What is the purpose of the new Counter-Avoidance Directorate?
HMRC has had considerable success in recent years in cracking down on tax avoidance. For instance, we’ve been winning around 80% of cases we litigate. And the number of new avoidance schemes is down, with 28 new disclosure of tax avoidance schemes (DOTAS) in 2013/14, compared to 116 in 2009/10. But avoidance isn’t dead. There are still new schemes being promoted. And there is a legacy of existing schemes still to settle.
The Counter-Avoidance Directorate was formed to build on the success we have had, and drive avoidance further out of the system. It will bring together most operational and policy work on marketed avoidance into a single directorate. This will improve our operational efficiency by bringing most casework on schemes, users and promoters together in one place. And it will enhance policy making, with operational teams better able to inform policy development directly and rapidly.
Why did HMRC feel the need for operational change?
Tackling tax avoidance is a top priority for HMRC. Creating the Counter-Avoidance Directorate as HMRC’s centre of expertise will further sharpen our ability both to respond to existing avoidance and pre-empt future avoidance. A single directorate will allow us to deploy resources more effectively. And it will provide a clearer focal point for people both internally and externally.
How, in your view, has the avoidance landscape changed?
Most taxpayers have never bought into an avoidance scheme and they resent those that do. That resentment has risen as people look to everyone to pay their share in times of austerity. The mood has darkened against avoidance, and we are now seeing more and more individuals and businesses who have been involved in tax avoidance wanting to get out of existing schemes and steer clear of entering new ones. Many advisers have moved away from offering their clients advice on using tax avoidance schemes. And the number of new DOTAS schemes has fallen.
But new schemes are still being promoted. There remain some very recalcitrant and obstructive promoters. There are ‘serial avoiders’ who choose to continue to try to dodge their tax liabilities through multiple schemes. And there are new users or potential users of schemes. The Counter-Avoidance Directorate will challenge all of these.
How is the directorate staffed and organised?
The directorate is made up of about 800 people, mostly experienced staff who were previously in Specialist Investigations, Local Compliance and the old Anti-Avoidance Group. Staff have also been recruited from other parts of HMRC and HM Treasury to provide wider and specialist skills.
We are reorganising the operational teams into 22 delivery channels. Most will focus on specific avoidance schemes and their users, while a few will focus on cross-scheme issues, such as serial avoiders and the highest risk promoters.
We are setting up a number of specialist units within the directorate, providing expert advice (for example, behavioural insight) or dealing with specific legislation (such as the general anti-abuse rule (GAAR) and the DOTAS rules).
We are also setting up a team to manage the issue of notices under the accelerated payment provisions proposed in the Finance Bill.
How does the new directorate’s work fit in with the rest of HMRC, for example, the Large Business and HNW Unit?
From a policy perspective, the Counter-Avoidance Directorate is responsible for a number of generic anti-avoidance tools, such as the GAAR and DOTAS. In partnership with the Treasury, the policy team will also coordinate development work across HMRC on new anti-avoidance measures.
Investigators in Counter-Avoidance will work directly on most enquiries into marketed avoidance. Where a taxpayer is dealt with by a customer relationship manager (CRM) in Large Business or the High Net Worth Unit, the CRM will remain responsible. And some specialist issues like inheritance tax will continue to be worked outside Counter-Avoidance. But wherever an enquiry is conducted, overall governance will sit with the existing Anti-Avoidance Board. This is a cross HMRC group, which I now chair as director of Counter-Avoidance.
What are your priorities?
There are a number of key priorities for the directorate:
Meeting these priorities will help ensure that HMRC is one step ahead of tax avoiders.
A small point, but is there any significance in using ‘counter’ (rather than ‘anti’) avoidance in the name of the directorate?
Yes. The name denotes that the directorate’s focus is on taking positive action to tackle avoidance. We want people to realise that we are not simply against avoidance, we are about stopping it.
The directorate plans to make greater use of behavioural insights to influence taxpayers to resolve their dispute before litigation or, where that fails, earlier in the litigation process. What will this mean in practical terms?
Most avoidance doesn’t work, but it can cost people a lot of money and damage their reputation. If something sounds too good to be true, it almost certainly is. We want to ensure that people realise that. This will mean for instance more direct communication from HMRC to those who use or are considering using avoidance schemes. Where someone has authorised an agent to deal with their tax affairs, we will send the agent copies of any direct communication.
We will be writing directly to users of avoidance schemes to underline the downsides of using a scheme and to encourage early settlement. And we will be writing to those shown on client lists of promoters to warn them off using schemes.
We are seeing more evidence of criminal investigations around what were previously understood to be ‘civil’ matters. To what extent is the Counter-Avoidance Directorate involved in working with Criminal Investigations and is this an increasing trend?
Activity that is represented to us by promoters and users as avoidance is sometimes criminal, for example, because it involves concealing or misrepresenting facts or false accounting. So it is absolutely the case that where our enquiries into avoidance schemes produce indications of criminal activity, Counter-Avoidance staff will liaise closely with their colleagues in Criminal Investigations.
Many practitioners have sympathy with the intention behind the recent legislative proposals on follower notices and accelerated payments, but have concerns about whether the safeguards are sufficient. For instance, on follower notices, there are concerns over the lack of a statutory right of appeal against the giving of a notice. On accelerated payments, some feel the retrospective nature of the measure may be open to a judicial review challenge on human rights grounds. Do you understand those concerns?
The proposals for follower notices and accelerated payments aim to ensure that the minority of people who seek to avoid tax no longer enjoy unfair cash flow advantages over the vast majority of taxpayers. Neither of these measures changes past tax liabilities, and neither measure increases the substantive tax payable.
The scope of the legislation is of course a matter for ministers and Parliament. But we have listened very carefully to all the representations that have been made to us.
We are working hard to ensure that we are in a position to issue accelerated payment notices and follower notices successfully once legislation is enacted. This includes putting in place senior internal governance for the issue of these new notices.
