Requirement to notify HMRC of offshore structures a reputational risk, say stakeholders

The requirement to notify HMRC if a client is engaged in offshore tax structures carries a reputational risk and could have implications for entirely legitimate structures, a summary of consultation responses reveals

Under the plans, businesses would be provided with a notification number for the tax structure, which they will in turn provide to their clients. Clients would be expected to include this number on their self-assessment tax return or on their personal tax account in order to notify their involvement. Those who fail to comply with these requirements would incur civil sanctions. HMRC says that should the creator/promoter fail to notify, responsibility would lie with the client.

Respondents, 18 in total and included the Big Four firms, BDO and institutes including the ICAEW and CIOT, expressed concerns that notification numbers issued as part of the measure could come with the negative connotation that the arrangement could be used for evasion.

They highlighted that clients would be worried about the consequences of having a notification number, the need to follow up matters with HMRC, or being marked out for enquiries even if the structure were entirely legitimate. It was also argued that these issues could deter clients from using legitimate products and adversely impacting UK businesses.

Conversely, some suggested that an HMRC notification number could be seen as an endorsement or kite mark from HMRC, having the opposing effect.

It was also noted that those actively seeking to evade would be unlikely to use an arrangement that they know had been declared notifiable under the proposed measure, thereby reducing the likelihood that the measure would help to catch deliberate evaders. Respondents argued that, as a result of this measure, HMRC would only receive information about compliant taxpayers, as deliberate evaders would find ways to circumvent the reporting requirement.

Moreover, it was pointed out that if HMRC expects clients themselves to notify HMRC of their involvement in a notifiable arrangement, then the clients would need to have sufficient tax knowledge and awareness of the new requirement in order to do so.

One alternative suggested by a respondent was that instead of establishing a separate measure, the policy’s objectives could be achieved through an extension of the disclosure of tax avoidance schemes (DOTAS) rules, which operate on a similar basis.

The summary of responses can be read here.

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