Govt May Force Disclosure of Clients using Tax Avoidance Schemes

25 July 2012

The Government has published proposals to improve HMRC oversight of financial products used to reduce tax liabilities and schemes used to reduce employment taxes, including forcing advisers to disclose any clients using them.

Currently, client disclosure only requires the number and type of clients, not individual identification. Under the proposals, disclosure of end users could be mandated.

The consultation paper states: “The information that promoters are required to provide on client lists is not sufficient, where the scheme is mass-marketed to individuals, for HMRC to readily match the data to specific customers. Moreover, the client may be merely an intermediary, not the end user who is intended to obtain the expected tax advantage. There is no onward reporting obligation on intermediaries, so in such cases client lists will not inform HMRC who the end user is.”

The paper also proposes that when a financial product delivers a tax efficiency that would not arise “but for” its use, they will become eligible for disclosure to HMRC.

Products that will face this test include, loans, derivatives, securities sale and repurchases, stock lending agreements, shares, arrangements which produce returns “economically equivalent to interest”, collective investment schemes and alternative investment funds.

Following the disclosure of comedian, Jimmy Carr’s use of the K2 scheme, tax schemes involving employers paying staff through third parties will also be disclosable.

Scheme promoters will face higher hurdles for not having to disclose details of their schemes and those using them will be expected to report schemes not meeting the disclosure rules.

Treasury exchequer secretary David Gauke says: “These schemes damage our ability to fund public services and provide support to those who need it. They harm businesses by distorting competition. They damage public confidence and they undermine the actions of the vast majority of taxpayers, who pay more in tax as a consequence of other enjoying a free ride.”

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