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Financial advisers could be fined for aiding tax avoidance

Paloma Kubiak
Written By:
Paloma Kubiak

Accountants, financial advisers and any middlemen who help clients avoid tax could be fined up to 100% of the tax avoided, under proposals announced by the UK Treasury.

The consultation paper, Strengthening Tax Avoidance Sanctions and Deterrents: A discussion document, is the next step in government efforts to fight tax avoidance, first touted by former chancellor George Osborne in this year’s Budget, now picked up by Theresa May.

In a bid to stamp out the ongoing cycle of professional advisers facilitating tax avoidance, proposals include naming and shaming enablers and levying penalties. Penalties would be charged not just to the designers of avoidance schemes, but also the independent financial advisers who market them and the lawyers and bankers who facilitate implementation, the consultation proposes.

The document also seeks to make it easier to impose penalties if avoidance schemes are defeated, by forcing suspected tax avoiders to demonstrate that they took reasonable care to avoid errors in their tax returns.

The Treasury consultation is also proposing to reverse the burden of proof away from HMRC and on to the tax avoider to clear their name, taking away the incentive for tax avoiders to make it difficult for HMRC to gather evidence.

A new, escalating surcharge would be also applied to firms that hinder HMRC’s inquiries.

“These tough new sanctions will make would-be enablers think twice and in turn reduce the number of schemes on the market,” said Jane Ellison, the financial secretary to the Treasury. “The vast majority of their schemes don’t work and can land their users in court facing large tax bills and other costs.”

Currently, advisers who facilitate tax avoidance by exploiting loopholes and complex schemes face little risk, while their clients can be hit with heavy fines if they are defeated in court by HM Revenue and Customs.

The boss of a financial advice company, deVere Group, called the plans ‘ill-conceived.’

Nigel Green, CEO and founder of deVere Group, said: “Of course, we champion the idea of cracking down on illegal tax evasion and prosecuting those involved in tax evasion.”

He continued: “However, before a policy of fining advisers is rolled out, there would need to be clearer distinctions made from the authorities between tax avoidance, which is perfectly legal and can form a sensible part of a robust tax planning strategy, and tax evasion, which is illegal and therefore punishable under the law. All grey areas need to be removed and illegal loopholes closed so that everyone knows where they stand.”

He said if politicians, the Treasury and others, are unhappy with the system as it currently stands, it is they who need to answer questions.

“It is they who have the power to change the country’s tax laws and regulations, and remove grey areas and unacceptable loopholes,” he added.