High risk promoters regime: implications for users

HMRC has published draft guidance on the high risk promoters regime. The purpose of the new rules is to deter the development and use of tax avoidance schemes.

By way of a brief recap, where certain ‘threshold conditions’ are met by a promoter (e.g. failing to comply with disclosure of tax avoidance scheme (DOTAS) rules or promoting arrangements which fall under the general anti-abuse rule), HMRC can issue a ‘conduct notice’, the purpose of which is to change the promoter’s behaviour. Safeguards are in place to prevent a conduct notice being issued for minor failures. If the promoter breaches the terms of the conduct notice, HMRC may then approach the First Tier Tribunal to seek approval to issue a ‘monitoring notice’, but this will depend on the nature of the breach. It is expected this power will only be invoked rarely, such as preventing significant loss of tax or due to the non-cooperation of the promoter.  

The consequences of a monitoring notice include HMRC publicly naming the promoter as a monitored promoter (i.e. ‘high risk’) and allocating it a promoter reference number (PRN). The promoter must provide its PRN to its clients and intermediaries, publish it on its website, and refer to it in its publications and correspondence. 

It will be some time before we see HMRC actually naming a promoter as a monitored promoter, as conduct notices can last for up to two years. However, the consequences of a promoter becoming a monitored promoter do not end with the promoter but extend to the promoter’s clients and intermediaries as well. The headlines are:

  • HMRC can request information and documents from the promoter’s clients where the promoter is non-resident.  Broadly speaking, this must be provided to HMRC in 10 days.
  • The client might have to pass the PRN on to other parties it knows have used the scheme with a view to obtaining a tax advantage (such as other group companies or employees).
  • Clients will need to report the PRN to HMRC on their tax returns and other communications, as prescribed in Regulations to be issued.
  • Clients will be subject to extended time limits (20 years) for assessing any loss of income tax, capital gains tax and inheritance tax arising from failure to disclose the PRN (IHT being added by a late amendment to the Finance Bill).Not surprisingly there is a comprehensive suite of penalties under the monitored promoter regime, including those related to the obligations of clients, including a maximum penalty of £1 million for failure to provide information and documents requested by HMRC where the promoter is non-resident.

In summary, in conjunction with the accelerated payments regime, users of tax avoidance schemes should be under no illusions about the tough stance the Government is taking. All tax avoidance schemes come with a health warning, but in the case of those promoted by monitored promoters the health warning is even more stark.

Further details can be found in HMRC’s draft guidance.