Government proposals to impose heavy fines on banks, accountants and lawyers who market tax avoidance schemes will fail without more resources for HM Revenue & Customs to pursue offenders, campaigners have said.
The Treasury is suggesting that professionals who facilitate unlawful tax avoidance should pay penalties of up to 100% of the tax owed if schemes are defeated in tribunals. Under proposals published on Wednesday, the tax office could also name and shame repeat offenders.
“In principle what this government is proposing sounds good, but the means are not there to deliver it,” said Prem Sikka, professor of accounting at the University of Essex and a leading voice in the tax reform debate.
“We simply do not have the judicial capacity to deal with this. It needs court time, and these proposals are are not curbing giving advice on tax avoidance, only if that advice is deemed unlawful will a penalty be imposed. So the game continues.”
Vicky Johnson, the president of the Association of Revenue and Customs, called on the government to “provide HMRC with the investment it needs to be properly resourced”.
The rate at which government tax inspectors are leaving the civil service for far better paid jobs at big accountancy firms is increasing, Johnson said. After rounds of job cuts, pay caps and more recently pay freezes, HMRC was facing the “perfect storm”, she said, with a sizeable group of senior inspectors nearing retirement and younger trainees, recruited in their hundreds since 2012 to replace them, ready to take private sector jobs.
The proposals to fine enablers are designed to target a small group of repeat offenders. They will apply to banks, trustees, accountants, lawyers, financial advisers and company formation agents such as Mossack Fonseca, the law firm at the centre of the Panama Papers, an unprecedented leak of 11.5m files from the database of the world’s fourth biggest offshore law firm.
The consultation states: “The vast majority of tax agents, intermediaries and others who provide services in relation to the taxation consequences of commercial arrangements, or who facilitate their implementation, operate within the spirit of tax law and do not enable tax avoidance. But a minority do enable tax avoidance.”
An investigation by MPs on the public accounts committee in 2013 found that the commissions paid to the promoters of tax avoidance schemes can be up to 20% of the tax saved.
The committee, then chaired by Margaret Hodge, suggested following the example of Australia, which requires promoters of avoidance schemes to get a ruling from the tax office before implementing them.
It highlighted the abuse of tax breaks for film and video game productions by accountants including Ingenious Media. Earlier this month, HMRC claimed victory in a four-year battle against Ingenious for a scheme that allowed investors in blockbusters including Avatar to claim tax relief.
In 2014, HMRC won its eighth tribunal case against the tax consultancy NT Advisors, saying its pursuit of the company had protected £750m in tax. The radio presenter Chris Moyles was among those penalised. He had been an investor in NT’s Working Wheels scheme, which involved notional trading in secondhand cars.
KPMG, one of the big four accountancy firms potentially targeted, welcomed the new measures. A spokesman said: “Times have changed and the debate around tax has changed too. What was seen as acceptable behaviour is no longer regarded as appropriate.”
Jolyon Maugham QC, a tax barrister, described the proposals as “very strong medicine indeed” in a Twitter post, saying advisers who seek to profit from avoidance “should be put at risk”.
HMRC says it wins 80% of cases that go to court, and that it has collected more than £2bn from users of tax avoidance schemes under rules introduced by the government in 2014, which mean avoiders must pay tax upfront while their returns are investigated.
There was, however, a backlog of 27,000 cases waiting to be heard at HMRC tax tribunals as of last December.
A spokesman said: “HMRC is tripling the flow of avoidance cases to the tribunals over the next two years. The government has given £7m of additional funding to HMRC, and an additional £70m to the Ministry of Justice to handle the increased flow of cases.”
