Detailed guide: Serial tax avoidance

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Overview

If you use more than one tax avoidance scheme you could be classed as a serial tax avoider by HM Revenue and Customs (HMRC). Even if you only use one avoidance scheme, you can still be affected by the new serial tax avoidance rules which came into effect on 15 September 2016.

Schemes defeated on or after 6 April 2017 count towards serial tax avoidance status.

If you’re in a scheme defeated after this date, you’ll get a serial tax avoidance warning notice and you’ll have to send extra information to HMRC.

If you’re classed as a serial tax avoider you’ll also be given sanctions, which could include:

  • penalties
  • being publicly named as a serial tax avoider
  • restrictions to direct tax relief

Make sure you’re not affected

If HMRC isn’t already looking into your tax affairs

You can make a disclosure about any avoidance schemes you use. This will make sure you’re not at risk of being classed as a serial avoider for these schemes.

If HMRC is already looking into your tax affairs

If you enter into a tax avoidance scheme after 15 September 2016 and it’s defeated, it’ll count towards serial tax avoidance status.

Where you’ve entered into a scheme before 15 September 2016 and haven’t entered into any since, you can make sure that you’re not affected if you either:

  • settle the scheme with HMRC before 6 April 2017 – this will usually mean coming out of the scheme and paying what you owe
  • make a disclosure about any schemes you’re using before 6 April 2017

Contact HMRC if you want to talk about an avoidance scheme you’re using and how to settle your tax affairs.

Defeated scheme

A tax avoidance scheme is classed as defeated if you:

  • reach an agreement with HMRC, so the expected tax advantage of using the scheme isn’t available
  • appeal to a tribunal or court against HMRC’s assessment of a scheme and they rule in HMRC’s favour

Warning notice

If you use use a tax avoidance scheme which is defeated, you’ll get a warning notice from HMRC within 90 days of the defeat.

The notice gives you:

  • information about the defeated scheme
  • start and end dates for your serial tax avoidance warning period

You’ll also get a warning notice from HMRC if you’re linked to someone who’s in a scheme which is defeated.

Warning period

Once you get a warning notice, you’ll enter into a warning period.

The warning period runs for 5 years from the date on the notice. During this period, you must send extra information to HMRC about your tax affairs.

A warning period can be extended if you:

  • don’t send information asked for on the warning notice to HMRC
  • use another tax avoidance scheme which is also defeated

Information you need to send to HMRC

During the warning period, you must send an annual information notice to HMRC every year. Your warning notice will tell you the exact information you need to send to HMRC.

This could be information about:

  • your use of any tax avoidance schemes
  • late or missed tax returns
  • any tax returns that included avoidance arrangements you were using

You must send your annual information notice to HMRC within 30 days of the end of the reporting period it covers.

Penalties

You may lose access to some direct tax reliefs and receive a penalty if you use another defeated tax avoidance scheme during your warning period.

In a single warning period, if you use further defeated schemes, you can be charged penalties of:

  • 20% for 1 defeated scheme
  • 40% for 2 defeated schemes
  • 60% for 3 or more defeated schemes

How to pay or appeal against a penalty notice

If you get a penalty from HMRC, you have 30 days from the date shown on the notice to:

Public list of serial tax avoiders

If you use 3 or more defeated avoidance schemes during a warning period, HMRC may publicly name you as a serial tax avoider. Your details could be published for up to 12 months.

You’ll get several warnings from HMRC before your name is published, and have the chance to object if you think this shouldn’t happen.

Tax relief restrictions

As well as receiving penalties and being publicly named, you could also be stopped from claiming direct tax reliefs for up to 3 years. HMRC can put this restriction in place if:

  • you’ve used 3 more defeated schemes during a single warning period
  • each of those schemes involves the misuse of direct tax reliefs

If this happens, HMRC will send you a relief restriction notice.

Direct tax relief restrictions can cover:

  • Annual Tax on Enveloped Dwellings
  • Apprenticeship Levy
  • Capital Gains Tax
  • Corporation Tax
  • Diverted Profits Tax
  • Income Tax
  • Inheritance Tax
  • National Insurance contributions
  • Petroleum Revenue Tax
  • Stamp Duty Land Tax


Source: HMRC