The Finance Act 2021 and 2024 extend HMRC’s powers, including the use of HMRC stop notices, to assist them in their pursuit of tax avoiders and promoters of tax avoidance arrangements. HMRC’s transformation roadmap included a substantial section on tackling tax avoidance further indicating their increased interest and resources in the area.
HMRC have updated their guidance for promoters of tax avoidance schemes (“POTAS”) this year to highlight the recent changes in legislation including the introduction of two new criminal offences. POTAS builds upon the existing regime of DOTAS (disclosure of tax avoidance schemes).
POTAS Regime and HMRCs Focus
The purpose of the POTAS regime for promoters of tax avoidance schemes is to deter the development and use of avoidance arrangements by influencing the behaviour of promoters and their clients. HMRC particularly wants to target a small group of promoters of tax avoidance schemes who exhibit what HMRC describe as “high risk behaviours”.
Under the POTAS regime, promoters that are being monitored will be required to disclose details of their products and their clients to HMRC on a regular basis. They will also be required to tell all of their clients, potential clients and intermediaries that they are one of HMRC’s monitored promotors. This includes visibly publishing their status as a monitored promoter on their website and any other promotional materials.
Clearly, HMRC’s hope with this level of enforced publicity is that it will deter potential users of the arrangements from engaging with that promoter. HMRC say they want to ensure that clients and intermediaries are fully aware of the risks of participating in tax avoidance arrangements which could result in the taxpayer having to repay all of the tax that had been avoided as well as interest and penalties.
What Are HMRC Stop Notices?
On receipt of a stop notice, a promoter must immediately stop promoting the proposal or arrangements described in the notice. They will also be required to make quarterly returns to HMRC, and they will need to notify their clients and intermediaries that they have received a stop notice. The quarterly returns will include information on the persons using the scheme including personal information such as UTRs and national insurance numbers. This means that if you are currently a client of a promoter that has received a stop notice on a type of avoidance arrangement that you are involved in, your details will be shared with HMRC.
HMRC will issue a stop notice where they believe that the scheme being promoted does not work and where they want to avoid taxpayers continuing to use the scheme (potentially for multiple years) and ending up with large tax bills.
In order to issue a stop notice, the arrangements must meet a set of conditions which HMRC set out here.
Penalties and criminal offences for stop notice breaches
A breach of a stop notice can result in high penalties for the promoter of up to £100,000 in respect of one or more failures, or £5,000 for each person who the promoter continued to promote to. If the person fails to comply with a combination of POTAS notices (stop notice, monitoring notice or conduct notice), then the penalties increase further still.
The government introduced two new criminal offenses relating to stop notices in the Finance Act 2024. It is now a criminal offence to promote a scheme that is covered by a stop notice without a reasonable excuse. It is also a criminal offence if a recipient of a stop notice fails to pass on the stop notice to a person who subsequently promotes the scheme without a reasonable excuse. A breach of these offences can result in an unlimited fine and a potential prison term of up to 2 years.
What To Do if Your Promoter Receives a Stop Notice
Get advice from an experienced tax dispute specialist such as our dedicated Tax Disputes and Disclosures team. If you are a client of a promoter who has received a stop notice it is likely that HMRC consider the avoidance arrangements invalid and you’ll need to consider the future tax implications for yourself.
If in doubt, please get in touch with us on the below details for a free, no obligation discussion about your case.
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