good to be true, then it probably is – and that they should be wary of entering any such scheme
• makes it personal
  • setting out the effect of avoidance on society and compliant taxpayers
  • counter-arguments to promoter provided information on the tax avoidance schemes - to show that the promised benefits cannot be achieved
  • supportive messages for people struggling to understand the implications of the arrangements they are being offered and, if they have entered an avoidance scheme, how they can find support to leave a scheme
• provides help and advice:
  • recognising the signs of avoidance schemes
  • reminders that ultimately, they are responsible for making sure they are paying the right amount of tax
  • understanding that a DOTAS scheme reference number is not a badge of approval from HMRC, and quite the reverse, as these taxpayers who use these schemes are more likely to face enquiries
  • HMRC will explore opportunities for early publication of tax avoidance schemes and promoters that it is challenging, initiatives could include publication of a list on GOV.UK

The above messages will be delivered directly to taxpayers and through third parties, for example, trade organisations, to reach the target audience.

Based on the outcome of the 2020 to 2021 communications strategy, for future years we will look to step up our activity on communications focusing on the communication channels that have proved most successful in reaching taxpayers.

6. Operational strategy

6.1 Tackling promoters and enablers - identify, investigate, challenge

In our respond activity to non-compliance we identify, investigate and challenge promoters and enablers of tax avoidance to change their behaviours, with the intention that they cease their avoidance activities entirely.

The government has extended HMRC powers, created the Counter-Avoidance Directorate and, in 2019 to 2020, doubled the resource dedicated to tackling promoters. This will allow HMRC to continue to invest in challenging promoters.

6.2 Identify avoidance

HMRC’s experience is that promoters of tax avoidance schemes are increasingly unlikely to disclose their schemes to HMRC, so that they can continue to market them, while giving assurances to taxpayers that the arrangements are not in fact tax avoidance schemes and are not disclosable to HMRC.

HMRC will identify, monitor and track new avoidance schemes and the promoters behind those schemes using RTI from employers and other intelligence gained from researching the avoidance market. We encourage anyone who is aware of avoidance schemes being marketed to provide HMRC with details, including promotional material if you have it, so that we can pursue the scheme. You can:

• inform your own tax office
• write to:

HMRC Fraud Hotline
Cardiff
CF14 5ZN
United Kingdom

• use our online fraud reporting form
• call HMRC to report a tax avoidance scheme, a promoter, or tax arrangements you know about:

Phone: 0800 788 887
Outside UK: +44 203 080 0871
Monday to Sunday, 8am to 8pm

Find out about call charges.

6.3 Investigate promoters and enablers

We actively monitor the whole avoidance market and take action against all active promoters we identify, particularly those who are involved in devising and marketing new schemes. We tailor our approach to promoters, prioritising them, based on the numbers of schemes they are promoting, the amount of tax at risk and the number of taxpayers using the schemes, amongst other factors.

We are aware that the majority of avoidance schemes are marketed by a relatively small number of controlling minds, although they each do so through a wide network of organisations, and we are working to disrupt the business structures that support these key players.

In order to conceal their activities promoter will frequently collapse one promoting business and set up another.

We will continue to address the whole promotion business structure of the key players in the market. We will continue to use all of the tools at our disposal to investigate any potential non-compliance across all of the tax affairs of the most active promoters. We draw on expertise from across HMRC to carry out additional checks on the; corporation tax, income tax, and VAT affairs of the most prolific tax avoidance promoters.

Promoters of tax avoidance are increasingly basing themselves offshore in order to hinder HMRC’s investigation efforts. To counter this we will continue to use the exchange of information agreements that we have with our international partners to gather the information we need to take offshore promoters to task. This includes using the international tax transparency standards, such as the Common Reporting Standard and the Directive Administrative Co-operation 6 (DAC6) to shed light on promoters’ overseas arrangements. DAC 6 will provide HMRC with further information about cross-border arrangements that could be used to avoid tax. HMRC will start to receive this information later this year (2020).

HMRC will work with other countries to ensure promoters and enablers with an offshore presence are meeting all their tax obligations in all the countries where they are based. Where they are not doing so, we will work with our international partners to further disrupt and disable their business structures.

6.4 Challenge promoter and enabler behaviour

Promoters

HMRC has succeeded in driving around 20 promoters out of the market in the last 6 years. Annex B includes details of the legislation relating to promoters and enablers. Our aim is to act quickly to find out information about the scheme and the promoter (or enabler) and apply the sanctions to stop them selling their scheme.

Promoters employ tactics to avoid these sanctions, including entering into formal insolvency proceedings to avoid their obligations. HMRC is tackling these by using its insolvency expertise to support the Insolvency Service in ensuring that the maximum financial recoveries and sanctions are applied to the promoter.

HMRC will continue to work closely with other agencies and regulators to make sure a full range of available sanctions are used against promoters. This includes reporting organisations to their professional bodies for action and initiating actions to ensure individuals involved in promoting tax avoidance can be disqualified as directors. Details are included is section 4.

Criminal powers

HMRC will, where appropriate, undertake criminal investigations into promoters and enablers who commit fraud whilst designing or marketing avoidance schemes that facilitate tax evasion. HMRC will use the full range of criminal powers and civil sanctions to tackle those who enable or fail to prevent the facilitation of tax evasion.

Since April 2016 promoters have formed the majority of the 20 individuals convicted for offences relating to fraudulent arrangements promoted and marketed as tax avoidance schemes. The courts ordered over 100 years of custodial sentences and more than 7 years suspended.

Case study of criminal action against a promoter

Promoters, whose number included a respected scientist, a solicitor and the son of a Crown Court judge, devised a complex eco-investment scheme which placed £107.9 million of taxpayer’s money at risk. They incorporated companies and opened bank accounts in many different countries to convince HMRC that research and development tax repayment claims of over £100 million were genuine and to disguise the true purpose of their actions.

The scheme, promoted as a tax break, enticed 730 wealthy individuals to invest a minimum of £20,000, to fund the research and development of the best ways to reforest the Brazilian rain forest to assist in the fight against global warming. The investors were told that each £20,000 would generate a personal tax refund of £32,000.

A total of £65.9 million was received by the promoters and circulated around bank accounts in the UK, The Netherlands and the Isle of Man to establish the illusion of a total fund of £269 million. However, HMRC’s investigation proved that the £269 million the fraudsters claimed to have been invested in climate change research and development was, in fact, nothing more than a complex series of bank and paper transactions. Of the £65.9 million actually received, only £16 million was spent on reforestation projects, while the promoters benefitted through personal receipts of around £22 million.

HMRC’s criminal investigation of the ‘fake eco-investment scheme’ led Mr Justice Edis to sentence 6 individuals to a total of 45 years imprisonment and made the following comment:

This case involves a scheme whose chief characteristics were utter dishonesty, sophisticated planning, and astonishing greed hidden behind a mask of concern for the environment which adds an element of hypocrisy and cynicism to this case which is deeply distasteful.

The tax placed at risk by the fraudulent scheme has been recovered or safeguarded and a Proceeds of Crime investigation has resulted in the recovery of £20.6 million from the jailed promoters of the scheme.

Enablers

We are continuing to expand our knowledge of the promoter and enabler population to inform and develop new ways to influence and change the behaviour of enablers and to make it increasingly difficult for promoters to sell their schemes. One major tool in this work is the enablers’ penalty which applies to enablers of abusive tax avoidance schemes. This penalty is the full extent of the enabler’s gross income from enabling the abusive tax avoidance scheme. Having been introduced in 2017 the enablers’ penalty is a relatively new power and it applies only to abusive tax avoidance schemes entered into since its introduction.

We have identified a significant number of enablers that HMRC believes fall within the 2017 legislation. Some have already been challenged with plans for more in the coming months. In the near future we will:

• contact over 100 employment agencies to warn them about involving themselves in avoidance and encouraging them to operate due diligence
• use PAYE audits into umbrella companies to explore the scope for levying income tax and NICs on all amounts paid to the worker, including those amounts not going through the payroll
• extend our challenge to those acting for taxpayers to evidence that their work satisfies HMRC’s Standards for Agents

Case study of a promoter investigation

The promoter sold a disguised remuneration tax avoidance scheme which yielded gross income for the promoter of £20 million. The promoter set up its own employer company to sell the services of contractors to third parties. The third parties paid the employer who then paid its contractors the National Minimum Wage and amounts claimed to be non-taxable loans. HMRC discovered the avoidance scheme and began its enquiries into:

• whether or not the promoter had met its disclosure obligation under DOTAS
• the promoter’s accounts
• the promoter’s use of its own tax avoidance scheme
• the taxpayers who had used the tax avoidance scheme.

The promoter refused to co-operate with HMRC, so all users were asked to provide the tax avoidance scheme documents directly to HMRC. HMRC issued notices to recover the PAYE and NICs avoided under the scheme from the employer. The employer appealed against these notices.

HMRC took the promoter to court on the disclosure issue and the Tax Tribunal decided that the promoter should have disclosed the avoidance scheme. The Tax Tribunal also decided that the tax avoidance scheme did not work.

After these court cases the individuals behind the promoter left the tax avoidance market. As a result of HMRC intervention the promoter:

• disclosed the avoidance scheme
• provided a list of clients
• had an enquiry into its own accounts
• had to deal with enquiries into its clients’ tax positions
• through the employer, paid the total PAYE and NIC avoided under the scheme
• lost income
• left the tax avoidance market

7. Future policy

This government has taken strong action to tackle those who promote tax avoidance schemes. Robust policies have been introduced forcing promoters to comply with their obligations and penalising them for selling tax avoidance schemes, wherever they are resident. While these measures have helped to drive promoters out of the market there is more to be done.

The promoters that remain in business use every means they can to continue to market their schemes, ignoring or only partly complying with their legal obligations. They move their clients from entity to entity to delay HMRC’s compliance activity and make it hard for HMRC to get the necessary evidence to combat them by controlling access to scheme documentation. Tackling this can involve multiple tribunal hearings, adding to the time it takes to have a significant impact on the promoter.

The government announced measures as a next step to tackle these behaviours in response to the Loan Charge Review. These are:

• ensure HMRC can more effectively stop promoters from promoting avoidance schemes at an early stage to protect taxpayers from aggressive schemes
• prevent promoters from abusing corporate structures to avoid their obligations under the POTAS rules and ensure that they remain responsible for fulfilling those obligations
• ensure HMRC can obtain information about the enabling of abusive schemes as soon as they are identified by strengthening information powers for the enablers’ regime; and by ensuring enabler penalties are felt without delay when a scheme has been defeated at tribunal
• ensure that HMRC can act decisively where promoters fail to provide information on their avoidance schemes - these changes will help HMRC obtain the information needed to bring a scheme into DOTAS and empower HMRC to act faster where avoidance schemes are being promoted
• make further technical amendments to the POTAS regime including ensuring that the process of scrutinising promoters is not disrupted by legal challenges, so the regime can continue to operate effectively
• make additional changes to the GAAR to ensure it can be used to counteract avoidance through partnerships as intended

The government now commits to take further action with further policy measures to be announced at Autumn Budget 2020. We have identified the following themes as areas where further government action is warranted:

7.1 Disrupting the business model of promoters

Promoters rely on certain structures and conditions for their businesses to thrive. For example, this includes:

• trying to stop their clients providing information to HMRC about the scheme
• internet sites to advertise their products
• using UK based geographical telephone numbers while operating offshore
• maintaining secrecy around any challenges to their schemes
• enablers who are happy to accept fees in exchange for facilitating the sale of the scheme

The government will be looking closely at all aspects of how promoters run their business, for example how they advertise and market their schemes, how they earn their fees and their relationships with enablers and clients. The government will find new ways of disrupting the business model of promoters, with the aim of making it impossible for them to thrive. This will include:

• ensuring that HMRC has full powers for naming a promoter or enabler who is marketing avoidance schemes, exposing their scheme and warning the public about the dangers of using the scheme
• looking at ways to incentivise the promoter’s clients to engage with and share information with HMRC
• joining forces with tax authorities in other countries, sharing information through established gateways and building joint strategies and plans to tackle overseas elements of the promoter business

7.2 Disrupting the economics of avoidance

Promoters can reap significant rewards from the sale of mass-marketed avoidance schemes. Substantial levels of fees are charged, and the promoter may perceive there is little risk to them continuing to market their schemes, and they will leave the taxpayers without support when their schemes are challenged.

While there are already substantial penalties for promoters under DOTAS and POTAS, we want promoters to face the financial consequences of their actions with their risk linked to the tax that their schemes are designed to avoid. The government will look to switch the dynamics so that promoters hold some of the financial risk of the avoidance schemes, which do not work.

The government will explore the relationship between the promoter and others in the avoidance supply chain looking to drive a wedge between the promoter and the entities and people it uses to access the market. For example, we will consider ways to directly disrupt the money flows between the client and promoter/enabler to impact their profits or we could explore making enablers of tax avoidance shoulder the burden of ensuring that everyone in the supply chain, and the promoter, satisfy their tax obligations with liability for the tax and penalties if they fail to comply.

7.3 Additional powers to tackle promoters

Promoters use every means at their disposal to avoid HMRC notice, they attempt to keep their tax avoidance schemes ‘under the radar’ and when the tax avoidance scheme is investigated do all they can to delay the investigation. They move their clients from entity to entity and from scheme to scheme in an attempt to stay one step ahead of HMRC.

Although the government has announced at Spring Budget 2020 a significant package of measures to tighten the rules that apply to promoters, it will look to further strengthen any areas where promoters are seeking to build in delay or obscure transactions to avoid complying with the rules.

HMRC will keep these regimes under review. The government will make sure that all who, in fact, promote or facilitate tax avoidance schemes, are subject to all the tax obligations that apply to them and will not hesitate to take action to ensure HMRC gets the information it needs to look into these tax avoidance schemes.

7.4 Future action to tackle tax avoidance more generally

Tax avoidance puts pressure on the majority of taxpayers who pay their fair share of tax to fund public services. The above proposals will build on the steps that this government has already taken to clamp down on promoters, and to take out the profits of those who facilitate it.

The government has already successfully reduced the tax gap from avoidance from an estimated £5 billion in 2005 to 2006, to an estimated £1.8 billion in 2017 to 2018 and remains committed to tackling tax avoidance at all levels. The government will consider what further action is needed in the future, drawing on the insight from the calls for evidence announced at Budget 2020 on:

• how to improve standards among tax agents, so that people will know that they can get trusted and reliable tax advice
• how to tackle disguised remuneration in the future

7.5 Improving standards among tax agents

Responsible advisers have been clear that they support the government taking action against disreputable promoters who do not act in the best interests of taxpayers. This is the beginning of a more open relationship with taxpayers, tax agents and representative bodies to tackle this issue collectively and by working together we can ensure that policy design has the targeted effect we want on promoters and enablers. The government will issue a call for evidence on the tax advice market to ensure that taxpayers can trust the advice they receive and help drive promoters out of business.

7.6 Tackling disguised remuneration tax avoidance in the future

Disguised remuneration schemes are tax avoidance schemes which seek to disguise earnings to avoid paying income tax and National Insurance contributions, most commonly by paying the taxpayer in the form of a loan. The government and HMRC have taken considerable action to tackle use of these schemes over the years, culminating in the loan charge.

Nevertheless, these schemes continue and are now the most widely used form of mass-marketed tax avoidance. Therefore, the government will shortly issue a call for evidence seeking views from stakeholders on what further action is required to address this form of tax avoidance, beyond planned interventions.

The results of the calls for evidence will support and advance the work on disrupting the business models and economics of promoters, disrupting the supply chain of avoidance and for strengthening the tools to tackle promoters.

Annex A: Example of a simple disguised remuneration tax avoidance scheme

1. The taxpayer who is contractor signs up via a promoter or enabler such as an employment agency to be employed by a UK based Resourcing Trust.

2. The taxpayer’s services are then sub-contracted to the End User (an employer wanting to engage the contractor) with the End User signing the contractor up to a temporary contract or a consultancy agreement through the Resourcing Trust. The End User will either be a third-party employer or the contractor’s personal service company.

3. The Resourcing Trust will invoice the End User for the services provided by the contractor. The End User will settle the invoice and pay the full amount to the Resourcing Trust. Resourcing Limited Trust are owned by the promoter and are trustees of the Resourcing Trust.

4. The Resourcing Trust will pay the contractor the National Minimum Wage that is taxed under PAYE and provide a loan (repayable on demand but rarely demanded) which is untaxed. The Resourcing Trust will keep a percentage of the amount paid by the End User as a fee for its services, typically 15% to 20%, this is not tax but the cost of using the scheme.

5. The Resourcing Trust transfers the right to repayment of the loans to an offshore Employer Financed Retirement Benefit Scheme.  

Annex B: Legislative powers

HMRC will use the range of powers that have been introduced to tackle the avoidance market and those promoting or enabling avoidance. The key regimes are:

Disclosure of Tax Avoidance Schemes (DOTAS)

DOTAS allows HMRC to obtain early information on tax avoidance schemes and who has used them. The penalties for promoters refusing to disclose this information on time can exceed £1 million.

Disclosure of Tax Avoidance Schemes VAT and Other Indirect Taxes (DASVOIT)

DASVOIT is the VAT and indirect tax version of DOTAS, with similar disclosure rules and penalties.

The diagram illustrates the differing outcomes when a promoter discloses an avoidance scheme within the statutory deadline and when it fails to disclose:

1. if the promoter fails to disclose then it may find itself challenged by HMRC, and potentially subject to litigation and a penalty. If the tribunal determines that the promoter should have disclosed then it needs to meet the disclosure obligation
2. if the promoter discloses the scheme either within the statutory time limit or as a result of a tribunal ruling, HMRC issues a scheme reference number to the promoter. The promoter is obliged to pass the scheme reference number onto its customers who in turn notify HMRC that they have used the avoidance scheme by including the scheme reference number on their tax returns

Promoters of Tax Avoidance Schemes (POTAS)

POTAS targets the highest-risk promoters. If the promoter triggers a threshold condition HMRC can issue a conduct notice giving stringent conditions requiring them to change their behaviour. If they do not do so a monitoring notice can be issued which leaves the promoter vulnerable to penalties of over £1 million and being publicly named. The promoter is also required to inform its clients and potential clients it is subject to a monitoring notice and that they themselves will be subject to rules extending the time period HMRC has for investigating their tax affairs. POTAS allows HMRC to directly disrupt the promoter’s business.

Enablers’ penalty

The enablers’ penalty this applies to those involved in the design and sale of defeated abusive tax avoidance schemes (including promoters), with a penalty of 100% of the gross fees received by the enabler. This allows HMRC to disrupt the supply chain of avoidance from the promoter to the taxpayer and disrupt the way the promoter markets its avoidance schemes.

1. Where we refer to promoters, this also includes others who facilitate the use of the avoidance scheme (the ‘enablers’), unless specified otherwise. ↩

2. Annex A is a diagram of a simple disguised remuneration tax avoidance scheme. ↩

3. The case studies in this document are based on real-life situations, names have been changed. ↩

4. For the purposes of the tax legislation there are wide definitions of ‘promoters’ and ‘enablers’, and some players in the supply chain may come within both. ↩

5. The tax avoidance schemes these promoters marketed often involved generating artificial losses to set off against taxed income and in doing so generate a tax repayment. ↩