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Disqualified Advice

Explore the impact of disqualified advice in tax avoidance cases, burden of proof, penalties, and separation of powers in this legal commentary. Learn strategies to avoid pitfalls and protect against penalties.

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Disqualified Advice

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  1. Disqualified Advice Guilty until proven innocent? Patrick Boch October / 2019

  2. 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

  3. 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)

  4. 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

  5. “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” (…)

  6. “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

  7. 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”)

  8. 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”)

  9. 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

  10. 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

  11. 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

  12. 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

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