General Anti-Abuse Rule Enabler Penalties
Penalties for enablers of defeated tax avoidance arrangements apply for arrangements entered into on or after 16 November 2017. Tax avoidance enabler penalties represent the second prong of a twin-pronged weaponization of the GAAR. The other prong is the 60% GAAR penalty for users of tax avoidance arrangements that are defeated under the GAAR. Enabler penalties impose a penalty charge on advisers when tax avoidance arrangements are defeated under the GAAR.
The enabler penalty is payable by each person who enabled the defeated tax avoidance arrangements. “Enabler” includes a designer, manager, marketer, enabling participant and a financial enabler of the arrangements.
The penalty is equal to the total amount of consideration received or receivable by an enabler for the defeated tax avoidance arrangements. Consideration paid to anyone else can also be included.
In their Consultation dated 21 July 2020 HMRC say at 6.2 that their ability to levy penalties is being frustrated by:
• HMRC’s inability to enquire at an early stage into who enabled the schemes that were used by the taxpayers that HMRC is investigating, because in practice the legislation does not work in the way we had expected. Specifically, we had expected the information power to work in the same way as the information powers to check a person’s tax position (Schedule 36 Finance Act 2008) but in practice the legislation requires that we defeat the scheme before we can issue an information notice, and
• the need for more than 50% of the cases in which a taxpayer has used the scheme to have been defeated before HMRC can charge penalties.
This may explain why few, if any, enabler penalties have been issued so far.
And, at 6.3 HMRC state how they propose to deal with these issues:
“The proposed changes to the legislation would ensure that HMRC can obtain the relevant information at an earlier stage. This reflects what was intended when the legislation was brought in: to engage with potential enablers at the earliest possible moment, and to use the information powers in much the same way as in a normal tax intervention. The proposed changes would also enable HMRC to assess penalties at an earlier point, when a multi-user scheme was shown not to work. The proposed changes would also allow HMRC to name enablers who have received penalties under the regime earlier than under the current rules, where those penalties relate to multi-user schemes.”
HMRC are consulting on whether to make these changes retrospective to 2017 if they are enacted in the next Finance Act in Autumn 2020.
Frequently Asked Questions
The GAAR enabler penalty applies when a taxpayer has entered into arrangements that turn out to be abusive tax avoidance arrangements which are defeated. The enabler penalty is payable by each person who enabled the arrangements.
The amount of the enabler penalty is intended to be broadly equal to the fees received or receivable by the promoter of the defeated tax avoidance arrangements even if those fees are actually paid to someone else. No deduction is allowed for costs incurred by the enabler although the amount excludes VAT.
This means that a promoter of failed tax avoidance arrangements who received fees of £1m plus VAT but who has paid £500,000 in commission to introducers will be assessed to an enabler penalty of £1m with the introducers being liable for enabler penalties on their shares of the £500,000.
Yes the time limit is basically 12 months from when the tax avoidance arrangements were defeated.
Yes. The user of the defeated tax avoidance arrangements may be liable to the 60% GAAR penalty and penalties for inaccuracies, a failure to notify or to make tax returns or under the serial tax avoidance rules. They will not however normally be liable for the enabler penalty as well.
My book, GAAR A Practical Approach, has detailed guidance on GAAR enabler penalties at chapter 9.