Accountants, lawyers and consultants whose multibillion pound industry provides advice on how to aggressively avoid tax could face large financial penalties under government proposals.
Plans set out in a consultation document released on Wednesday will suggest that tax advisers whose schemes are defeated in the courts might pay a fine of up to 100% of the money lost to the taxpayer.
It follows prime minister Theresa May’s pledge last month to clamp down on corporate tax avoidance – widely seen as part of an appeal to working-class Britons struggling with their finances.
Firms including PriceWaterhouseCoopers, KPMG, Deloitte and Ernst & Young and a select band of tax lawyers have previously been accused by MPs on the public accounts committee (PAC) of helping major corporate clients to minimise tax by exploiting complex schemes.
Thousands of wealthy individuals, meanwhile, were revealed to have avoided tax on their Swiss bank accounts through offshore companies marketed by HSBC and other European lenders.
Currently tax avoiders face significant financial costs when HM Revenue & Customs (HMRC) defeats them in court but those who advised on, or facilitated, the avoidance bear little risk.
The consultation document is expected to clarify rules around whether proven tax avoiders have taken reasonable care to ensure their tax returns do not contain inaccuracies, making it simpler to enforce penalties when avoidance schemes are defeated.
However, details of the proposals were not released in advance and are yet to be seen by tax experts, journalists or campaigners.
Jane Ellison, the financial secretary to the Treasury, will on Wednesday open a 12-week consultation over new proposals of governance which will be outlined to the industry.
“People who peddle tax avoidance schemes deny the country of vital tax revenue and this government is determined to make sure they pay. The vast majority of their schemes don’t work and can land their users in court facing large tax bills and other costs,” she said in a statement.
Whitehall sources said that the proposals could allow HMRC officials to stop profiteering around aggressive avoidance schemes which have been defeated in the courts. “If you are a person who has financially gained from a scheme, then this will apply,” the source said.
Earlier this month, HMRC successfully defeated a scheme used by the brewery giant Greene King called Project Sussex, which had been marketed by Ernst & Young. A complex tax avoidance scheme being used by transport group Stagecoach to wipe £11m off its tax bill was defeated in the tax courts in March.
Dame Margaret Hodge, the Labour MP and former chair of the PAC who highlighted the role of individuals and firms that profit from tax avoidance in a committee report last year, welcomed the consultation.
“These advisers have got away with too many dodgy schemes and often marketing tax avoidance wheezes on an industrial scale. If this new measure stops this dodgy tax advice it should end much of the aggressive tax avoidance.
“Time will tell whether this measure is tough enough to deal with the long-established habits of advisers who act with lawyers, accountants or bankers and help rich individuals and large companies avoid tax,” she said.
Richard Murphy, the chartered accountant who has advised Jeremy Corbyn on tax matters, compared unscrupulous tax advisers and lawyers to a “pinstripe mafia” and said the consultation could clean up the profession.
“The people who create and market these schemes won’t be able to get professional indemnity insurance, and you can’t practice without insurance,” he said.
Pressure group the Tax Justice Network welcomed the legislation but said it would need to be enforced in the courts by HMRC. Research director Alex Cobham said: “The proposal to go after enablers of schemes that have been successfully challenged will have no impact on this major area of tax losses, unless the government is finally willing to take on multinationals and the big four accountancy firms in court.”
The Chartered Institute of Taxation urged caution and said that the real consequences on the industry cannot be assessed until the details are released by the government.
Advisers will want to examine how the government hopes to define when planning becomes tax avoidance and whether they will face fines even if they have made clients aware of any possible risks.
John Cullinane, CIOT’s tax policy director, said: “The government need to be careful that in their efforts to wipe out avoidance schemes they don’t prevent taxpayers from getting access to honest, impartial advice on the law. Definitions will be crucial.”
