The CIOT has responded to the House of Lords Economic Affairs Finance Bill Sub-Committee call for evidence on four areas covered by the draft legislation for the next Finance Bill, namely measures dealing with the promoters of tax avoidance and increasing the maximum prison term for tax fraud, the proposed R&D reforms, and the measure requiring certain taxpayers to provide additional data to HMRC.
The proposed new criminal offence for promoters, as the CIOT had previously pointed out in its response to the general draft Finance Bill consultation, raises particular concerns around safeguards, with the offence centred around the failure to comply with a stop notice which is at the discretion of HMRC. In its latest response, the CIOT says it believes that the proposed new criminal offence fails this test ‘because an important constitutional line is being crossed, namely that (in principle at least) something can potentially be a crime on HMRC’s say-so, given that a decision to issue a stop notice will rest entirely with HMRC with no external oversight. The lack of external scrutiny prior to the issue of the stop notice presents a risk that a notice could be incorrectly issued and/or inappropriately targeted with significant consequences for the promoter concerned.’ It recommends that HMRC should have to make an ex-parte application to the Upper Tribunal for ‘judicial’ approval before a criminal stop notice can be issued.
Effectiveness of the new offence could depend on promoters’ perception of the likelihood of conviction, and the CIOT believes that there may be a higher deterrent effect on promoters based in the UK than those overseas. The proposal to disqualify directors of promoter companies might also be of little effect if directors are unaware of their roles, especially in cases involving ‘stooge’ directors, it suggested. With the increased maximum prison term for tax fraud, HMRC will need to raise awareness of the consequences of the offence (including the doubling of the maximum prison sentence) and reinforce the messaging around likelihood of conviction.
On the proposals for a potential merged R&D scheme and additional relief for R&D-intensive SMEs, a more realistic implementation timetable for the merged scheme would help avoid practical challenges and unintended consequences. Failure to bring the additional relief for R&D-intensive SMEs into the single new scheme misses an important simplification opportunity, suggests the CIOT, effectively meaning that two separate R&D schemes will continue to run alongside each other (reinforcing points made in detail in response to the original draft FB consultation).
Regarding additional HMRC data requirements, the draft legislation on these proposals did not set out the detail, which will instead be included in regulations. The CIOT reserves judgement until those regulations have been published in draft. In terms of timings, implementation for 2025/26 leaves a short window for businesses to prepare, although analysis is again difficult without seeing the detail.
The CIOT has responded to the House of Lords Economic Affairs Finance Bill Sub-Committee call for evidence on four areas covered by the draft legislation for the next Finance Bill, namely measures dealing with the promoters of tax avoidance and increasing the maximum prison term for tax fraud, the proposed R&D reforms, and the measure requiring certain taxpayers to provide additional data to HMRC.
The proposed new criminal offence for promoters, as the CIOT had previously pointed out in its response to the general draft Finance Bill consultation, raises particular concerns around safeguards, with the offence centred around the failure to comply with a stop notice which is at the discretion of HMRC. In its latest response, the CIOT says it believes that the proposed new criminal offence fails this test ‘because an important constitutional line is being crossed, namely that (in principle at least) something can potentially be a crime on HMRC’s say-so, given that a decision to issue a stop notice will rest entirely with HMRC with no external oversight. The lack of external scrutiny prior to the issue of the stop notice presents a risk that a notice could be incorrectly issued and/or inappropriately targeted with significant consequences for the promoter concerned.’ It recommends that HMRC should have to make an ex-parte application to the Upper Tribunal for ‘judicial’ approval before a criminal stop notice can be issued.
Effectiveness of the new offence could depend on promoters’ perception of the likelihood of conviction, and the CIOT believes that there may be a higher deterrent effect on promoters based in the UK than those overseas. The proposal to disqualify directors of promoter companies might also be of little effect if directors are unaware of their roles, especially in cases involving ‘stooge’ directors, it suggested. With the increased maximum prison term for tax fraud, HMRC will need to raise awareness of the consequences of the offence (including the doubling of the maximum prison sentence) and reinforce the messaging around likelihood of conviction.
On the proposals for a potential merged R&D scheme and additional relief for R&D-intensive SMEs, a more realistic implementation timetable for the merged scheme would help avoid practical challenges and unintended consequences. Failure to bring the additional relief for R&D-intensive SMEs into the single new scheme misses an important simplification opportunity, suggests the CIOT, effectively meaning that two separate R&D schemes will continue to run alongside each other (reinforcing points made in detail in response to the original draft FB consultation).
Regarding additional HMRC data requirements, the draft legislation on these proposals did not set out the detail, which will instead be included in regulations. The CIOT reserves judgement until those regulations have been published in draft. In terms of timings, implementation for 2025/26 leaves a short window for businesses to prepare, although analysis is again difficult without seeing the detail.
