The general anti-abuse rule (GAAR) is HMRC’s nuclear option for counteracting tax avoidance transactions. By increasing the penalty level to 60% for all cases counteracted by GAAR and budgeting to collect £65m in penalties over a five year period, this is a clear statement of intent that the GAAR will be used.
Government fundamentally believes that aggressive tax avoidance and non-disclosed tax evasion are morally unacceptable and we wholly endorse that approach
HMRC also have “serial tax avoiders” very firmly in their sights. Sanctions will include special reporting requirements, surcharges and publishing of participant’s names where avoidance schemes are defeated.
Legislation will be introduced to encourage voluntary compliance for the highest risk large businesses, including a requirement for those businesses to publish their tax strategies and special measures to tackle those that persistently engage in aggressive tax planning.
Focus was placed yet again on stamp taxes. Aside from a niche measure to prevent stamp duty reserve tax (SDRT) avoidance involving DIMOs (deep in the money options), the government have followed up on their announcement from the summer Budget to raise revenue from private landlords with a new SDLT charge for "additional properties". A SDLT take of over £0.6bn is projected for 2016/17 from this new measure. The SDLT on a purchase of a £500,000 house caught by this change will rise from £15,000 to £28,800. Exceptions are anticipated for significant investments by corporates or funds, and a consultation exercise is expected to take place from early 2016.
Acceleration of tax payments is another feature – with proposals to introduce SDLT payments within 14 days of a chargeable land transaction and capital gains tax within 30 days of a disposal of residential property.
Legislation will be introduced to further tackle offshore evasion. At its heart, the package of measures should help deter evaders, encourage disclosures to correct past omissions and encourage future compliance.
A new and additional criminal offence will be available to HMRC in serious cases of failing to declare offshore income and gains, but importantly there is no requirement for HMRC to prove intent. New civil sanctions being legislated include an additional penalty corresponding to the value of previously undeclared assets and reduced criteria to increase the volume of publicly named tax evaders.
Third parties enabling offshore evasion will now also face civil penalties and similarly be subject to the naming and shaming program. Specifically, a new criminal offence for corporates will apply to those that fail to prevent their agents from criminally facilitating tax evasion, shifting the focus away from board level.
HMRC's forthcoming 'last chance' voluntary disclosure opportunity is more punitive than previous regimes. The new opportunity has a fixed 30% penalty and importantly no immediate immunity from criminal prosecution. While many consider the initiative unattractive, this should be viewed in the knowledge that a consultation will also be launched in 2016 to design a completely new statutory requirement for evaders to voluntarily disclose past non-compliance, including deterrent penalty levels. The idea is to encourage the uptake of the new disclosure opportunity whilst further strengthening HMRC's array of future sanctions for the hardened minority who fail to disclose.
HMRC has also published 'call for evidence' to seek external stakeholders' views about the hidden economy and in particular the implications of decreasing cash transactions/increased digital transactions and how this will impact on future compliance activity.
The government fundamentally believes that aggressive tax avoidance and non-disclosed tax evasion are morally unacceptable and we wholly endorse that approach. However, this has to be balanced with the fact that there are numerous state approved tax incentive schemes to stimulate business growth and entrepreneurialism. It is the ‘grey areas’ between these two philosophies where the most interesting developments and exchanges between business customers and HMRC will occur.
Jonathan Riley is head of tax at Grant Thornton UK