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Disqualified Advice. Guilty until proven innocent?. Patrick Boch. October / 2019. Overview. The ’normal’ position re “carelessness” and “advice” New paras 3A and 3B in Sch. 24 to FA 2007 (penalties for errors) Presumption of ’carelessness’ in “avoidance” cases
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Disqualified Advice Guilty until proven innocent? Patrick Boch October / 2019
Overview • The ’normal’ position re “carelessness” and “advice” • New paras 3A and 3B in Sch. 24 to FA 2007 (penalties for errors) • Presumption of ’carelessness’ in “avoidance” cases • No account to be taken of “disqualified” advice • Definition of “avoidance” • Commentary • presumption of guilt? • Separation of powers? • Suggestions & strategies
The position in ‘ordinary’ cases • Penalties where tax return (or other “document”): • “contains an inaccuracy” • “the inaccuracy was careless … or deliberate” • Amount usually 30% if “careless”, 70% or 100% if “deliberate” • “Carelessness” means “failure … to take reasonable care”. • Burden of proof on the Revenue. • Reliance on “agent” (para 18) – burden on taxpayer to show reliance was reasonable • In practice not “careless” where advice taken • (No “reasonable excuse” defence in Sch. 24)
Presumption of “carelessness” in “avoidance” cases • Where the inaccuracy arises because the document “is submitted on the basis that particular avoidance arrangements … had an effect which in fact they did not have” • it is “… presumed that the inaccuracy was careless”, unless the taxpayer can prove he “took reasonable care to avoid inaccuracy” – burden of proof on taxpayer • does not apply to “ deliberate” behaviour • “no account of any evidence of any reliance … on advice where the advice is disqualified” usually taxpayer will lose
“avoidance arrangements” • definition: “ … having regard to all the circumstances, it would be reasonable to conclude that the obtaining of a tax advantage was the main purpose, or one of the main purposes, of the arrangements” • Exception: • accord with established practice, and • HMRC had … indicated their acceptance of that practice. • “tax advantage” “includes”: • “relief or increased relief from tax • “repayment or increased repayment of tax • “avoidance or reduction of a charge to tax or an assessment to tax • “avoidance of a possible assessment to tax • “deferral of a payment of tax or advancement of a repayment of tax” (…)
“Disqualified advice” • given by an “interested person” • participant in arrangements or • person who for any consideration … facilitated taxpayer’s entering into the avoidance arrangements (e.g. accountant, tax advisor or solicitor) • given as a result of arrangements with an interested person (“regular advisor”) • lack of appropriate expertise (“non-qualified advisor”) • no account of taxpayer’s individual circumstances • addressed to, or given to, a person other than the taxpayer
Exceptions (advice not “disqualified”) • in case of interested person, regular advisor, and non-qualified advisor: • the taxpayer has taken reasonable steps to find out if advice is falls within one of those categories, and • reasonably believes it is not • in case of interested person ‘facilitating’ arrangements (not ‘regular advisor’): • appropriate expertise • takes account of individual circumstances • counteracted by “avoidance-related” rule, but not DOTAS, GAAR, follower notice, or disclosable VAT arrangements rules (“special categories”)
Special categories of “avoidance” • Special categories that are always “taken to fall within” the definition, and the exception does not apply: • DOTAS arrangements (wide and uncertain) • disclosable VAT arrangements • GAAR counteraction notice • follower notice (given when?) • counteracted by avoidance-related rule, i.e. a TAAR or “commercial” (similar to “particular avoidance arrangements”)
The tax avoidance spectrum “particular avoidance arrangements” standard practice Non-DOTAS arr. Other avoidance (DOTAS “indication” by Rev (TAAR OK) etc.) not disqualified - appr. expertise disqualified - individual circ. not disqualified
Commentary • presumption of guilt? • Human rights: civil penalties can be ‘criminal’ • Separation of powers? • “HMRC had … indicated its acceptance of that practice” • The executive should not be the arbiter of what sort of tax planning is permissible • Applies too widely • “particular tax arrangements” (most tax planning) • person “facilitating” arrangements (tax advisor) • DOTAS – uncertain and wide
Suggestions & Strategies • Avoid falling within the rules: • tailor advice account of client’s individual circumstances • check whether HMRC have “indicated” they accept the form of planning given • Take separate advice if: • unclear whether your advice is “disqualified” • unclear whether DOTAS applies to the planning • a follower notice is since given • you are unsure whether planning is effective
Office and contact details Old Square Tax Chambers 15 Old Square Lincoln’s Inn London WC2A 3UE T: +44 (0) 20 7242 2744 F: +44 (0) 2) 7831 8095 E: taxchambers@15oldsquare.co.uk DX: LDE 386 www.taxchambers.com