Tougher consequences for promoters of tax avoidance
Updated 23 November 2023
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Who is likely to be affected
There are two measures within this package. The first measure creates a new criminal offence. This will affect promoters of tax avoidance schemes who continue to promote avoidance schemes after receiving a ‘Stop Notice’ requiring them to stop promoting schemes described in that Notice.
The second measure creates a new power enabling HMRC to bring disqualification action against directors of companies involved in promoting tax avoidance, including those who control or exercise influence over a company.
General description of the measure
These measures are targeted at the most persistent and determined promoters of tax avoidance. The measures will:
- introduce a new criminal offence to apply to promoters of tax avoidance who fail to comply with a Stop Notice under the Promoters of Tax Avoidance Schemes (POTAS) regime issued in respect of tax avoidance arrangements
- provide HMRC with the power to apply to the court for a disqualification order against directors of companies involved in promoting tax avoidance, including other individuals who control or exercise influence over a company
Policy objective
The measures are designed to build on and complement anti-avoidance measures introduced in Finance Acts 2021 and 2022. They will strengthen existing deterrents and make it riskier for promoters to continue promoting their tax avoidance schemes.
The new criminal offence measure is designed to ensure the strongest possible deterrent is in place to ensure promoters comply with a Stop Notice and stop promoting their arrangements. The principal focus of the new offence is to tackle the continued promotion of those avoidance schemes covered by Stop Notices. An offence would be committed by a promoter if a scheme continues to be marketed or administered after they receive a Stop Notice covering the scheme.
The director disqualification measure would expedite the disqualification of directors and other individuals who control or exercise influence over a company that is involved in the promotion of tax avoidance. This would remove them from the avoidance market, prevent them from being directors of any company and deter others from being directors of companies promoting avoidance.
Background to the measure
At Spring Budget 2023, the government announced a consultation on the new criminal offence and director disqualification measures. A consultation was launched on 27 April 2023, and closed on 22 June 2023. A summary of responses document and draft legislation was published on 18 July 2023. The consultation on the draft legislation closed on 12 September 2023.
Detailed proposal
Operative date
New criminal offence
The offence would only be committed where there is evidence that there has been promotion in breach of a Stop Notice taking place on or after Royal Assent to Autumn Finance Bill 2023. The criminal offence would apply to all live Stop Notices from Royal Assent, meaning Stop Notices issued prior to Royal Assent, and that remain live post Royal Assent, would be in scope.
New director disqualification
The legislation would apply to directors and other individuals who have control or exercise influence over a company that is involved in promoting tax avoidance and operating against the public interest on or after Royal Assent to Autumn Finance Bill 2023. HMRC may consider information available to it, including any activity by the company, the directors and other individuals prior to Royal Assent when deciding whether to apply for a disqualification order to the court.
Current law
New criminal offence
A Stop Notice is part of the POTAS regime and is a legally enforceable notice given to any person suspected of promoting tax avoidance schemes where certain conditions are met. The legislation covering Stop Notices is at sections 236A-K Finance Act 2014. A Stop Notice requires the persons subject to the Notice to immediately stop promoting the specified scheme. A Stop Notice also requires the persons subject to the Notice to comply with certain other obligations. Once a person is subject to a Stop Notice, they must comply with it in full unless it is suspended or withdrawn either by HMRC or by a decision of the tribunal or court. There are a number of civil penalties under Schedule 35 Finance Act 2014 that may apply for failures to comply with a Stop Notice, ranging from a penalty of £5,000 for each failure to provide HMRC with information about a relevant client in relation to the scheme in a quarterly return, to a penalty of up to £1 million (where the promoter is subject to a monitoring notice) for continuing to promote arrangements meeting the description in the Stop Notice.
Director disqualification
The Company Directors Disqualification (CDDA) Act 1986 currently enables the Insolvency Service on behalf of the Secretary of State (SoS) for the Department for Business and Trade in England, Wales and Scotland, to bring disqualification proceedings against the directors of a company where there is evidence of director misconduct, and it is in the public interest to do so.
The Company Directors Disqualification (Northern Ireland) Order 2002 enables the Department for the Economy in Northern Ireland to apply for a disqualification order on similar conduct and public interest grounds.
Proposed revisions
New criminal offence
The proposed changes would create a new strict liability offence where a failure to comply with a Stop Notice would be a criminal offence regardless of the person’s intent. This would be the case regardless of any dispute about the effectiveness of the tax scheme between HMRC and the scheme users. If the promoter continued to promote a scheme covered by a Stop Notice that the courts subsequently found did deliver the promised tax advantage, the criminal offence would have already been committed.
This offence would apply to any person subject to a Stop Notice. The persons subject to a Stop Notice are the recipient of the Notice and certain other persons associated with the recipient.
By making the criminal offence a strict liability offence HMRC would be in a position to consider opening a criminal investigation where it had established evidence that promotion of a tax avoidance scheme in breach of the Stop Notice had occurred. The legislation would also include provision for criminal sanction of recipients of Stop Notices who fail to comply with the duty to pass on a copy of the Notice to the other persons subject to it where those other persons continue to promote the scheme in breach of the Notice.
The new criminal offence would not alter the existing Stop Notice regime and the existing safeguards set out in sections 236D and 236E Finance Act 2014 would continue to apply.
Conviction would result in either an unlimited fine, a potential prison term of up to 2 years or both. This criminal offence would sit alongside the existing civil sanctions that apply to those subject to a Stop Notice.
New director disqualification
The proposed new power would enable HMRC to apply to the court for a disqualification order in relation to directors and other persons who control or exercise influence over a company who are involved in promoting tax avoidance and operating against the public interest. Furthermore, HMRC would be able to accept an undertaking from a director, which means that the director has agreed any misconduct and voluntarily disqualified themselves, (thereby avoiding court action). Undertakings have the same legal effect as a disqualification order and carry the same consequences if breached.
HMRC would be able to seek a disqualification in the following circumstances:
1. Disqualification following a winding-up order being granted under section 85 Finance Act 2022. HMRC could apply for a disqualification order at the same time as presenting the winding-up petition to the court. Directors and those who control or exercise influence over a company would be disqualified on application by HMRC, as a direct consequence of the company being wound up under section 85 (subject to the safeguards below).
2. Disqualification of a director of a company not wound up under section 85 Finance Act 2022 that is acting or has acted against the public interest by promoting tax avoidance. The court would be able to grant the disqualification order on the grounds that the conduct of the director is unfit. The current customer safeguards would be preserved, which include the ability for the director to defend themselves in court, appeal a court decision to disqualify and seek leave of the court to act as a director whilst disqualified. The proposals would maintain the current civil and criminal sanctions for those breaching a disqualification order or helping disqualified directors. These are a criminal sanction resulting in imprisonment, a fine or both (section 13 of CDDA 1986) and a civil sanction of personal liability for certain company debts (section 15 of CDDA 1986).
Summary of impacts
Exchequer impact (£ million)
| 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 |
|---|---|---|---|---|---|
| — | Negligible | Negligible | Negligible | Negligible | Negligible |
The measures are expected to have negligible impact on the Exchequer. The measures support the Exchequer in its commitment to protect revenue.
Economic impact
These measures are not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
These measures are expected to have no impact on those who do not promote or otherwise facilitate tax avoidance. Those that do enter the tax avoidance market will find that these measures aim to restrict that market and support individuals to exit or steer clear of avoidance.
The measures are not expected to impact on family formation, stability or breakdown. Customer experience for compliant individuals is expected to remain broadly the same as these measures do not change how they interact with HMRC.
Equalities impacts
HMRC does not hold information about the protected characteristics of promoters or those who facilitate tax avoidance, but it is not anticipated these measures would have any disproportionate impacts on those in groups sharing protected characteristics.
Impact on business including civil society organisations
There are expected to be no impacts for compliant businesses. Those impacted would be businesses who promote or enable tax avoidance. Customer experience for compliant businesses is expected to remain broadly the same as these measures do not change how they interact with HMRC. These measures are expected to have no impact on civil society organisations.
Operational impact (£ million) (HMRC or other)
We estimate there will be additional staff costs to operate these measures of £1.8 million.
We will continue working with partners across other government departments such as Ministry of Justice and Department for Business and Trade.
Other impacts
Other impacts have been considered and none identified.
Monitoring and evaluation
These measures will be monitored through oversight of tax avoidance interventions and through communication with affected taxpayers and practitioners.
Further advice
If you have any questions about these changes, please email: [email protected].