CBP 7948 PDF

BRIEFING PAPER
Number 7948, 18 April 2020
Tax avoidance and tax By Antony Seely
evasion
Contents:
1. Introduction - what is tax
avoidance and what is tax
evasion?
2. The tax gap
3. The Coalition Government’s
approach
4. Follower notices &
accelerated payment notices
5. The Conservative
Government’s approach
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2 Tax avoidance and tax evasion
Contents
Summary 3
1. Introduction - what is tax avoidance and what is tax evasion? 5
2. The tax gap 9
2.1 What is the tax gap, and how big is it? 9
2.2 HMRC’s approach in assessing the tax gap 12
2.3 The tax gap and ‘tax dodging’ 18
2.4 Recent debate on the size of the tax gap 20
3. The Coalition Government’s approach 26
3.1 A new anti-avoidance strategy 26
3.2 Assessing the impact of HMRC’s strategy 34
4. Follower notices & accelerated payment notices 42
4.1 ‘Raising the stakes on tax avoidance’ - summer 2013 42
4.2 Budget 2014: accelerated payment notices (APNs) 48
4.3 Finance Bill 2014 53
4.4 Impact of the new APN regime 63
4.5 Subsequent proposals regarding ‘serial avoiders’ and offshore evasion 69
5. The Conservative Government’s approach 76
5.1 Budget 2015 76
5.2 Offshore evasion & the Panama Papers 79
5.3 Spring Budget 2017 87
5.4 The Paradise Papers & Autumn Budget 2017 106
5.5 Budget 2018 114
5.6 Recent developments: the 2019 Loan Charge & Budget 2020 121
Cover page image copyright : Gladstone’s red box by The National Archives UK. Image cropped. No
known copyright restrictions.
3 Commons Library Briefing, 18 April 2020
Summary
In recent years tax avoidance has been the subject of considerable public concern,
although there is no statutory definition of what tax avoidance consists of. Tax
avoidance is to be distinguished from tax evasion, where someone acts against the law. By
contrast tax avoidance is compliant with the law, though aggressive or abusive avoidance,
as opposed to simple tax planning, will seek to comply with the letter of the law, but to
subvert its purpose. As Treasury Minister David Gauke has observed, there is a distinction
between tax planning and tax avoidance, “although there will be occasions when the line
is a little blurred.”1
In recent years HM Revenue & Customs (HMRC) has produced estimates of the tax
gap, the difference between tax that is collected and that which is ‘theoretically due’:
The theoretical tax liability represents the tax that would be paid if all individuals and
companies complied with both the letter of the law and HMRC’s interpretation of the
intention of Parliament in setting law (referred to as the spirit of the law) ... An
equivalent way of defining the tax gap is the tax that is lost through non-payment,
use of avoidance schemes, interpretation of tax effect of complex transactions, error,
failure to take reasonable care, evasion, the hidden economy and organised criminal
attack. 2
In June 2019 HMRC published revised estimates, which put the tax gap at £35
billion for 2017/18, representing 5.6% of total tax liabilities. 3 Over the last decade
the tax gap has fallen consistently – from 7.3% of tax liabilities in 2005/06 – although in
2016/17 the gap slightly lower, at 5.5%. HMRC’s analysis provides a breakdown of the
gap by reference to the different types of taxpayer behaviour that lead to a shortfall in
receipts, though as HMRC note, the “estimates give a broad indication of behaviours and
are calculated using assumptions and judgment.” It is estimated that in 2017/18 the
Exchequer loss from tax avoidance was £1.8 billion, while the cost of tax evasion
was £5.3 billion. 4
Historically UK tax law has been specifically targeted rather than purposive; in tackling the
exploitation of loopholes in the law, governments have legislated against individual
avoidance schemes as and when these have come to light. Often the response to this
legislation has been the creation of new schemes to circumvent the law, which in turn has
seen further legislation – an ‘arms race’ between the revenue authorities and
Parliamentary counsel on one side, and on the other, taxpayers aided and abetted by the
legal profession. In recent years concerns as to the scale of mass marketed tax
avoidance schemes have led to three major initiatives to undermine this market and
encourage a sea change in attitudes: the Disclosure of Tax Avoidance Schemes
regime (DOTAS); the General Anti-Abuse Rule (GAAR); and the system of follower
notices & accelerated payments.
Over the past twenty years many commentators have suggested having legislation to
counter tax avoidance in general: by providing certainty for both sides as to the tax
consequences of any transaction, a ‘general anti-avoidance rule’ might dissuade the most
egregious efforts to avoid tax, encourage taxpayers and legal counsel to redirect their
energies to more productive activities and allow the authorities to simplify the law without
fear of it being systematically undermined. In the late 1990s the Labour Government
1
HC Deb 12 July 2010 c706
2
Measuring Tax Gaps 2013, October 2013 p6. HMRC’s work on the tax gap is collated on Gov.uk
3
HMRC press notice, Tax gap remains low, 20 June 2019
4
HMRC, Measuring tax gaps 2019 edition - tax gap estimates for 2017 to 2018, June 2019 p4
consulted on an anti-avoidance rule before deciding against it. Concerns over the scale of
tax avoidance rekindled interest in the idea, though in its 2004 Budget the Labour
Government announced a new ‘disclosure regime’ (DOTAS) as an alternative,
whereby avoidance schemes would have to be disclosed to HMRC. 5 Under DOTAS
accountants, financial advisers and other 'promoters' selling tax avoidance schemes are
required to notify the tax authorities of any new scheme they are to offer to taxpayers.
Each scheme is given a reference number which, in turn, taxpayers have to use in their tax
return, if they have used it. HMRC have used this information to track the take-up of
avoidance schemes, challenge individual schemes in the courts if HMRC have assessed
that they do not work in the way the promoter claims, or to address unintended loopholes
in the law that some schemes seek to exploit.
In its first Budget in June 2010 the Coalition Government announced it would
consult on a general anti-avoidance rule, and commissioned a study group, led by
Graham Aaronson QC, to consider the case. In his report, published in 2011, Mr Aaronson
recommended a narrowly focused rule targeted at ‘abusive arrangements’, and following
a consultation exercise, in December 2012 the Government announced the
introduction of a General Anti-Abuse Rule (GAAR) in 2013. 6
In 2014 the Coalition Government announced the introduction of a system of
follower notices & accelerated payment notices (APNs). 7 Broadly speaking, in cases
where someone is in dispute over their assessment, HMRC may issue a ‘follower notice’ if
this arises from the use of an avoidance scheme that is either the same or has similar
arrangements to one that HMRC has successfully challenged in court. Taxpayers must
settle their affairs, or pay a penalty. HMRC may also issue a notice for an APN, where the
taxpayer is required to pay the disputed sum ‘up front’, before their assessment had been
definitively decided – either by the taxpayer agreeing HMRC’s assessment, or the courts
making a final judgement in their case. Taxpayers do not have the right to appeal HMRC’s
decision to the Tribunal. Controversially, the Government proposed these arrangements
would apply to outstanding disputes for past tax years, and that HMRC would also issue
APNs in relation to avoidance schemes notified under ‘DOTAS’. Despite concerns as the
‘retrospective’ nature of the new regime, the new rules were agreed, with only minor
amendments, in July 2014. In July 2017 HMRC reported that it had issued over 75,000
notices worth in excess of £7 billion and collected nearly £4 billion. 8
The Government has continued to introduce provisions to tackle tax avoidance
and tax evasion, including measures in the last four Budgets. 9 This paper discusses the
incidence of tax avoidance and evasion, before looking at the development of follower
notices and APNs, and further initiatives to reduce the tax gap. A second paper looks at
the introduction of the 2019 Loan Charge, legislation to tackle mass marketed ‘loan
schemes’ announced in the 2016 Budget, which has proved highly controversial. 10 Two
other Library papers look at the Labour Government’s consideration of a general
anti-avoidance rule and the establishment of DOTAS, and at the Coalition Government’s
decision to introduce a GAAR. 11
5
Budget 2004, HC 301, March 2004, p202. Guidance on DOTAS is on Gov.uk
6
Autumn Statement, Cm 8480 December 2012 para 1.178. Guidance on the GAAR is on Gov.uk
7
Budget 2014, HC 1104, March 2014 para 1.198-201
8
HMRC Annual Report 2016/17, HC 18, July 2017 p24. Guidance on FNS & APNs is on Gov.uk.
9
For an overview of the Government’s approach since 2010 see, HMT/HMRC, Tackling tax avoidance,
evasion and other forms of non-compliance, March 2019.
10
The 2019 Loan Charge, Commons Briefing paper CBP8811, 16 March 2020
11
Tax avoidance: a General Anti-Avoidance Rule - background history (1990-2010), CBP2956, 16 January
2020; and, Tax avoidance: a General Anti-Abuse Rule, CBP6265, 17 April 2020.
1. Introduction - what is tax

avoidance and what is tax
evasion?
During a debate on tax avoidance and tax evasion in July 2010 Treasury
Minister David Gauke drew the following distinction:
Tax evasion occurs when someone acts against the law. Tax
avoidance involves compliance with the letter but not the spirit of
the law, and it is right that the Government seek to minimise that.
Tax planning is a case of acting in both the spirit and the letter of
the law. There is a distinction, although there will be occasions
when the line is a little blurred. 12
A longer definition was provided in answer to a PQ in the Lords a few
years before:
Lord Patten asked Her Majesty's Government: Whether they
will clarify their use of the terms "tax avoidance" and "tax
evasion".
Lord McKenzie of Luton: These terms lack any single or
universally applied legal definition and their meaning will depend
upon the context in which they are used. The term "tax evasion"
refers to reduction of tax liability by illegal means. The term "tax
avoidance" is usually used to refer to an inappropriate reduction
in tax liability and was described by Lord Nolan in the following
terms: "The hallmark of tax avoidance is that the taxpayer reduces
his liability to tax without incurring the economic consequences
that Parliament intended to be suffered by any taxpayer qualifying
for such reduction in his tax liability." 13
The reference is to an expression used by Lord Noland in a case heard
by the House of Lords in 1997, when he distinguished between
avoidance and actions where the taxpayer mitigates his tax liability:
The hallmark of tax avoidance is that the taxpayer reduces his
liability to tax without incurring the economic consequences that
Parliament intended to be suffered by any taxpayer qualifying for
such reduction in his tax liability. The hallmark of tax mitigation,
on the other hand, is that the taxpayer takes advantage of a
fiscally attractive option afforded to him by the tax legislation, and
genuinely suffers the economic consequences that Parliament
intended to be suffered by those taking advantage of the
option. 14
(The appeal of this definition is not unchallenged – as one standard
guide to the law notes, “the trouble with this explanation is that while it
provides a coherent reason for saying in a particular case that the facts
do not amount to avoidance and so do not trigger the application of
some rule, it does not provide a way of telling whether those particular
facts fall one side of the line or the other – it is a conclusion, not a test -
and so it restates the problem rather than solving it.” 15)
12
HC Deb 12 July 2010 c706
13
HC Deb 24 May 2006 ccWA111-2
14
IRC v Willoughby & Another [1997]
15
Tiley & Collison’s UK Tax Guide 2016/17 para 3.2
While it is often noted that tax avoidance is not illegal, in the past
governments have drawn a distinction between the exploitation of the
tax system and simple compliance with the law – for example, in answer
to a PQ in July 2010:
Andrew George: To ask the Chancellor of the Exchequer what
definition of the terms (a) tax avoidance and (b) tax efficiency his
Department uses.
Mr Gauke: The Government have not published a definition of
avoidance. However it is widely understood to entail taking a view
of the tax treatment of a transaction that is tenable but has tax
consequences that were not intended by the legislature. This does
not prevent taxpayers organising their affairs in an efficient
manner, consistent with the intentions of the legislation. Tackling
tax avoidance is essential and we make every effort to do so. The
Government consider the economic efficiency of tax measures as
part of the tax policy-making process. 16
The House of Lords Economic Affairs Committee considered this
question in their 2013 report on the Government’s proposals for a
‘General Anti-Abuse Rule’ – or GAAR. The Committee cited Mr Gauke’s
distinction between avoidance and evasion, reproduced above, but
went on to quote the evidence of Ms Judith Knott (then HMRC Director,
Corporation Tax International Anti-Avoidance) when she appeared
before the Committee:
“What we mean by legitimate tax planning is tax planning that is
very much in line with Parliament’s intentions when it passed the
rules. A good example would be putting cash into an ISA account.
That is legitimate and what Parliament intended to happen.
Avoidance, on the other hand, is behaviour that seeks to bend the
tax rules in a way that Parliament did not intend. It is often
accompanied by artificial transactions—trying to seek a result that
was not intended.” 17
The Committee observed that the definitions “depend on the existence
of a common interpretation of what the original lawmakers had in mind
in enacting a particular tax statute”:
The courts interpret Parliamentary intention as that revealed by
the wording and context of the legislation itself and extraneous
comment or other guidance can be taken into account only in
very limited circumstances. This is a much narrower definition of
Parliamentary intention than the wider colloquial definition which
might either infer intention or take into account external
information.
Consequently, in practice, a good deal of uncertainty can often
attach to the question of whether a particular arrangement
constitutes ‘tax avoidance’ and, if so, whether it is to be regarded
as ‘acceptable’ (tax planning or tax mitigation) or ‘unacceptable’
(aggressive or abusive avoidance). 18
16
HC Deb 12 July 2010 c544W
17
The draft Finance Bill 2013, 13 March 2013, HL Paper 139 2012-13 para 12
18
op.cit. para 14. For more details on the distinction between evasion and avoidance
see, Hamilton v Hamilton & Anor [2016] EWHC 1132 (Ch) (13 May 2016) para 37.
The concept of “parliamentary intention” is not a simple or obvious one

– as noted in a paper on tax avoidance published by the Oxford Centre
for Business Taxation:
The aim of the courts is to construe legislation in a way that gives
effect to “parliamentary intention”. Parliamentary intention in this
context is a term of art, extensively debated in legal literature and
should be distinguished from a colloquial usage. Lord Nicholls has
explained: "...the 'intention of Parliament' is an objective concept,
not subjective. The phrase is a shorthand reference to the
intention which the court reasonably imputes to Parliament in
respect of the language used.
It is not the subjective intention of the minister or other persons
who promoted the legislation. Nor is it the subjective intention of
the draftsman, or of individual members or even of a majority of
individual members of either House.” 19 In other words the
political and authoritative process of Parliament passing legislation
produces the text of legislation, the intention of which is found by
the courts looking at the wording of that legislation. 20, 21
Further to the questions of legal interpretation, the choice of words in
this area has important political consequences. Graham Aaronson QC
made this point when he gave evidence to the Lords Economic Affairs
Committee in January 2013:
“Avoidance” is a rather unfortunate word in this context because
avoidance can be regarded as a particularly nasty thing to do or, if
it is an accident, it is a very sensible thing to do—you avoid an
accident. So I would rather use words that are less emotive when
describing the intellectual process in determining whether you
should be paying a smaller amount of tax than you would
otherwise pay.
You can call that tax planning because it is planning. Whether it is
good planning or bad planning, whether it is abusive planning or
innocent planning, it is planning. Tax avoidance is a very
dangerous expression to use if you want to have a serious debate
because one person’s avoidance is another person’s perfectly
reasonable planning. 22
However, the term ‘tax avoidance’ has continued to be widely used, and
in a paper on its tax policy over the 2010-15 Parliament, the Coalition
Government provided a terminology that, arguably, illustrates how the
debate about this issue changed over this period:
Clarifying tax terminology
Tax evasion is always illegal. It is when people or businesses
deliberately do not declare and account for the taxes that they
19
R v Secretary of State for Environment, Transport and the Regions [2001] 2 AC 349.
20
See also Lord Reid in Black-Clawson International Ltd v Papierwerke Waldhof-
Aschaffenburg AG [1975] A.C. 591, at 613: “In seeking for the intention of Parliament
we are seeking not what Parliament meant but the true meaning of what they said”.
On Parliamentary intention see also Judith Freedman, “Interpreting tax statutes: tax
avoidance and the intention of Parliament”, Law Quarterly Review 2007, 53 at 72 et
seq. especially the literature referred to there.
21
Michael Devereux, Judith Freedman & John Vella, Tax Avoidance, OCBT December
2012 p4. See also, “Seeking after meaning”, Taxation, 21 April 2016, and for
another view barrister Jolyon Maugham’s blog post, “Is tax avoidance like hardcore
pornography?”, Waiting for Godot, 30 August 2016.
22
Draft Finance Bill 2013: Oral & Written Evidence, March 2013 pp12-13 (Q10)
owe. It includes the hidden economy, where people conceal their

presence or taxable sources of income.
Tax avoidance involves bending the rules of the tax system to
gain a tax advantage that Parliament never intended. It often
involves contrived, artificial transactions that serve little or no
purpose other than to produce this advantage. It involves
operating within the letter – but not the spirit – of the law. Most
tax avoidance schemes simply do not work, and those who
engage in it can find they pay more than the tax they attempted
to save once HMRC has successfully challenged them.
Tax planning involves using tax reliefs for the purpose for which
they were intended, for example, claiming tax relief on capital
investment, or saving via ISAs or for retirement by making
contributions to a pension scheme.
However, tax reliefs can be used excessively or aggressively, by
others than those intended to benefit from them or in ways that
clearly go beyond the intention of Parliament. Where this is the
case it is right to take action, because it is important that the tax
system is fair and perceived to be so. 23
23
HM Treasury, Tackling tax evasion & avoidance, Cm 9047, March 2015 p5 (Box 1.A:
Clarifying tax terminology). See also, PQ HL4794, 25 February 2015
2. The tax gap

2.1 What is the tax gap, and how big is it?
In recent years HMRC has produced estimates of the tax gap - the
difference between tax that is actually collected and that which is
‘theoretically due’:
The theoretical tax liability represents the tax that would be paid if
all individuals and companies complied with both the letter of the
law and HMRC’s interpretation of the intention of Parliament in
setting law (referred to as the spirit of the law) ... An equivalent
way of defining the tax gap is the tax that is lost through non-
payment, use of avoidance schemes, interpretation of tax effect of
complex transactions, error, failure to take reasonable care,
evasion, the hidden economy and organised criminal attack. 24
In June 2019 HMRC published revised estimates, which put the total tax
gap at £35 billion for 2017/18, equivalent to 5.6% of total tax liabilities.
The UK tax gap in 2017-18 is estimated to be £35 billion. This is

5.6% of total theoretical tax liabilities, and a small increase of
0.1% from 5.5% in 2016-17. This means in 2017-18, HMRC
secured 94.4% of all tax due. There has been a long-term
reduction in the overall tax gap, from 7.2% in 2005-06 to 5.6%
in 2017-18. Between 2015-16 and 2017-18, the overall
percentage tax gap has remained relatively stable, showing a
small increase of 0.3%.
The tax gap for income tax, National Insurance Contributions and
Capital Gains Tax (IT, NICS and CGT) is 3.9% in 2017-18 at £12.9
billion and represents the biggest share of the total tax gap by
type of tax. There has been a long-term reduction for the VAT
(Value Added Tax) gap from 12.2% in 2005-06 to 9.1% in
2017-18. The duty-only excise tax gap has reduced from 8.4% in
2005-06 to 5.1% in 2017-18. The Corporation Tax gap has
reduced from 12.5% in 2005-06 to 8.1% in 2017-18. The
24
Measuring Tax Gaps 2013, October 2013 p6
avoidance tax gap has reduced from £4.9 billion in 2005-06 to

£1.8 billion in 2017-18. 25
HMRC suggest the percentage figure is a better measure of compliance
over time, “because it takes account of some of the effects of inflation,
economic growth and changes to tax rates, whereas the cash figure
does not. For example, in a growing economy where the tax base is
increasing, even if the percentage tax gap remained level, the cash
figure would grow.” Notably HMRC describe the tax gap as “a useful
tool for understanding the relative size and nature of non-compliance”:
This understanding can be applied in many different ways:
• it provides a foundation for HMRC’s strategy. Thinking
about the tax gap helps the department to understand how
non-compliance occurs and how HMRC can address the
causes and improve the overall health of the tax system.
• drawing on information on how other countries manage
their tax gaps, our tax gap analysis provides insight into
which strategies are most effective at reducing the tax gap.
• although the tax gap isn’t sufficiently timely or precise
enough to set performance targets, it provides important
information that helps us to understand our long-term
performance. 26
The report provides a breakdown of the gap by the different behaviours
that create a shortfall in receipts, though as HMRC note, the “estimates
give a broad indication of behaviours and are calculated using
assumptions and judgment.” This puts the annual cost of tax avoidance
in 2017/18 at £1.8 billion: 27
The report’s description of each of these categories is given overleaf.
25
HMRC, Measuring tax gaps 2019 edition, June 2019 p3, p5
26
op.cit. p6, p3. The ‘tax base’ is the aggregate value of the financial streams or assets
on which tax can be imposed.
27
op.cit. p10
Description of different behaviours that generate the tax gap
1
More information and frequently asked question on the OECD’s Inclusive Framework on BEPS can
be found at: www.oecd.org/ctp/beps-frequentlyaskedquestions.htm
source: HMRC, Measuring tax gaps 2019 edition, June 2019 p21
As noted in its summary, the report also provides estimates of the tax
gap by type of tax, and by customer group. In the latter case, it is
estimated that over 40% of the tax gap is attributed to small
businesses, while 10% is attributed to individuals:
Figure 1.5 shows the 2016-17 and 2017-18 tax gaps by customer
group. In both 2016-17 and 2017-18 more than a third of the tax
gap is attributed to small businesses. Individuals account for the
smallest share of the tax gap in both 2016-17 and 2017-18.
This report underlines that, “the tax gap breakdown by customer

groups is primarily based on data — however as some judgment and
assumptions are involved, the estimates are subject to uncertainty”: 28
The report also provides a time series of the tax gap by customer group,
as a percentage of total theoretical liabilities; this shows that the
breakdown of the tax gap by customer group over the past five years
has been broadly stable. 29
2.2 HMRC’s approach in assessing the tax gap

In September 2011 the Treasury Committee took evidence from HMRC
on its action to close the tax gap; during this session Dave Hartnett,
then Permanent Secretary for Tax and his colleague, Melanie Dawes,
Director General, Business Tax, explained how analysis of the size of the
tax gap shaped the department’s priorities:
Dave Hartnett: I think … for us, the tax gap is quite an
important tool, if I can put it that way, in promoting
understanding of all the causes of non-compliance and helping us
to focus on ways of reducing them. If I can put it this way, it is a
bit like a long-term health check for us. A definition of it is the
difference between what the Government can expect to receive
and actually do receive, but I think, as you may have seen, unlike
some other countries, we include avoidance in it, and also the
slightly contentious issue of measuring that in line with the spirit
of the law-what the intention of Parliament might have been …
Q180 Stewart Hosie: … Some of the professional bodies take
the [the department’s estimate of the tax gap] and say it is
inflated because it includes legitimate disagreements over legal
interpretation, which is a perfectly valid position for them to take.
Others say it is understated due to inadequate information. You
say it is your best guess but you invest a lot in calculating it …
What more do we all need to do to get this right, given how
important it is?
28
op.cit. p9
29
For details see, Measuring tax gaps 2019 edition, June 2019 p20 (Table 1.4)
Dave Hartnett: …On legal interpretation and other things in

particular, the focus we put on legal interpretation is where we
lose-but not while the argument is going on-and where the
Government are therefore going to receive less than expected.
We recognise that "legitimate debate" contention around issues
will always happen.
Melanie Dawes: Yes, and it is important to say on avoidance
that where we resolve an issue with a taxpayer and we agree with
their legal interpretation, we do not record that as a tax cut. We
record that as the tax gap having been closed because the
treatment has been agreed. In terms of what we should be doing
with this …we think it is a very useful strategic tool. We used it to
get a feel for the overall big areas of risk when we were putting
together our plans for the spending review, for example, so it is
very helpful. The important thing is not to use it in the wrong
way, so we are not using it for performance targets to measure
up actual operation performance in the business. 30
In 2010 HMRC’s approach to measuring the tax gap was questioned, in
the context of alternative estimates published by Tax Research UK,
which put the tax gap in the region of £70-£120 billion. 31 In a debate
on tax avoidance in June 2010, Treasury Minister David Gauke
acknowledged these figures implied the gap was much, much greater
than HMRC had estimated, but went on to argue that the analysis was
‘deeply and systematically flawed’; the Ministers comments are worth
reproducing at some length:
It must be accepted that in preparing estimates, organisations
external to Government have access to much less data than
HMRC ... However, having considered the methodology used to
produce the figure of £120 billion, I must tell the House that even
a brief analysis reveals that it is deeply and systematically flawed.
For example, Tax Research LLP estimates total revenue lost due to
tax evasion at £70 billion. That figure is obtained by applying the
percentage tax gap from VAT to direct taxes. There are two main
problems with that. First, different tax regimes have different tax
gaps. According to independent research by the OECD, for
example, the operational experience shows that tax regimes such
as pay-as-you-earn that withhold tax at source have far smaller tax
gaps than other types. To apply the VAT gap percentage to taxes
collected by PAYE or otherwise at source greatly overstates the tax
gap, because the VAT tax gap is considerably higher.
Secondly, an element of double counting is involved, although, to
be fair, that might not be apparent from the numbers used by Tax
Research. The VAT gap already includes amounts due to tax
avoidance and tax debt. Applying that percentage to direct taxes
and then adding additional amounts for both avoidance and tax
debt, as does Tax Research, results in the double counting of
losses from the avoidance of direct taxes and non-payment.
The Tax Research estimate of tax debt is £28 billion. That is a
snapshot figure of all tax owed to HMRC on 31 March 2009,
30
Administration and effectiveness of HMRC: closing the tax gap – Oral Evidence, HC
1371-iii, 12 September 2011 Q178, Q180
31
Tax Research UK is run by the writer Richard Murphy. See, Tax Justice and Jobs: the
business case for investing in staff at HMRC, March 2010. These estimates have been
widely quoted in the press: eg, “On charity George Osborne must stand up to the
self-interested super-rich”, Guardian, 16 April 2012 & “Editorial - Tax: share the
burden fairly or anger will grow”, Observer, 15 April 2012.
which does not represent the actual losses to the Exchequer from
non-payment. Almost all tax owed to HMRC is eventually paid,
sometimes within days of becoming due. A proportion of debts
outstanding are in staged repayment plans, such as those covered
by the business payment support service. Only the tax debt
written off as uncollectable by HMRC is an actual loss to the
Exchequer from debt. That is therefore the amount that HMRC
uses in its estimate of the tax gap, which in the 2007-08 tax gap
figures was not £28 billion but £3 billion …
The final and most significant point concerns tax loss due to tax
avoidance, which Tax Research estimates at £25 billion. That
estimate includes the use of legitimate reliefs promoted by the
Government to encourage certain activities, such as capital
allowances to encourage investment and research and
development tax credits to encourage innovation. Tax avoidance is
generally regarded as the use of legal structures and allowances
to reduce tax bills in manners not intended by Parliament when
enacting the legislation. It is simply nonsense to categorise as tax
avoidance the use of allowances for purposes intended by
Parliament ... Furthermore, the Tax Research estimate does not
provide HMRC with any credit for the significant amount of tax
that it recovers by challenging avoidance schemes. The figure of
£25 billion therefore seems somewhat wide of the mark. 32
In a follow-up report published in March 2012 the Treasury Committee
expressed some doubts as to the value of completing such a detailed
annual assessment of the tax gap: “HMRC should not be aiming to
collect more tax at any cost, but should be ensuring that all taxpayers
pay the correct amount of tax … [in addition] the tax gap calculation is
… misleading as a comparison from year to year, because its size
depends on a number of factors which have nothing to do with
whether the correct amount of tax is being paid, for instance the
applicable rates of tax.”33
A longer extract from this part of the Committee’s report is given
below:
The tax gap can be a useful concept for assessing trends in the
amount of possible unpaid tax. We are not, however, convinced
that the process of calculating, publishing and publicising an
aggregate figure for the tax gap is a sensible use of HMRC's
limited resources. The aggregate tax gap figure is misleading and
risks focusing HMRC on the wrong task as it only provides an
order of magnitude.
We recognise that it is useful for HMRC's employees to have some
idea of the difference between what HMRC should be collecting
and what is collected, particularly in the case of criminal activity.
However, in other areas it would be more useful for it to identify
ambiguities in tax law rather than employ resources in calculating
how much tax would be collected if everyone shared its
interpretation of the law. Separate reports on how much tax was
lost through criminal activity and areas where HMRC had
encountered different interpretations of tax law would be a better
use of resources. We would welcome further submissions from
HMRC and tax experts both on how the tax gap calculation can
32
HC Deb 16 June 2010 cc190-1WH
33
Treasury Committee, Closing the tax gap – HMRC’s record at ensuring tax
compliance, HC 1371, 9 March 2012 para 14-15
be improved, and on whether it serves any useful purpose in

HMRC's work. 34
In turn the Government gave a robust defence of HMRC’s approach:
HMRC believes the aggregate tax gap analysis is a valuable tool in
prioritising resources, as the Committee recommends, and agrees
that the focus of work on tax gaps needs to be proportionate and
help the best use of the resources available. HMRC does identify
areas where there are different interpretations of tax law.
Quantifying the scale of these issues helps set priorities for policy
development and resource deployment. This allows the
department to compare these priorities against tax losses resulting
from other types of behaviour.
There have been recommendations from both the Public Accounts
Committee and the National Audit Office 35 to develop and use tax
gap estimates in this way, and to publish the figures. In the
interest of clarity HMRC thinks it makes sense to describe all of
our tax gap estimates in one document so that a reader can
understand more easily how the figures are calculated and the
methodological issues which underpin them. 36
HMRC also provided a detailed submission on measuring the gap,
specifically in relation to the estimates published by Tax Research UK. 37
The department argued that the £120bn figure “could be dangerous if
not countered by HMRC’s published estimates … partly because they
give a misleading view of HMRC’s effectiveness and the amount of
uncollected revenues. But also because they encourage the perception
that deliberate non-compliance in the UK is the norm—a perception
which could encourage further non-compliance.” 38
The submission raises similar concerns to those set out by the Exchequer
Secretary to the House in June 2010 – quoted above – though further
detail is given on the question of measuring tax evasion. Richard
Murphy had claimed the annual cost of evasion was £70 billion – while
HMRC had put it at £26 billion. The primary explanation for this
disparity is that Mr Murphy had assumed that the size of any tax gap
would be the same across all taxes.
An extended extract is reproduced over the next two pages:
Tax Research UK particularly criticises HMRC’s use of bottom-up
methodologies to measure the direct tax gap and applies the VAT
gap rate to arrive at an evasion figure for all direct taxes. This is
highly inappropriate for three reasons:
• the VAT gap includes all forms of non-compliance such as
non-payment, avoidance and criminal attack as well as
34
op.cit. para 16-18. For a critique that these estimates should ignore the sums that
would be paid if taxpayers complied with ‘the spirit of the law’ see, “The tax chink”,
Tax Journal, 19 December 2014.
35
Following the NAO 2003 report Tackling Fraud against the Inland Revenue PAC
recommended ‘The Revenue should focus their work on making a reasonable estimate
of the tax gap so they can judge the effort needed for a given reduction in losses’.
Following the NAO 2007 report Management of Large Business Corporation Tax PAC
recommended ‘The department does not have a robust measurement of the
corporation tax gap… it should develop such a measure and publish the result, with
separate estimates for large businesses and small and medium sized businesses.’
36
Treasury Committee, First special report, HC 124, 18 May 2012 p2
37
Appendix 2, First special report, 18 May 2012, HC 124 of 2012-13 pp11-18
38
op.cit. p15
evasion. So the VAT gap arises from much more than just
suppression of turnover that might feed through to evasion
of direct taxes;
• the use of the VAT gap in this way counts debt and
avoidance twice for direct taxes—an arithmetical error, and
• very importantly, tax gaps vary considerably by type of tax.
Tax gaps for taxes using deduction of tax at source, or with
significant third party reporting requirements are much lower than
for taxes without these features. This is established by very
detailed research in the US and Denmark 39 and borne out by UK
experience.
Using the percentage VAT gap—9.7% for 2010–11 is the latest
estimate—to estimate a tax gap for business profits of companies
and sole traders may give an answer of the right order of
magnitude. But it gives completely the wrong answer for the
income tax due from employees where PAYE is operated.
International research suggests a tax gap for this of around 1%.
This incorrect assumption accounts for £30bn of the £120bn
estimate.
Tax Research UK have supported their evasion estimate through
comparison with an academic paper produced for the World
Bank 40 which contains estimates of the size of the hidden
economy for a number of countries including the UK. The
estimate for the hidden economy in the UK is 13% of GDP which
Tax Research UK then convert to a tax gap estimate of £73bn.
Rather than support the Tax Research UK figure we believe that
this comparison, if anything, further undermines it. The
methodology uses a variant of a ‘currency demand’ model to
estimate the size of the hidden economy. The use of ‘currency
demand’ models for this purpose has been comprehensively and
extensively criticised in unusually strong terms by other
academics 41, 42 and national statistical bodies. 43, 44
The main theme of the criticism is that the methodology relies
upon the application of assumptions which result in estimates that
are much too large to be plausible. For example the Australian
Bureau of Statistics explore what it would mean for Australia to
have a hidden economy of 15% (as predicted in an application of
this methodology by the same author).
Critically they point out that a hidden economy of this overall size
implies much higher levels of non-compliance in the areas of the
economy where there is scope for underreporting. For example it
implies underreporting of around 50% for every single self-
employed taxpayer—which they reject as being implausible.
Certainly non-compliance of the scale suggested for the UK is
39
Denmark, Henrik J Kleven, et. Al, Unwilling or Unable to Cheat? Evidence from a
Randomized Tax Audit Experiment, Tax Gap for Tax Year 2006, IRS
40
Friedrich Schneider, Andreas Buehn, Claudio E. Montenegro, Shadow Economies All
over the World New Estimates for 162 Countries from 1999 to 2007, July 2010
41
Trevor Breusch, Estimating the Underground Economy MIMIC models, November
2005
42
Konstantin Kholodilin, Ulrich Thiessen, The Shadow Economy in OECD Countries:
Panel Data Evidence, May 2011
43
Australian Bureau of Statistics, The Underground Economy and Australia’s GDP,
March 2004
44
Statistics Canada, Estimating the Underground Economy in Canada 1992–2008,
June 2011
completely incompatible with all of our customer research and

operational data.
As a result of the general concern about the use such models a
body consisting of a number of international organisations
including OECD, IMF, the World Bank, UN and the European
Commission have issued a strongly worded statement advising
against use. 45 Part of their statement says: Unofficial estimates are
often based on macroeconomic models. For instance, they may
assume a fixed relation between the size of the economy and
money in circulation. Such methods may yield grossly exaggerated
results, attracting the attention of politicians and newspapers and
thereby gaining wide publicity.
In a more recent report ‘Reducing opportunities for tax non-
compliance in the underground economy’, 46 OECD comment: the
OECD (and other international organisations) reject these methods
as being useful in obtaining exhaustive estimates of GDP or in
estimating underground production and have observed that when
applied they produce for most countries spectacularly high
estimates of NOE [Non Observed Economy] activities which have
no sound scientific base but which, nevertheless, attract much
attention from the media and other parties. 47
Following these exchanges, these arguments were reiterated in a pair of
articles published in the journal Taxation in summer 2012 – first by Ed
Hagger, a deputy director at HMRC, and second by Mr Murphy. 48
Reviewing the exchange, the then editor, Mike Truman, suggested one
reason for the disagreement was that the Tax Justice approach was
trying to measure something fundamentally different; in Mr Murphy’s
view the gap was the difference between the contribution society
‘expected’ in tax and the amount actually paid, so that the legitimate
use of corporate tax reliefs, say, could be termed ‘avoidance’: “this is a
logical and consistent approach, but it does not measure the gap
between the tax HMRC could collect and what they do collect.” 49
In December 2013 the Public Accounts Committee published a report
on HMRC’s annual accounts, in which it was strongly critical of the tax
gap, arguing that it did not “include an assessment of the amount of
tax lost through tax avoidance” and so “represents only a fraction of
the amount that the public might expect to be payable.” 50
In evidence Edward Troup (Tax Assurance Commissioner, HMRC) and
Jim Harra (then Director-General, Business Tax, HMRC) were both asked
if these figures included estimates of the amounts of money that many
45
Estimates of the unrecorded economy and national accounts, Declaration of the
Intersecretariat Working Group on National Accounts, October 2006
46
Forum on Tax Administration : SME Compliance sub-group, Reducing opportunities
for tax non-compliance in the underground economy, OECD, January 2012
47
Treasury Committee, First special report, HC 124, 18 May 2012 pp17-18
48
“Mind the gap” & “What’s the tax gap?”, Taxation, 8 & 23 August 2012
49
Mr Truman concluded that “as a definition, and an estimate, of the tax gap”, Mr
Hagger had made “a better, if less philosophically satisfying case” (“The third round”,
Taxation, 13 September 2012).
50
Public Accounts Committee, Thirty-fourth report: HMRC Tax Collection – annual
report & accounts 2012/13, HC 666, 19 December 2013 p8
felt companies, like Starbucks, Amazon and Google, should be paying. 51

Both witnesses suggested that this would be misleading:
Q231 Chair: Am I right in saying that the sort of issues that we
were discussing in relation to Starbucks, Amazon and Google …
and the tax that could have been payable from those companies is
not included, because it is not seen to be within the rules?
Edward Troup: The tax gap that we measure is a compliance tax
gap.
Q232 Chair: It does not include that. I am asking whether it
includes the Starbucks scenario, the Amazon scenario or the
Google scenario.
Edward Troup: It does not include the amounts of tax that some
of the commentators have said these companies should pay. That
is correct …
Q258 Chair: At the moment … your tax gap is purely the tip of
an iceberg.
Jim Harra: Our tax gap is a complete measure of non-compliance
with current tax law. It does not include a measure of how much
additional tax might be collected if you changed the policy. 52
2.3 The tax gap and ‘tax dodging’

Some critics of HMRC’s approach to measuring the tax gap have argued
that this type of analysis should provide figures for the amounts of tax
that should be paid.
In January 2015 an alliance of charities, including Christian Aid and
Oxfam, published proposals for a ‘Tax Dodging Bill’, to ensure that
companies, particularly multinationals, paid their “fair share” of taxes. 53
The authors argued that “tax dodging” encompassed three different
types of behaviour (emphasis added):
There is no single, agreed, definition of “tax dodging”, but
it is a phrase that has become widely accepted and
understood by the public in the UK and is thus used here in
place of a more specific definition of the behaviours that we are
asking parties to tackle in this campaign.
In this case we include in our definition three broad types of
behaviour: 1) Using opportunities provided by the tax system to
attempt to reduce tax payments in a way that, on examination,
would be deemed to be outside the law and thus illegal; 2) Using
opportunities provided by the tax system to attempt to reduce tax
payments in a way that is deemed legal, but is contrary to the
intention of the law; 3) Using tax incentives, that are provided for
in law, but which are not proven to provide the economic or
social benefits that would justify the loss of tax revenue. 54
51
In late 2012 there was considerable media coverage contrasting the scale of these
multinationals’ operations and the amounts of tax they paid – an issue on which the
Committee published a critical report (HC 716 of 2012-13). For more details see,
Corporate tax reform (2010-2015), Commons Briefing paper CBP5945, 25 July 2016.
52
Thirty-fourth report, HC 666, 19 December 2013 para 3 (fn 7), Ev25, Ev27
53
TaxDodgingBill.org press notice, Parties given 200-day challenge to fight back at
global tax dodgers, 26 January 2015
54
Oxfam, The Tax Dodging Bill: what it is and why we need it, January 2015 p19
Writing on this question some years ago, Judith Freedman, Professor of

Taxation Law at Oxford, argued, “how much tax should be paid is not a
question of moral intuition but a question of what is imposed by law.” 55
Taking up this point more recently, the tax barrister Jolyon Maugham,
suggested that “as a tool for delivering tax outcomes, morality is highly
imperfect: subjective, imprecise, and enforceable indirectly at best.”
However, there was a risk for the tax community from ignoring the
truism: that which is legal isn’t always moral:
Discrimination on the grounds of ‘colour’ (to use the language of
the Act) did not become immoral only on 8 December 1965 when
the first Race Relations Act received royal assent … At the second
reading of the Race Relations Bill, Peter, later Baron, Thorneycroft,
argued that one should not legislate against discrimination on the
grounds of ‘colour’; it was too soon. As he put it: ‘The British
people can be led, but they cannot be driven.’
Thorneycroft was right, albeit in only the narrowest sense. That
there can be a relationship between law and morality is a basic
requirement of the law. The law becomes difficult to enforce if it
is too advanced of morality: this was the Baron’s contention.
However, the law falls into disrepair where it fails to keep pace
with changing mores. And that, Dear Reader, is what we have
here. 56
Turning back to the tax gap, in their report in December 2013 the Public
Accounts Committee argued that HMRC “should be explicit about the
limitations of its current measure of the tax gap”:
The tax gap is a theoretical concept to assess tax revenues lost to
the Exchequer. It does not cover the full amount lost through tax
avoidance. It sets out to measure the difference between the
amount collected and the amount that should be collected. The
stated tax gap underestimates the amount of money lost to the
Exchequer … HMRC should be explicit about the limitations of its
current measure of the tax gap and gather intelligence about the
value of tax lost through aggressive tax avoidance schemes. 57
At the time HMRC published a press notice in which they took issue
with this point:
HMRC’s methodology for measuring the tax gap is robust and has
been endorsed by the International Monetary Fund (IMF).
Contrary to what the PAC report says, the published tax gap does
include a measure of the tax lost from avoidance, as well as
evasion, but it can only measure non-compliance with existing tax
law – it cannot estimate how much tax might be due if tax laws
were different.
HMRC can only bring in the tax that is due under the law and we
cannot collect what is not legally due, however much the
Committee might want us to.
The Public Accounts Committee already knows that we cannot
prosecute multinational companies for activities that are lawful
within the international tax framework and has itself
55
“Chapter 8: Is tax avoidance ‘fair’?”, in, Chris Wales (ed)., Fair tax: towards a modern
tax system, Smith Institute 2008 p94.
56
“The uses of morality in tax”, Tax Journal, 19 December 2014. See also Mike
Truman’s valedictory editorial in Taxation: “So long …”, 4 March 2015.
57
Thirty-fourth report, HC 666, 19 December 2013 p5
acknowledged that the kinds of international tax planning by

large businesses that it has reviewed are lawful. 58
Subsequently the Government published a response to the Committee’s
report, endorsing HMRC’s approach:
The Government disagrees with the Committee’s
recommendation. The tax gap definition, calculation and the
limitations are described in detail in the departments’ annual tax
gap publication. The tax gap measures compliance with existing
tax law and is informed by the intelligence the department
gathers on the use of avoidance schemes. It does not cover how
much tax might be paid if tax laws were different. 59
2.4 Recent debate on the size of the tax gap

Despite these concerns as to the value of this exercise, HMRC has
continued to produce annual estimates of the tax gap. Following the
publication of its 2015 report, Edward Troup, then HMRC Permanent
Secretary, restated why, in his view, it was “one of the most important
documents [HMRC] publish”:
An Ipsos MORI poll of the British public in September 2015
showed that they believe 36% of their compatriots have avoided
paying the full amount of tax on income or purchases in the past
year. However, the proportion of people who admitted they had
done so in the same anonymous survey was just 6%. Due in part
to our work in tax gap estimation, we know that more than 90%
of the tax that is due is paid with little or no involvement from
HMRC.
This “perception gap” between what people think about non-
compliance and the objective truth is important; if people think
everybody is at it, they are more likely to dodge tax themselves. If
HMRC can show objectively, transparently and clearly that non-
compliance is not nearly as big a problem as people’s assumptions
suggest, we can increase tax morale, reinforce social norms and –
cyclically – reduce the tax gap further. 60
In June 2016 Mr Troup gave evidence to the Treasury Select Committee,
and on this occasion the then Chair of the Committee, Andrew Tyrie,
asked “just how much of the tax gap is ever going to be eradicable in
practice, given human nature.” In response, Mr Troup made a couple of
points:
[The tax gap is] in a very real sense, the best measure of the
long‑term performance of a tax administration, because it is
effectively the tax that is not collected, for whatever reason, and
our goal should always be to reduce [it] …
We are always going to have a tax gap, because there are always
going to be criminal attacks; there is always going to be evasion
… We think what we are doing, particularly with our digital
transformation, will give taxpayers, particularly business taxpayers,
the tools that effectively allow them to reduce their errors …
[Moreover] no country in the world has an observed tax gap
58
HMRC press notice, HMRC responds to PAC report, 19 December 2013
59
HM Treasury, Treasury Minutes, Cm 8819, February 2014 p13
60
“Measuring the gap”, Taxation, 15 October 2015
significantly lower than ours, which means we are already pushing

at the boundaries of what is doable with current technology, with
the current tax system. 61
Following publication of the 2018 edition of the tax gap, Chris Sanger
(global head of tax policy at EY), writing in the Tax Journal, noted that
“at first glance, the results for this year look uninspiring” as the
percentage figure “had been relatively constant since 2011/12.” He
went on to argue that “dismissing the report because of the lack of
movement in the year is to be misunderstand the purpose of the tax
gap figures”:
HMRC uses the information to inform its operational strategy, to
compare itself to other countries and to track its long-term
performance. And it’s clear that the tax gap has impacted HMRC’s
strategy. Consider the fact that the largest risk to the Exchequer,
at over 40%, comes from small business. Also, the largest source
of tax risk is failure to take reasonable care, which together with
error, makes up more than a quarter of the tax gap. This fits with
HMRC’s policy of mandating the ‘making tax digital’
requirements. 62
Mr Sanger went on to note that the figures provide “an opportunity for
HMRC to demonstrate its success, something that can be difficult given
the necessary and wholly justified constraints to taxpayer
confidentiality”, citing the evidence that HMRC’s director of customer
strategy, David Richardson, had given in April 2018 to the Treasury Sub-
Committee, as part of an inquiry into tax avoidance and evasion.
In his evidence Mr Richardson was asked whether HMRC’s compliance
policy was unfairly focused on smaller traders:
Q2 Chair: One thing that is sometimes said about you is that you
love to go after the sole trader, the white van man, the person
running a childcare business from home, as opposed to the
wealthiest, those with the most money and those doing the
biggest amounts of avoidance. The figures that you have made
public would suggest that, to some extent—that you are aiming
at people primarily with less money and not looking at getting
large amounts of money from richer individuals.
David Richardson: That is said sometimes; it is not true. Our
compliance policy is the same right across the different sectors of
the population, which is to try to prevent non‑compliance
happening before it would otherwise happen, and then to pursue
people where there is non‑compliance to get the correct amount
of tax in. If you make the contrast between large business and
small business, which is the one that is often suggested in the
papers—that we go after small businesses and let large businesses
off—that is completely untrue.
If you look at our investigation rate, you will find that over one in
two of every large business is under investigation by us at any one
time and, last year, we collected £8 billion in compliance yield
from large business. If you look at small businesses, the number of
businesses under investigation at any time is about one in 10. It is
61
Treasury Committee, Oral evidence: HMRC Executive Chair and Chief Executive, HC
232, 8 June 2016 Qs9-11
62
“The tax gap: a right riveting read?”, Tax Journal, 6 July 2018. For more details of
HMRC’s programme to introduce a new system of digital tax accounts see, Making
Tax Digital, Commons Briefing paper CBP7949, 12 July 2019.
important that we investigate small businesses, because they

make up 46% of the tax gap, so we need to have a presence with
small business. But large business represents a particular risk to us,
and we investigate large businesses much more frequently and
with much greater technical expertise than at the small end.
Q3 Chair: If we take people you define as wealthy individuals,
how certain can we be that your estimate of the tax that is being
avoided by them is an accurate one, and that you are not
understating the amount of money?
David Richardson: We publish a tax gap. We are one of the few
countries that publish a tax gap. That has been looked at by the
IMF, by Government statisticians, so we have reasonable
confidence in the tax gap and stand by that. We publish it so that
people can see what is going on. What is important with the tax
gap is the trend. By applying it in the same way every year, you
can see a downward trend over the last 10 years.
We are now at 6%, which is the lowest it has ever been and
certainly one of the lowest of the countries that produce a tax
gap. It is a good indicator of the extent of evasion and avoidance.
Like all statistics, it is unlikely to be 100% accurate, but it is a
consistent measure that shows a clear trend and a reliable, broad
view of the make-up of the gap. 63
In this context it is worth noting the results of a small qualitative survey
that HMRC commissioned, to consider the drivers of tax compliance and
behaviour among the wealthy, published in April 2019. 64 Researchers
carried out in-depth one-to-one interviews with 32 wealthy individuals
and 10 agents, an approach guided by the fact that this category of
taxpayers “are a relatively small, hard-to-engage population” and this
tactic “would be more effective at capturing and unpicking the nuances
and complexities of discussions of wealthy individuals’ tax affairs.” 65
Researchers found that although there was some resentment at
investment in tax avoidance being cast as a moral issue, the tone taken
in much public discourse about this had been “an effective deterrent”:
Tax behaviour seems to be primarily shaped by a delicate balance
between wanting to contribute to society, while being intolerant
of too onerous or punitive a tax regime. The near consensus is
that the core goal is paying the ‘legally correct’ amount of tax –
and there is irritation at this becoming a morally loaded issue in
media coverage and political/public discourse.
Other motivations are more varied and seem to map to risk
appetite – and these imply some possible messaging approaches
to encourage compliance: more effectively ‘selling’ the benefits to
society to those with a stronger social conscience; warning those
with a higher risk appetite to avoid being the ‘guinea pig’ who
proves a scheme doesn’t work; and – cutting across wealthy
individuals more generally – the idea that, by using only safer tax
arrangements, you protect the peace of mind and quality of life
that are among the key advantages of being wealthy.
63
Treasury Sub‑Committee, Oral evidence: Tax avoidance and evasion, HC 934, 17
April 2018 Qs2-3
64
HMRC, Researching the drivers of tax compliance behaviour among the wealthy,
and ways to improve it: HMRC Research report 537, April 2019
65
op.cit. para 1.3
The ‘acid test’ for agents and some individuals when weighing up
a specific scheme, is whether it feels overly-complex or contrived,
and whether they believe it will ‘fall down’ eventually – if this is
the case, agents will not recommend it. Agents said they have the
ultimate sanction of rejecting clients who they feel have tax affairs
that are too opaque or who display too high a risk appetite.
That said, agents and individuals mostly seem to be ‘on the same
page’ in avoiding arrangements that feel overly-complex or
contrived. Few in our sample of wealthy individuals seemed to be
countenancing more risky arrangements; and agents reported
that there is now little client appetite for these. Legal challenges,
changes to regulation and the aforementioned ‘moral’ tone of
media/public discourse are felt to have made risky arrangements
less acceptable. While resented, the moral tone of media/public
discourse therefore seems to have been an effective deterrent. 66
In June 2019 HMRC published its latest estimates of the tax gap, which
showed an increase from 5.5% to 5.6% of all tax liabilities; in cash
terms from £33bn to £35bn. 67 In a letter to the Treasury Committee,
Jon Thompson, then HMRC Permanent Secretary noted that the cash
value of the tax gap was higher than in earlier years:
It’s essential to refer to the percentage tax gap to understand
compliance trends over time. The cash figure is affected by
economic growth and changes to tax rates, whereas the
percentage gap takes the impact of these factors into account.
You will see that the cash value of the tax gap in 2017-18 is
higher than in some earlier years – despite being at a low
percentage. This reflects that HMRC is also collecting record levels
of revenue. Total revenue, as reported in our Annual Report and
Accounts publications, has for example increased from £536.8
billion in 2015-16 to £605.8bn in 2017-18.
The tax gap has fallen from 7.2% in 2005-06 to 5.6% in 2017-
18, albeit with some year to year variations. Its lowest point to
date was 5.3% in 2015-16 and although there has been a slight
increase this year (primarily driven by an increase in the latest VAT
gap estimate), it remains low, with the trend in recent years being
best described as flat. 68
In their commentary on the figures the Chartered Institute of Taxation
highlighted the fact that while the cost of tax avoidance had fallen
considerably in recent years, the estimates of tax lost from taxpayers
making unintentional mistakes had “remained stubbornly high”:
Estimating the tax gap is a complex and necessarily imprecise
process so we should be careful not to read too much into small
year on year changes. But a sustained fall of three quarters in the
share of the potential tax take being lost to avoidance since 2005
is significant and a tribute to the actions of successive
governments as well as a change of culture around what is
regarded as acceptable behaviour ...
Nearly £10 billion of the tax gap relates to taxpayers inadvertently
not getting things right, through what HMRC categorise as error
or a failure to take reasonable care. As some other parts of the tax
66
op.cit. para 8.2-3
67
HMRC press notice, Tax gap remains low, 20 June 2019. See also, “HMRC reveals
sharp increase in lost self-assessment tax”, Financial Times, 21 June 2019
68
Treasury Committee, Letter from Sir Jonathan Thompson to Chair relating to the Tax
Gap, 20 June 2019
gap have fallen these have remained stubbornly high. The CIOT
suggests that HMRC should focus on customer service as a direct
way to help large numbers of ordinary taxpayers who find
themselves confronted by ever more complex tax law and
increasing compliance obligations. 69
On 21 October 2019 the Public Accounts Committee took evidence
from HMRC officials on its 2018/19 Annual Report. On this occasion
Nigel Mills asked Jim Harra, now HMRC’s Chief Executive, about the
department’s future target for the tax gap:
Jim Harra: … The key thing for us is whether we are collecting all
the tax that is due, so a key measure for us is the tax gap. Ideally,
you would target me on managing the tax gap, but the problem
is that in operational terms there is quite a lag in measuring that,
so we have to use some proxies to do that. The key figure that I
watch in a trend over time is the tax gap.
Nigel Mills: I like this idea of a target on the tax gap. What
would be a reasonable target? … Is a 5% target for the tax gap in
three years’ time realistic?
Jim Harra: I would dearly love to achieve that. It would set the
Government quite an investment challenge for us. Having brought
it down, we are finding it tough to get it down again. It is very
difficult to get a benchmark with the rest of the world, because
we are the only country that does a comprehensive measure.
The main benchmark we have is on VAT. You have lots of
countries with a very similar system, and all of them measure it in
a broadly similar way. You can see that we have performed pretty
well. In the EU, for example, we are at the median. You can also
see how some countries have been putting measures in place that
mean they are making very rapid and accelerating improvement
through things such as e-invoicing, fiscal tills and withholding
taxes. Those are the kinds of areas that the UK would have to
move into if it wanted to see that further shift in the tax gap. 70
Meg Hillier wrote to Mr Harra after this session to raise several issues,
and argued that HMRC should have a target to cut the tax gap:
We note HMRC’s desire to reduce the Tax Gap, including through
a greater focus on preventative measures to help taxpayers get
their affairs right first time and reduce the opportunities for
mistakes to be made. However, despite the Tax Gap being a key
measure for HMRC’s performance, there is no target for reducing
its size.
Recommendation: HMRC should establish a stretching annual
target for reducing the size of the Tax Gap. This should be in
place by 1 April 2020. 71
The Committee’s inquiry was interrupted by the dissolution of the
House prior to the 2019 General Election, and the Government did not
publish a response to the Committee’s letter until after the 2020
69
CIOT press notice, Chartered Institute of Taxation urges focus on customer service to
close the tax gap, 20 June 2019
70
Public Accounts Committee, Oral evidence: HMRC Standard Report 2018-19, HC 28,
21 October 2019 Qs 60,61,65
71
Public Accounts Committee, Letter from Chair to Jim Harra, follow up to evidence
session on HMRC Standard Report 2018-19, 30 October 2019
Budget. On this specific proposal, Ministers rejected the case for setting
HMRC an annual target for reducing the tax gap:
HMRC maintains its long-term strategic ambition to drive down
the tax gap and accept that it is right to be assessed on
movement in the tax gap over time. The department continues to
measure and publish estimates of the tax gap and agrees with the
committee that this provides important information to monitor
HMRC’s long-term performance in managing tax compliance.
However, in line with the government’s previous comments on
the matter, HMRC believes that tax gap reduction is not suitable
as an annual performance target. This is because it cannot be
measured in a timely way and cannot directly inform resource
deployment and other operational decision making.
Nonetheless, HMRC is fully committed to work to both prevent
growth of, and tackle, the existing tax gap. This is already
reflected in HMRC’s long established compliance yield targets,
which drive decisions on policy and operational compliance
interventions. Compliance yield captures the impact of HMRC’s
activity to tackle the tax gap in a timely and practical way.
The department uses a range of operational targets, which are set
each year by HM Treasury (HMT) ministers, to focus on
performance. HMRC will continue to keep the basket of measures
and targets under review in discussion with HMT. 72
72
HMRC, Response to the recommendations of the Public Accounts Committee
following the inquiry on HMRC Standard Report, 23 March 2020
3. The Coalition Government’s

approach
3.1 A new anti-avoidance strategy
The Coalition Government set out its priorities for tax policy in its
agreement published in May 2010, announcing that as a whole the tax
system should be made “more competitive, simpler, greener and
fairer.” On avoidance, the agreement stated that the Government
would make “every effort” to tackle it “including detailed development
of Liberal Democrat proposals.” 73
In Opposition the Liberal Democrats had pin-pointed a number of anti-
avoidance measures, including a new General Anti-Avoidance Principle -
or ‘GAAP’ - that they estimated could raise up to £2.2bn a year. In their
General Election briefing on the major parties’ tax proposals the
Institute for Fiscal Studies (IFS) commented on the viability of a GAAP,
citing earlier work by the Tax Law Review Committee:
A general anti-avoidance principle (GAAP) is intended to help
prevent behaviour that reduces tax liabilities through transactions
that satisfy the letter of the law but are said to violate the spirit of
the law in some way. In the past, concerns have been raised that
a GAAP would be inherently vague and would potentially create
uncertainty for taxpayers, and therefore that a resource-intensive
‘pre-clearance’ mechanism would be required whereby taxpayers
could check in advance with HMRC whether particular
arrangements would fall foul of the GAAP. The Liberal Democrats’
response to these concerns is to propose that ‘pre-clearance’ be
provided by a new branch of HMRC which would charge
commercial rates for such advice. This is a reasonable solution, but
note that in effect it simply shifts the cost of pre-clearance from
HMRC to the taxpayer.
The effects and effectiveness of a GAAP would depend a great
deal on exactly how it was worded and on how the courts
interpreted it. International experience has been varied in these
respects. It is not a panacea and is unlikely to remove the need for
more specific anti-avoidance legislation, but it could potentially
raise some revenue. 74
To estimate how much a GAAP would yield, the Liberal
Democrats have taken the Government’s estimates of how much
it loses from both ‘avoidance’ and differences in ‘legal
interpretation’, and simply guessed what fraction of this total a
GAAP would deliver: 20% for income tax, NICs and capital gains
tax, and 25% for corporation tax. Yet a GAAP of the kind they
describe would do little to address differences in ‘legal
interpretation’.
The HMRC document from which the Liberal Democrats take their
estimate of the tax gap describes the difference between
‘avoidance’ and ‘differences in legal interpretation’. Avoidance,
73
HMG, The Coalition: our programme for government, May 2010 p30
74
See Bowler, T. (2009), Countering tax avoidance in the UK: which way forward?, IFS
Tax Law Review Committee Discussion Paper No. 7 … for an analysis of the impact a
GAAP might have had on tax avoidance had the current Government introduced one
following consultation in 1998.
according to HMRC, is “the use of schemes or arrangements that

seem to HMRC to have been implemented primarily in order to
deliver a tax advantage”; by contrast, “Legal interpretation relates
to the potential tax loss from cases where HMRC and customers
have different views of how, or whether, the law applies to
specific and often complex transactions. Examples include the
correct categorisation of an asset for allowances, the allocation of
profits within a group of companies, or VAT liability of a particular
item. In these situations the customer will have an alternative view
of the law and of how it applies to the facts in their case to that
held by HMRC.”
A GAAP as normally envisaged would address avoidance but not
differences in legal interpretation, on these definitions; and
indeed it is notable that the stated aim of the Lib Dems’ GAAP is
to target transactions “constructed in such a way that the sole or
main purpose, or one of the main purposes, is to reduce or
eliminate tax liability” – a phrase that is almost indistinguishable
from the above definition of ‘avoidance’ rather than ‘legal
interpretation’
To raise £2.2 billion, therefore, the fractions of ‘avoidance’ alone
that a GAAP would need to eliminate are much larger than the
20% and 25% that Liberal Democrats assume. Since these
percentages are arbitrary guesses in any case (and we have no
better way of estimating the yield), it is possible that larger
percentages would turn out to be accurate. But relying on
bringing in £2.2 billion is clearly less cautious than the 20% and
25% numbers might suggest. 75
In its first Budget in June 2010 the Government stated that as part of
“wider work on improvements to the tax policy making process” it
would “engage informally with interested parties to explore whether
there is a case for developing a General Anti-Avoidance rule.” 76 In
September, just prior to the Spending Review, the Chief Secretary to the
Treasury announced that HMRC would receive an extra £900m of
funding for a number of additional activities over 2011-2015 to improve
its collection record, by reducing the current incidence of both
avoidance and evasion. 77 In turn the Spending Review the next month
stated that this extra £900m would bring in “an additional £7bn a year
in tax revenues by 2014/15”: 78
This will include:
• a five-fold increase in criminal prosecutions to act as a
deterrent to others;
• a new dedicated team of investigators to crack down on
offshore evasion;
• more resources for the prevention of tobacco and alcohol
fraud, an increase in registration checks, and a cyber team
to address repayment fraud;
75
Taxes and Benefits: The Parties’ Plans, IFS April 2010 p39
76
Budget 2010, HC 61 June 2010 para 2.114. The Government published more details
of its approach at the time in, Tax policy making: a new approach, 22 June 2010
77
Liberal Democrats press notice, Alexander announces major clampdown on tax
avoidance and evasion, 19 September 2010
78
Cm 7942 October 2010 pp 71-2
• dedicated tax experts to extend HMRC’s coverage of large

businesses, focused on providing resources to tackle high
risk areas; and
• improving the scope of in house debt collection and placing
up to £1 billion per year of tax debt to private sector debt
collection agencies.
It should be noted that this investment was in the context of a cut in
HMRC’s total spending:
Owen Smith: To ask the Chancellor of the Exchequer what
effects he expects the outcomes of the comprehensive spending
review to have on his Department's funding for HM Revenue and
Customs in each year of the spending review period.
Mr Gauke: The outcome of the spending review is that HMRC
will be required to make savings of 25% in real terms on a
straight line basis over the next four years and that they will re-
invest £900 million to tackle non-compliance in the tax system.
The overall net effect is a real terms reduction of about 15%. 79
At the time there were some concerns that the reductions to the
HMRC’s budget and consequent cuts in staff would see an increase in
tax evasion and avoidance, 80 though the Government argued that there
was not a binary relationship between the two:
Mr Jim Cunningham: To ask the Chancellor of the Exchequer
what his most recent assessment is of the relationship between
the number of staff employed by HM Revenue and Customs
(HMRC) and the amount of tax revenue obtained by HMRC.
Mr Gauke: The amount of tax revenue received by the
Government in any given year depends on a number of factors,
including:
• the state of the economy eg the level of personal and
corporate income, consumption, saving and investment;
• the structure of the tax system eg the rates, thresholds and
reliefs in operation;
• the level of compliance by taxpayers; and
• HM Revenue and Customs' (HMRC) administration of the
tax system, and the productivity of its compliance activities.
Through the use of new technology and increases in staff
productivity HMRC has increased the amount of revenue bought
in as a result of its compliance activities from £7.5 billion in
2005-06 to £12 billion in 2008-09. Over the period April 2005 to
April 2010, HMRC has reduced the number of full-time equivalent
staff it employs by 23% (excluding the transfer of 4,641 FTE staff
to the UKBA). 81
The Treasury Committee were critical of this funding decision, as part of
their report on tax compliance published in March 2012:
79
HC Deb 23 November 2010 c278W
80
For example, The Association of Revenue & Customs, Being bold : a Radical Approach
to Raising Revenue and Reducing the Deficit, September 2010 & FDA press notice,
Tax gap figure reinforces case for increased HMRC resourcing, 17 September 2010;
see also, “A challenge to the Chancellor”, and “Closing the gap”, Taxation, 5 May &
6 October 2010
81
HC Deb 11 October 2010 c242W
In the 2010 Spending Review, HM Treasury allocated £917 million

to HMRC with the intention of generating an additional £7 billion
in compliance yield annually and £18 billion over the four-year life
of the Spending Review. 82
Given HMRC's estimate of the 2009-10 tax gap of £35 billion, this
is a reduction of 20%, which is a very ambitious target … We
accept that, based upon figures in HMRC's latest tax gap report,
these seem to be sensible areas in which to invest. However the
process by which the areas to be invested in, the amount to be
invested, and the estimated additional yield were calculated and
decided lacks transparency.
Mr David Gauke MP, Exchequer Secretary, explained the process
as follows: “[HMRC] came forward with a proposal saying, "This
is what we think we can do to reduce costs and this is what we
can do to reinvest in a way that would increase the yield". I think
it would be fair to say that pretty well the HMRC bid was
accepted by the Government. The Treasury kicked the tyres very
hard and examined all the detailed proposals that were contained
within it, which broke down to, "Well, this particular programme
we think would cost X and produce Y". We examined the various
proposals and, by and large, the HMRC bid was accepted, and
that is why we reached the settlement that we did [HC 731
Q372].
In a further memorandum intended to elaborate on this point, the
Exchequer Secretary told us that: “HMRC came forward with a
number of investment cases to further increase compliance and
reduce the tax gap that the Treasury were satisfied with on that
basis... The final £917m reinvestment proposals therefore met the
test of standing up to intense Treasury scrutiny [HC 731 Ev 130].”
Neither the Minister's oral evidence nor his supplementary
evidence makes clear what criteria were applied to assess HMRC's
proposals for investment, or whether this assessment was
systematic. This makes it difficult for us to scrutinise in detail
whether the areas to be invested in are the right ones, whether
the estimated yield from each area is accurate, and whether
proposals which were rejected should have been accepted. 83
The Committee went on to raise concerns that investments in this area
might encourage an overly aggressive attitude by tax officers:
We welcome the Exchequer Secretary's view that "the Treasury
could, in theory, seek to invest in HMRC until the marginal pound
invested brought not less than a pound in return... [but] in
practice the Treasury considers each additional investment in
HMRC on a case-by-case basis". However we encourage the
Treasury to include in its consideration the question of whether
the activity invested in will yield the right amount of tax and not
just the greatest possible amount. 84
At the time of the 2011 Budget the Government published a strategy
document on its anti-avoidance strategy. In the foreword to this, the
then Exchequer Secretary, David Gauke, made the case for a new
approach as follows:
82
Spending Review Settlement 2010, Cm 7942, October 2010; Treasury Committee,
Administration and effectiveness of HM Revenue and Customs, 30 July 2011, HC 731
of 2010-12 Q258
83
HC 1371 2010-12 pp7-8
84
HC 1371 2010-12 p8
We inherited a tax system with a ‘tax gap’ of around £40 billion.

More than a sixth of that is due to tax evasion – that is, illegally
understating tax liabilities. But a further one sixth is estimated to
be due to tax avoidance – that is, reducing tax liabilities by using
the tax law to get a tax advantage that Parliament never intended.
And the problem is a persistent one …
Clearly, there is a problem we need to tackle and we are
committed to tackling it differently from our predecessors. That
means a more strategic approach that gets to the root of the
problem, rather than treating the symptoms. 85
The document went on to summarise the key elements of this
approach…
• making the most of opportunities to make the tax system
more watertight against avoidance, for example, as part of
wider policy reform;
• reviewing areas of the tax system that have been under
repeated avoidance attack, to get to the heart of the
problem and develop sustainable solutions; and
• creating new generic defences against avoidance, going
beyond closing identified avoidance loopholes, including
considering the case for a General Anti-Avoidance Rule
(GAAR). 86
… and to set out four strands of work on legislative defences against
tax avoidance:
• a new proposal to reduce the cash flow benefits that
taxpayers can gain from using high risk avoidance schemes;
• a new rolling programme of reviews on high risk areas of
the tax code;
• work in hand on a GAAR; and
• the targeted tax measures that sit alongside this strategic
work to address specific avoidance risks that have
emerged. 87
With regard to the specific proposal to consider a ‘GAAR’, in November
2011 the Treasury published a report by a study group, led by Graham
Aaronson QC, which recommended a narrowly focused rule targeted at
‘abusive arrangements’ only, 88 and following consultation, 89 the
Government introduced provision for this tax avoidance legislation in
2013. 90 Several countries have introduced legislation along these lines,
and an IMF survey of international practice gives a short description of
how this rule is meant to work:
A GAAR is a provision of last resort that is capable of being
invoked by a tax authority to strike down unacceptable tax
avoidance practices that would otherwise comply with the terms
and statutory interpretation of the ordinary tax law. A GAAR is
85
HM Treasury/HM Revenue & Customs, Tackling Tax Avoidance, March 2011 p3
86
op.cit. p5
87
op.cit. p9
88
HM Treasury press notice 130/11, 21 November 2011
89
HMRC, A General Anti-Abuse Rule (GAAR) - consultation document, June 2012
90
As noted above, these developments are set out at greater length in, Tax avoidance:
a General Anti-Abuse Rule, Commons Briefing paper CBP6265, 7 September 2018.
typically designed to strike down those otherwise lawful practices

that are found to be carried out in a manner which undermines
the intention of the tax law such as where a taxpayer has misused
or abused that law. This is typically achieved by giving the tax
authority the power to cancel a particular tax benefit or assess a
different (increased) tax liability against the taxpayer in
circumstances where the course of action taken by a taxpayer is
so blatant, artificial or contrived that it is only explicable by the
desire to obtain a relevant tax benefit. 91
As HMRC’s detailed guidance on the GAAR explains, “to ensure that
the taxpayer is given the benefit of any reasonable doubt when
determining whether arrangements are abusive, a number of
safeguards are built into the GAAR rules”:
These include:
• requiring HMRC to establish that the arrangements are
abusive (it is not up to the taxpayer to show that the
arrangements are non-abusive) n the case of the UK’s
GAAR,
• applying a ‘double reasonableness’ test - this requires
HMRC to show that the arrangements ’cannot reasonably
be regarded as a reasonable course of action’ - this
recognises that there are some arrangements which some
people would regard as a reasonable course of action while
others would not - the ‘double reasonableness’ test sets a
high threshold by asking whether it would be reasonable to
hold the view that the arrangement was a reasonable
course of action - the arrangement is treated as abusive
only if it would not be reasonable to hold such a view
• allowing the court or tribunal to take into account any
relevant material as to the purpose of the legislation that it
is suggested the taxpayer has abused, or as to the sort of
transactions which had become established practice at the
time when the arrangements were entered into
• requiring HMRC to obtain the opinion of an independent
advisory panel as to whether an arrangement constituted a
reasonable course of action, before HMRC can finally apply
the GAAR. 92
In answer to a PQ in May 2018 Treasury Minister Mel Stride noted,
“HMRC is actively using the GAAR and all cases referred to the GAAR
Advisory Panel to date have resulted in a Panel opinion in HMRC’s
favour. Since 2013, twelve Panel opinions have been published and
HMRC has taken action against each referred case using the GAAR.” 93
In their report on Finance Bill 2011, the House of Lords Economic Affairs
Committee looked at this issue, asking a number of witnesses about the
Government’s new approach:
[The Government's strategy and the three elements to this
strategy identified in Tackling Tax Avoidance] … met with wide-
spread approval from our private sector witnesses. The Chartered
Institute of Taxation (CIOT) thought that "the idea of a strategic
91
Waerzeggers & Hillier, Introducing a General Anti-Avoidance Rule (GAAR) : Ensuring
That a GAAR Achieves Its Purpose, International Monetary Fund, January 2016 p1
92
HMRC, GAAR Guidance with effect from 28/3/2018, March 2018 para B12.1
93
PQ138560, 1 May 2018
approach to tackling avoidance is sensible and in many ways

much needed ... We are pleased to note that the new Protocol on
unscheduled announcement of changes to tax law explicitly
recognises that retrospective changes to tax legislation will be
wholly exceptional …" [Written evidence (WE) 94].
The Institute of Directors (IoD) thought that although the
"detailed articulation of the strategy may be new, we would be
surprised and concerned if more than a small proportion of the
practices that it mentions were new."[WE] They agreed with
taking "away the cash-flow advantage of using high-risk
avoidance schemes that fail."[WE] The CBI echoed this ... The
Institute of Chartered Accountants (ICAEW) thought that
"Tackling Tax Avoidance makes a number of sensible
recommendations. We have welcomed previously the new
Protocol on unscheduled announcement of changes to tax law
which reiterates the fundamental principle that any tax changes
should be made prospectively and not retrospectively."[WE]
Mr Alex Jackman of the Forum of Private Business (FPB) was
positive … but he had a concern "We do not want to see small
business unfairly targeted … while there are a few big wins out
there, I think the view might be taken by HMRC that there are a
few more easy wins at the lower end of the business spectrum.
That is something we would be seeking to avoid."[Q231]
On the rolling programme of reviews of high-risk areas of the tax
code, most of our private sector witnesses were content with
HMRC having chosen income tax losses and unauthorised unit
trusts ... Only Mr Murphy 95 thought that these areas "seem to be
relatively minor compared to major issues such as profit shifting,
the use of tax havens, the abuse of the domicile rule, the
residence rules and what they are giving rise to."[Q90] 96
Witnesses raised two specific concerns: first, that the department should
be stopping avoidance schemes more quickly, and second, that it should
improve the drafting of legislation. 97
On the first of these issues, officials pointed to the impact of the
‘disclosure regime’, DOTAS for short, under which promoters of
avoidance schemes are required to give HMRC information on the
nature of the scheme, and those taxpayers that they have provided it
to. 98 For its part the Committee concluded that tackling evasion was just
as important as tackling avoidance, if not more so:
Some of our witnesses enjoined us not to forget about evasion. In
their evidence, the CIOT wrote "As a final point in this section, we
would urge the Government not to lose sight of evasion and
other criminal activity, which can have a far greater impact on
Exchequer revenues than avoidance."[WE] … [Richard Murphy]
agreed "Let's be blunt about it; the biggest issue with regard to
loss of revenue is not with regard to avoidance, it is with regard to
evasion, and most people who are evading would in fact be basic
94
Written evidence to the Committee, collated on the Committee’s site.
95
Richard Murphy, Tax Research LLP
96
Select Committee on Economic Affairs, The Finance Bill 2011, 17 June 2011 HL
Paper 158 2010-12 pp32-33
97
HL Paper 158 2010-12 p33, pp35-36
98
For more details see, National Audit Office, Tax avoidance: tackling marketed
avoidance schemes, HC 730, 21 November 2012, and, Commons Briefing Paper
CBP2956, 13 April 2017 (see section 2.1).
rate taxpayers, probably not high rate taxpayers at all. This is cash
put in pockets …."[Q85]
Dave Hartnett (Permanent Secretary for Tax at HMRC) outlined for
us what was happening to tackle evasion and stated that he was
"expecting our numbers from compliance interventions to be very
good for 2010-11—probably our best ever … We are in the
throes of recruiting 200 more criminal investigators. We
particularly want to focus on people who have hidden money
offshore over a number of years, as a product of tax fraud. We
have set up new groups around the country, with task forces
looking at particular industries … We have teams of specialist
investigators who are pursuing people working in the hidden
economy."[Q270]
On the basis of HMRC's figures the tax lost from all forms
of evasion and default is very much greater than that lost
from avoidance: £22 billion compared with £7.5 billion. We
welcome action to tackle evasion. We recommend that the
Government should publish an anti-evasion strategy in the
same way as for anti-avoidance. 99
As noted above, HMRC seek to assess the effectiveness of their strategy
to increasing tax revenues by estimating “compliance yield”: that is, the
additional revenue it generates through its activities to identify and
prevent tax losses arising from avoidance, evasion and criminal attack.
As the National Audit Office explain:
HMRC estimates compliance yield to provide accountability and to
support decision-making. The long-term aim of compliance work
is to reduce the tax gap: the difference between the tax that is
theoretically due and the tax HMRC actually collects.
But a more direct measure of compliance yield is also necessary as
the tax gap is subject to long reporting delays and is affected by
factors outside HMRC’s control, such as the strength of the
economy and changes to tax rates. HMRC therefore estimates the
additional tax revenue attributable to its compliance activities,
both to provide accountability for its overall performance and to
manage its business and the performance of its compliance teams
on a day-to-day basis. 100
In 2014 it came to light that HMRC had made a £1.9bn error when it
had established the baseline for these estimates in 2010, something for
which it was strongly criticised by the Public Accounts Committee. 101
Nevertheless, in an overview of the department’s work published in
February 2015, the NAO found that HMRC had made “significant
progress since the 2010 spending review in delivering its strategic
objectives, successfully reducing the cost of tax collection while
increasing the tax it raises from its compliance work.” The report went
on to provide details of HMRC’s (corrected) estimates of its compliance
yield over this period:
HMRC estimates that it secured compliance revenue of £23.9
billion in 2013-14, over £7 billion more than the baseline set at
99
HL Paper 158 2010-12 p42
100
NAO, HMRC 2013-14 accounts, 3 July 2014 pR19. Part Two of the report discusses
the measurement of the compliance yield in detail.
101
HMRC’s progress in improving tax compliance and improving tax avoidance, 18
November 2014, HC 458 of 2014-15 pp7-10
the beginning of the spending review period. Despite an error in

the baseline that HMRC originally set, it met the additional
compliance yield targets agreed in the 2010 spending review. In
2013-14, it generated an increase of £7.3 billion against the
target of £5.3 billion. HMRC believes it is on track to meet its
2014-15 target. 102
3.2 Assessing the impact of HMRC’s strategy

When HMRC’s 2015 estimates of the tax gap were published, the
Chartered Institute of Taxation noted that despite the amount of press
coverage given to the scale of tax avoidance, the costs from tax evasion
and other illegal activities were much higher: “This total includes an
estimated £2.7n lost to tax avoidance … However, £5.1bn was lost to
criminal attacks, £4.4bn to evasion and £6.2bn to the ‘hidden
economy’, a total of £15.7bn from illegal activity.” John Cullinane, CIOT
Tax Policy Director, commented: “These figures suggest that tax evasion
and other illegal activity are costing the Exchequer nearly six times as
much as tax avoidance.”103
Writing at this time barrister Jolyon Maugham suggested that without a
significant reduction in the scale of the hidden economy “our scope for
improvement is limited”:
Legislative steps are an imperfect solution. They are imperfect
because they cannot address the resource heavy areas of
smuggling, the shadow economy and so on. Technological
advances … can assist but we also need investigators.
Perhaps more profoundly, they are imperfect because they create
imbalances in the system. Over time they will erode – indeed, they
are already eroding – the reputation HMRC has previously enjoyed
for fair dealing …
The tax avoidance figures next year will show the effects of the
adoption in the Finance Act 2014 of a slew of radical legislative
measures – and there is more to come from further legislation in
subsequent Acts. And at some stage soon – although the current
data records no such trend – we will see some modest benefits
from a growing focus on evasion. Modest, because unless
someone is brave enough really to tackle the shadow economy,
our scope for improvement is limited. 104
Similar concerns were raised the following year when HMRC published
estimates of the tax gap for 2014/15: of a total tax gap of £36 billion,
£2.2 billion was attributed to tax avoidance, and £16.2 billion to various
types of illegal activity (the hidden economy, evasion and criminal
attacks). In a press notice from the CIOT Mr Cullinane observed:
“These figures suggest that tax evasion and other illegal activity
are costing the Exchequer more than seven times as much as tax
avoidance. The CIOT has long argued that HMRC needs to put
more effort into investigating and prosecuting those who seek to
evade tax. The Government are right to have put extra resources
102
Increasing the effectiveness of tax collection: a stocktake of progress since 2010, 6
February 2015, HC 1029-I of 2014-15 p7, pp10-11
103
CIOT press notice, 22 October 2015
104
“The tax gap, updated”, Waiting for Godot blog, 22 October 2015
in this direction, as well as tackling artificial and abusive attempts

to avoid tax.
“Taxpayers will be reassured that HMRC is making good progress
on tackling and managing the tax gap. We welcome HMRC’s
continued commitment to providing impartial statistics that
should inform the unprecedented debate about taxation and we
will continue to push for the more simplified and workable tax
system that personal and corporate taxpayers tell us they
want.” 105
In December 2015 the NAO published a report on HMRC’s approach to
dealing with tax fraud; the authors underlined the inherent difficulties
to effectively prioritising risks in this area, despite HMRC’s work in
estimating its compliance yield and the size of the tax gap:
It is inherently challenging for HMRC to understand
whether it is using the best mix of measures to tackle tax
fraud in the long term.
HMRC uses compliance yield as a direct measure of the
effectiveness of its compliance work, while its annual tax gap
calculation provides an indicator of the long-term impact of
HMRC’s work overall. However, it is difficult for HMRC to know
how its interventions interact with one another or whether it is
achieving the best outcome from the resources it deploys to tackle
tax fraud in the round. It is also hard to detect or quantify
potential unintended consequences of its compliance work, such
as whether disrupted criminal activity is displaced to other gangs,
or the long-term effect on taxpayers’ behaviour of encouraging
tax evaders to volunteer information about their income and
assets so they can benefit from lighter penalties than might
otherwise have been imposed.
The problem of measuring outcomes is one faced by all tax
administrations worldwide. HMRC recognises this complexity and
is developing its thinking on how to design a new range of
performance measures that will give it a better understanding of
the impact from its work. 106
The report discussed a number of initiatives to tackle evasion, including
provision to give HMRC powers to obtain data from payment providers
and business intermediaries to identify hidden economic activity. Further
details of this were published in December 2015, 107 and provision to this
effect was included in the Finance Act 2016 (specifically ss176-7).
In April 2016 the Public Accounts Committee published a report
following the NAO’s work on tax fraud, which was critical of HMRC’s
record to reducing its scale – and in particular, the relatively small
numbers of investigations and prosecutions in this area. 108 Among its
recommendations the Committee argued that HMRC should improve
105
CIOT press notice, ‘Tax gap’ figures – help the compliant comply, and bear down on
those who do not, 20 October 2016. See also, CIOT, ‘Tax gap’ continues its slow
fall, 26 October 2017.
106
Tackling tax fraud: how HMRC responds to tax evasion, the hidden economy and
criminal attacks, HC601, 17 December 2015 p9
107
HMRC, Tackling the hidden economy: extension of new data-gathering powers – tax
information & impact note, December 2015
108
Public Accounts Committee press notice, New measures and greater clarity needed
to fight tax fraud, 15 April 2016
the way it reported its performance, clarify its strategy, and tackle public
perceptions that wealthy individuals were able to evade tax successfully:
We cannot judge how effective HMRC is at reducing the tax gap
because the way it reports its performance is too confusing.
HMRC told us that its performance in addressing tax fraud was
good. But HMRC’s assessment of the tax gap shows that the level
of tax fraud has remained virtually static over the last five years, at
around 3% of all tax liabilities. The impact that HMRC claims for
its work far exceeds any reduction in the tax gap …
Recommendation: HMRC should clearly set out in its annual
reports the relationship between its compliance yields and
changes in the tax gap. It should also publish this information in a
way that is accessible for everyone to understand.
HMRC has not set out a clear strategy for tackling tax fraud.
HMRC referred to a number of areas where it plans to focus its
activities to tackle different types of tax fraud including the risks
posed by illicit alcohol and evasion by wealthy individuals. HMRC
is missing key information that would be necessary to inform a
properly strategic approach. For example, HMRC could not tell us
how much resource it puts into tackling tax fraud compared to
other types of compliance work, such as dealing with tax
avoidance or error ...
Recommendation: HMRC should set out its strategy to tackle
fraud by November 2016. It should identify how much resource is
devoted to tackling different tax risks and the corresponding yield
in each area of the tax gap.
The perception that HMRC does not tackle tax fraud by the
wealthy needs to be addressed … HMRC told us it investigates
around 35 wealthy individuals for tax evasion each year, but did
not know how many wealthy individuals it had successfully
prosecuted. We welcome the fact that HMRC has sought and
received funding to increase the number of investigations it
undertakes into corporates and wealthy individuals to 100 a year
by 2020, indicating that the current level is insufficient.
Recommendation: HMRC must do more to tackle tax fraud and
counter the belief that people are getting away with tax evasion.
It needs to increase the number of investigations and
prosecutions, including wealthy tax evaders, and publicise this
work to deter others from evading tax and to send out a message
that those who try will not get away with it. 109
In its response the Government accepted that HMRC should improve its
performance reporting, and engage with public perceptions about tax
evasion, though it rejected the suggestion that the department did not
have an effective strategy to reduce fraud. 110
HMRC’s 2015/16 Annual Report had a section discussing both the tax
gap and the compliance yield, with some comments on the difficulties
to trying to explicitly link the two. 111 However, as the NAO observed, in
its commentary on the annual accounts, “this is a useful step in
explaining the relationship, but it will take longer-term work to address
the issues raised by the Committee of Public Accounts about how
109
Tackling tax fraud, 15 April 2016, HC 674 of 2015-16, pp5-6
110
Treasury Minutes, Cm 9323, July 2016 pp1-3
111
HMRC 2015/16 Annual Report, HC 338, July 2016 pp16-19
HMRC’s reported headline performance measures relate to each

other.” 112 HMRC confirmed changes in its estimates of the ‘future
revenue benefit’ of its compliance interventions – that is, the impact this
work is estimated to have on tax receipts over future years. 113 As the
NAO noted, “from 2016-17, following our recommendation, HMRC will
report future revenue benefit in the year of impact rather than the year
in which it is assessed. The new method is more consistent with the way
the rest of compliance yield is reported, although there will still be a
degree of uncertainty around the estimation … The new approach will
help to improve the transparency and internal consistency of HMRC’s
performance measurement.”114
The Committee reiterated its concerns about public perceptions of the
scale of tax evasion by the wealthy in a report in January 2017, 115 and in
response HMRC stated that it would publish more details of this aspect
of its work in its next Annual Report. 116
In July 2017 HMRC published its 2016/17 Report, which presented its
latest estimates of its compliance yield, as well as separate short papers
on the element of this accounted for by future revenue benefit, 117 and
on the relationship between compliance yield and the tax gap. In the
latter case, this paper observed, “the amount of compliance yield HMRC
generates and the size of the tax gap are related but the links are not
straightforward”:
Compliance yield records many aspects of compliance work,
including tax recovered directly from our work, future revenue
benefit and losses prevented. It can also cover more than one tax
year. Different factors, such as the number of new businesses,
new customers, changes in levels of voluntary compliance,
economic factors, tax policy and rate changes all affect the tax
gap. Because the tax gap reflects a single year, and some
compliance cases can cover multiple years, it is possible that the
amount of compliance yield HMRC secures might increase while
the percentage tax gap remains the same or reduces. 118
The National Audit Office’s report on the accounts has a short section
on this issue, describing HMRC’s paper on the compliance yield and the
tax gap as “a useful step in explaining the relationship”, but going on
to say, “it will take longer-term work to address the issues raised by the
Committee of Public Accounts on how HMRC’s reported headline
performance measures relate to each other.”119
HMRC estimated that its compliance yield for 2016/17 was £28.9
billion, of which £6.3 billion was accounted for by future revenue
112
HM Revenue & Customs 2015-16 Accounts, July 2016 para 1.33
113
For details see, HMRC, HMRC compliance revenues – how HMRC will change how it
reports ‘Future Revenue Benefit’, July 2016
114
HM Revenue & Customs 2015-16 Accounts, July 2016 para 1.32
115
Public Accounts Committee press notice, Government must take tougher stance on
taxing the very wealthy, 27 January 2017. See also, Collecting tax from high net
worth individuals, 27 January 2017, HC 774 of 2016-17
116
Treasury Minutes, Cm 9433, March 2017 pp5-7
117
HMRC's Compliance Yield: How HMRC reports future revenue benefit – an update
for 2016-17, July 2017
118
The tax gap and compliance yield – what they are and how they relate, July 2017
119
HMRC Annual Report and Accounts 2016-17, July 2017 para 1.20
benefit, and £1.3 billion from the use of ‘accelerated payment notices’,
which are discussed in the next section of this paper:
The main components of our £28.9 billion compliance yield are:
• £10.3 billion of cash expected — the amount of additional
revenue due when we identify previous non-compliance,
reduced by a discount rate to reflect the fact that some of
the amounts that we identify will not be collected, for
example where a business becomes insolvent …
• £7.9 billion of revenue loss prevented — the value of our
activities where we have prevented revenue from being lost
to the Exchequer that impacts on our tax receipts …
• £6.3 billion of future revenue benefit — the estimated
effect of our compliance interventions on customers’ future
behaviour
• £3 billion of product and process yield — the estimated
annual impact on net tax receipts of legislative changes to
close tax loop holes and changes to our processes which
reduce opportunities to avoid or evade tax …
• £1.3 billion of revenue from Accelerated Payments notices
— the disputed amounts of tax that people using tax
avoidance schemes are now required to pay up-front within
90 days, as well as an estimate of the behavioural change
that the policy has generated ...
If we calculate future revenue benefit using the old methodology

(reporting future revenue benefit in the year we completed our
compliance activities) our total compliance yield for 2016-17
would be £28 billion, of which future revenue benefit would be
£5.4 billion. The new methodology records future revenue benefit
against the year in which the exchequer benefit is expected and
amounts to £6.3 billion. 120
On the specific issue of prosecutions, the report added:
A total of 886 criminals and fraudsters were prosecuted in
2016-17, mostly for tax-related offences, serving a collective total
of 806 years in prison. We are committed to increasing the
number of criminal investigations that we can undertake into
serious and complex tax crime, focusing particularly on wealthy
120
HMRC Annual Report 2016/17, HC 18, July 2017 pp23-4
individuals and corporates, with the aim of increasing

prosecutions in this area to 100 a year by the end of the
Parliament. 121
In November 2017 the Public Accounts Committee held an evidence
session on HMRC’s report, and on this occasion, Jon Thompson (Chief
Executive and Permanent Secretary), and Jim Harra (Director General,
Customer Strategy and Tax Design), said a little as to HMRC’s ambitions
to reduce the tax gap …
Q76 Chair: …We have talked a lot on this Committee about the
tax gap, and the good news is that there is a downward trend
over the last nine years, from 8.3% in 2005-06 to 6.5% in 2014-
15. How much further can we realistically expect the tax gap to
fall, Mr Thompson? It is a prediction we’re asking for.
Jon Thompson: A prediction? Yeah, well—
Q77 Chair: To measure you against.
Jon Thompson: The next question will be, “Am I prepared to
sign up to a target?” Look, we will strive to get it as low as
possible. It is actually really rather difficult to work out what is the
lowest possible level that you can go to. Jim and I have been
having some interesting conversations about this. With more
powers, more people, more intervention and more data, you can
continue to reduce the tax gap, and indeed there is a whole range
of measures in the pipeline now and I guess there will be further
measures in the upcoming autumn Budget. It is quite difficult. It
cannot be zero, otherwise every other person would need to be a
tax inspector, but quite how low it can go is difficult to estimate.
We believe that we have the most comprehensive measurement
of the tax gap and that it is the lowest published one in the world,
but we still need to strive to get it lower and there is a whole
range of measures in the pipeline that we think will reduce the tax
gap further.
… and the most significant obstacles to achieving this:
Q78 Chair: … We have picked at this issue before, but which
parts of the tax gap are you most worried about? Which are the
hardest bits to crack?
Jim Harra: It is all hard to crack in different ways. The largest part
of it is really the small businesses. That poses a number of big
challenges for us. First, there is a very large number of small
businesses, so, case by case, it can be a relatively small amount
and therefore it can be very difficult to tackle that in a cost-
effective way. Also, the way that we have traditionally tackled
that issue could be quite intrusive and stressful for a small
business, because it involves in-depth investigation.
And we are seeing in the economy a movement away from
employment towards small businesses, so the underlying pressure
is people moving out of an area of taxation that is highly
compliant into an area that is highly non-compliant. That is a key
challenge for us. We want to find different ways of tackling that,
other than the traditional method of having a lot of boots on the
121
op.cit. p24. A piece by the charity Full Fact noted that “a large part” of compliance
yields “covers money that the Government thinks it will get in future … rather than
what it has saved so far” (“How much has the government recouped from tax
evasion and avoidance?”, 2 November 2017.
ground investigating a lot of small businesses, although that will

always be part of it.
A key measure that Parliament has passed in the last couple of
weeks is Making Tax Digital for business, which is starting to
modernise the small business tax system and drive out some of
the error and failure to take reasonable care. We can build on that
in future.
There are a couple of other areas where we can make a big
difference. First, there is a new set of intermediaries in the self-
employment arena. You have had eBay and Amazon here before
you, and there are also taxi and takeaway apps, and we need to
look to exploit these intermediaries more in the future to help
small businesses to comply and prevent opportunities for them
not to. Secondly, there is the tax agent industry, which has a very
high level of penetration into small business taxation, yet its
clients are often presenting as non-compliant. We need to drive
up the value the tax system gets from agents in the system. 122
The Committee published its final report in January 2018, in which it
raised concerns that the department was “unclear how far it can close
the tax gap with existing resources.” Noting the fact that a large share
of the gap was attributed to SMEs, the Committee argued that HMRC
should set ‘target levels’ for its reduction:
HMRC’s intention is to close the tax gap as far as possible.
However, while HMRC says that with more powers, people,
interventions and data it would be able to reduce the tax gap, it is
not able to estimate how far the gap can realistically fall. Almost
half of the tax gap can be attributed to small and medium-sized
enterprises (SMEs), of which there are a large number, with each
one often involving relatively small amounts of tax revenue.
HMRC recognises it needs to change its approach and believes
several measures will address the tax gap risks of the SME sector:
the introduction of the Making Tax Digital for Business
programme; working closely with intermediaries, such as Amazon
and eBay; and using tax agents working with small businesses to
encourage increased compliance.
Recommendation: HMRC should set target levels for reduction
of the tax gap, including for the SME sector, and set out how
HMRC will be more responsive to emerging risks. 123
However, in its response, published in March, the Government
disagreed with this recommendation:
2.2 The Department’s published estimates of the tax gap provide
the Department and the public with important information on
long term trends in tax compliance. The Government is clear that
it aims to drive down the tax gap, and the indication from recent
years is that this approach is working, with the 2015-16 tax gap
estimated to be a joint record low since 2005-06.
The Government will continue to relentlessly take action to drive
down the tax gap. However, the tax gap is a lagged measure (the
Department’s most recent estimates cover the tax year 2015-16),
122
Oral evidence: 2016-17 HMRC Standard Report, HC 456, 6 November 2017
pp17-18. As noted, for more details on HMRC’s Making Tax Digital initiative see,
Commons Briefing Paper CBP7949, 28 February 2018.
123
Public Accounts Committee, Twelfth report: HMRC’s performance in 2016-17, HC
456, 12 January 2018 p5
and cannot reflect the impact of the Department’s compliance

activity in a sufficiently timely way to be useful as a target.
2.3 Whilst the Department uses tax gap analysis to inform its
compliance activity, and accepts it is right to be assessed on
movement in the tax gap over time, tax gap reduction is not
suitable as a performance target. The Department uses a range of
real-time operational targets - which are set out in HMRCs Annual
Reports and Accounts - to focus on performance.
In practice, tax gap estimates are reviewed and revised each year
to reflect updated data, such as changes to National Accounts
statistics, in line with best statistical practice. For example, the
2014-15 tax gap estimate was revised downwards by £2.6bn in
the “Measuring Tax Gaps 2017 edition” publication in October
2017, one year after the estimate’s original publication in October
2016. This would make measuring performance against an annual
target uncertain. 124
Finally, in July this year HMRC published updated estimates for its
compliance yield which put it at £30.3 billion in 2017/18: 125
124
Treasury Minutes, Government response to the Committee of Public Accounts, Cm
9596, March 2018 p9
125
HMRC Annual Report 2017/18, HC 1222, July 2018 p21. HMRC also published
further details on calculating future revenue benefit at this time: HMRC's compliance
yield: How HMRC reports FRB – an update for 2017-18, July 2018
4. Follower notices & accelerated

payment notices
4.1 ‘Raising the stakes on tax avoidance’ -
summer 2013
In summer 2013 the Coalition Government published a consultation
paper, Raising the stakes on tax avoidance. In this, HMRC focused on
the difficulties in dealing effectively with “high risk promoters”, a
relatively small number of individuals and firms who “would commonly
encourage tax advisers’ clients to enter into avoidance schemes, attempt
to impose conditions of confidentiality on clients and disrupt the
relationship between the tax adviser and their client.” The paper noted
that in general the types of scheme being sold “overwhelmingly do not
work and have very little chance of succeeding at the outset.” Given
this, “a key question to consider is why they continue to be used by
taxpayers, usually at the cost of a significant fee”:
Since summer 2012 HMRC has gained a better understanding of
the market for avoidance schemes and the key players involved.
Key factors emerging from the research to date are:
• provision of minimal amounts of information by promoters
to potential clients and their ‘mainstream advisers’;
• disclosure to HMRC of the avoidance scheme only when
absolutely necessary, and a willingness to challenge the
application of DOTAS;
• reassurance to potential clients that the product is backed
up by legal advice, but with only minimal information
about how and why; and
• a willingness by taxpayers to accept a level of risk on the
basis that a product might succeed or that they will not be
challenged by HMRC. 126
In a consultation paper the following year HMRC noted “over 80% of
avoidance cases heard in the courts and tribunals were won by HMRC in
the last financial year. In addition, piloting of behavioural change work
has resulted in hundreds of users approaching HMRC to withdraw from
avoidance arrangements, some as early as the start of HMRC’s
investigation” 127 Figures on HMRC’s success rates in court proceedings
and tax tribunals have also been given in answer to PQs. 128
Turning back to the 2013 paper, it noted that when schemes had been
marketed to a significant number of taxpayers, HMRC incurred
considerable costs in challenging each taxpayer who had used it:
Buyers of a tax avoidance scheme will submit their returns to
HMRC on the assumption that the scheme reduces their tax
liability. Where a tax avoidance scheme is mass-marketed, as they
126
Raising the stakes on tax avoidance: consultation document, 12 August 2013. See
also HMRC’s guidance for taxpayers informed by this research: Tempted by tax
avoidance? A warning for people thinking about avoidance schemes, March 2014.
127
Tackling marketed tax avoidance, January 2014 para 2.3
128
PQ135813, 18 April 2018
often are, HMRC is presented with a large number of returns all

based on the same assumption that the scheme will have reduced
the person’s tax liability in a particular way. Where HMRC holds
that the scheme does not work, it follows that it will argue that
any returns based on that scheme are incorrect.
When faced with a large number of very similar cases, it is
sometimes most efficient for HMRC to investigate ‘representative
cases’, taking them to litigation if necessary. However, when
HMRC wins a representative case in the courts, other taxpayers
who have used the same or very similar schemes sometimes see
little incentive to settle their cases with HMRC.
When HMRC pursues litigation in a number of very similar cases
the Tribunal rules allow for the cases to be heard together in
certain circumstances, but this only applies to cases which have
been notified to the Tribunal. To get to this stage HMRC has to
investigate these cases to litigation standard and close them. Not
only does this use up the Tribunal’s resources, but it also places a
strain on HMRC’s compliance resources, wastes HMRC’s time and
delays the collection of the right tax. 129
As noted above, during this period the Public Accounts Committee
published a series of reports on corporate tax avoidance, in which it was
strongly critical of HMRC’s efforts. 130 The approach taken by the then
Committee chair, Margaret Hodge, and the other members of the
Committee, particularly in evidence sessions with witnesses, was not
uncontroversial, 131 but in an essay on tax avoidance over the last
century, Graham Aaronson QC, argued that the Committee’s work had
had a significant impact on the Government’s legislative approach:
Depending on our viewpoint, Margaret Hodge’s and the PAC’s
harsh criticism of HMRC was either excessive or wholly justified. In
my opinion it was in fact both: it was excessive because it failed to
do justice to the radical steps which HMRC was already taking to
deter and counteract tax avoidance; but it also responded to and
harnessed public intolerance of tax avoidance and so created a
climate where HMRC could equip itself with the means needed to
combat avoidance more effectively.
So, like a surf-boarder rising a giant wave off Hawaii, the Treasury
moved to introduce a succession of anti-avoidance measures
having the aim of counteracting and deterring tax avoidance
strategies across a range of taxes. 132
In the Autumn Statement in December the Government confirmed that
it would pursue two options set out in this consultation to deal more
effectively with users of ‘failed schemes’ and the promoters who sold
them:
1.308 Autumn Statement 2013 confirms that the government
will:
• introduce new requirements for users of failed avoidance
schemes to oblige them to settle the dispute where the
avoidance scheme they are using has been defeated in
129
Raising the stakes on tax avoidance …, 12 August 2013 para 5.1-2
130
See, for example, Tax Avoidance–Google, 13 June 2013, HC 112 of 2013-14.
131
See, for example, “Tax prat of the year” & “So farewell then …”, Taxation, 6
February 2013 & 10 June 2015
132
“Insight and analysis: The swing of the pendulum: tax avoidance in modern times”,
Tax Journal, 30 September 2016
another party’s litigation through the Courts, with penalties

attached for non-compliance
• increase obligations and sanctions for high-risk promoters
of tax avoidance schemes, by introducing objective criteria
for identifying and publishing the names of high-risk
promoters, seeking more information from them and
applying penalties where there is failure to comply. Their
clients will also be required to identify themselves to
HMRC. 133
The Government also announced that it would introduce new powers
to require taxpayers in this situation to pay tax ‘upfront’, possibly
extending this system of accelerated payments to other taxpayers using
avoidance schemes:
1.309 Autumn Statement also announces that the government
will:
• introduce a new power that requires taxpayers who are
using avoidance schemes that have been defeated through
the Courts to pay the tax in dispute with HMRC upfront.
This will provide HMRC will an additional tool to address a
legacy stock of an estimated 65,000 avoidance cases,
around 85% of which date back to before 2010. It will
remove the cash advantage of sitting and waiting during an
avoidance dispute, and bring in £700 million over the
forecast period
• consult on the scope for extending this power by widening
the criteria for which taxpayers are required to pay any
disputed tax upfront. 134
Writing in the Tax Journal, James Bullock (Pinset Masons) observed,
“one of the enticements to taking part in a tax-avoidance scheme is the
cashflow benefit that such schemes bring. Even if the scheme is found
ultimately to fail, a taxpayer undertaking a scheme can (and could until
recently even for PAYE and NIC) generally secure the benefit of holding
the tax whilst the dispute is determined. With ‘marketed’ schemes the
deal was even better, as generally only one taxpayer is litigated – and it
is open to so-called ‘follower’ taxpayers to argue that their fact patterns
are different – and therefore they have to sit and wait until HMRC gets
around to them. HMRC is now acting to end this particular party.” 135
The scale of the Exchequer risk posed by disputed tax was set out in
HMRC’s consultation document published in January:
The existence of around 65,000 open cases involving marketed
tax avoidance schemes illustrates how the current position can
lead to a build-up of avoidance schemes that HMRC needs to
tackle through investigation and litigation, which can take several
years to complete. Over 85 per cent of these cases date back to
133
It was estimated that these two measures would raise £35m a year from 2015/16
(‘high-risk’ promoters), and £75m in 2015/16, falling to £30m a year in later years
(penalties for ‘follower’ cases): Budget 2014, HC 1033, March 2014 p59 (Table 2.2 –
items be & bf). Details of these changes are set out in: HMRC, Raising the stakes on
tax avoidance - summary of responses & draft legislation, January 2014.
134
Autumn Statement, Cm 8747, December 2013 p74
135
“Views on the Autumn Statement: enforcement and compliance issues”, Tax Journal,
6 December 2013
2009-10 or earlier … reflecting a market for avoidance products

which was very active in earlier years.
These 65,000 taxpayers have used a wide range of avoidance
schemes to reduce their liability to SDLT, Capital Gains Tax,
Corporation Tax, Income Tax and National Insurance
Contributions (NICs). However the largest areas of legacy
avoidance include:
Some of these users have used the same scheme more than once
whilst others have used more than one scheme. 136
The document set out the range of circumstances where disputed tax
would be held by either the Exchequer or the taxpayer, before a final
tax liability is determined:
There is no inherent presumption that tax under dispute should sit
with the taxpayer rather than the Exchequer. Under current law,
there are a number of circumstances where the tax sits with the
Exchequer while the liability is finalised.
Currently:
• HMRC is able to deny claims for tax repayments pending
final resolution;
• HMRC can enforce tax payment when there are claims for
other years that might reduce or eliminate that tax;
• Tax is payable following a court or tribunal decision, despite
a continuing appeal; and
• There are general circumstances where tax is withheld and
repaid (eg: PAYE, tax on interest),
but
HMRC cannot normally intervene in a taxpayer’s self-assessment,
even when the taxpayer deducts amounts claimed as a result of
attempted tax avoidance. 137
It went on to give an overview of how, once HMRC had identified
‘follower cases’ to a given scheme that had been struck down in the
136
Tackling marketed tax avoidance – consultation document, 24 January 2014 para
1.1, paras 2.6-8. Interested parties were given a month to response to this follow-up
document – ie, by 24 February.
137
op.cit. para 3.5-6
courts, it would require those taxpayers to amend their tax return, and
pay over the disputed amount of tax:
[Under the Government’s proposals for ‘follower notices’, HMRC
would] issue … a notice to taxpayers involved in avoidance
schemes where there has been a final judicial decision in another
taxpayer’s case on the same or similar arrangements. The notice
requires the taxpayer to amend their tax return (if the return is still
under enquiry) or agree to settle the dispute (where a closure
notice or tax assessment or determination has been made and is
under appeal).
At the heart of this notice is the proposition that the likelihood of
the taxpayer’s scheme succeeding is remote, given that a tribunal
or court has made a decision on the same or similar
arrangements. In HMRC’s experience, it is extremely rare for a
taxpayer to even proceed to their own litigation in the face of
such a decision, but while the vast majority do eventually concede
they prolong the dispute for as long as they are able, often
agreeing to settle only as the date of litigation approaches. In the
Government’s view, the delivery of a related judicial decision
fundamentally changes the presumption of where the tax should
sit during this period.
The sum would be estimated by HMRC, though subject to revision if the
actual amount due was larger, or, if the taxpayer successfully pursued
an appeal that, in their own case, their use of the scheme was legal:
Taxpayers receiving a ‘follower notice’ are required to tell HMRC
the amount of the tax advantage being sought. However, this
figure may not be available until the taxpayer agrees to resolve
the dispute in response to the notice – and will not be provided by
the taxpayer at all in cases where the taxpayer chooses not to
resolve the dispute.
It is proposed, therefore, that HMRC will issue a Payment Notice
to the best of their judgement. In the majority of cases HMRC
would expect to have a reasonable indication of the amount in
dispute as the matter will have been under enquiry, or HMRC will
have issued an assessment or determination.
The amount of tax to be paid under the Payment Notice is the
amount of additional tax that would otherwise have been paid if
the arrangements had not been entered into. This is meant to be
a simple recalculation of the additional tax due on the return (or
similar document) having removed the effects of the avoidance
scheme, less any relevant amounts already paid. It is not a
calculation whereby the taxpayer can say that in the absence of
these arrangements another structure would have been employed
instead.
The amount to be paid will be the amount remaining after any
part of the tax in dispute that is already subject to a withheld
repayment.
It is important to note that this will simply be a form of payment
on account and not a payment that determines the amount of the
final liability. If the amount paid is less than the final amount due,
the taxpayer will still be liable to pay any remaining balance when
the dispute is finally resolved. Equally, if the taxpayer continues to
pursue their claim and is successful then they will get their money
back with interest. 138
The most contentious aspect of this consultation was the proposal that
the system for accelerated payments would apply not only to ‘follower
cases’ but to two other categories of taxpayer: those in dispute with
HMRC because they have used a scheme notified under DOTAS, or
those using a scheme which HMRC are seeking to frustrate, using the
new GAAR. 139 Indeed the consultation document notes that although
this would have an impact on a “significant proportion of avoidance
schemes”, it would plan to keep the criteria “under review to determine
whether any further broadening may be appropriate.” 140
In a press notice issued after the end of the consultation, the Chartered
Institute of Taxation argued that the proposals to tackle follower cases
should be used only for a limited time:
The Government’s proposals would link together cases which are
deemed to be similar, so that if a court ruled against one
taxpayer, not only that taxpayer but all others deemed to have
‘follower cases’ would have to pay straight away the tax HMRC
believe is due. They would get the tax back if they pursued the
case and ultimately won …
CIOT President Stephen Coleclough commented: “We have
sympathy with the Government's need to accelerate dealing with
some tens of thousands of outstanding mass marketed avoidance
cases which are jamming up the courts … However, handing
HMRC almost unprecedented executive powers to decide who
falls within the mischief they intend to deal with, without the
usual safeguards and appeal rights, is not something which
should be done lightly …
If this is to proceed, HMRC should issue comprehensive guidance
at the same time as the Bill is published to show what situations
are to be tackled in this way. It should only apply to members of
the same scheme or very close variants of it. Additionally the
legislation should include a sunset clause repealing the legislation
after, say, three years as the exceptional circumstances that are
currently in existence should be dealt with in that time. These
emergency measures should not become a permanent state of
affairs.”
The Institute went on to strongly oppose extending accelerated
payments to existing schemes, which had been notified under DOTAS,
as this was “in effect introducing retrospective legislation”:
[CIOT President, Stephen Coleclough said] “the fact that there has
been disclosure indicates an intention to be open and transparent
with HMRC. In a number of cases the disclosure has been made
even if the promoter or taxpayer did not believe it to be strictly
necessary ‘to be on the safe side’. To now introduce a
retrospective change of law leading to an accelerated payment of
tax is unreasonable. To extend HMRC’s powers without
safeguards to taxpayers who by definition have been transparent
138
op.cit. paras 3.7-8, paras 3.15-9
139
For example, “Wealthy investors protest against new UK tax rules”, Financial Times,
9 March 2014
140
Tackling marketed tax avoidance, January 2014 para 4.3. The case for these changes
was also set out by David Richardson, director of HMRC’s counter avoidance
directorate, in a piece in Taxation: “Accelerated payment”, 20 February 2014.
with the tax authority is unjustifiable. If these provisions are to

come in at all then they should only apply to arrangements
entered into after Finance Bill 2014 is passed.” 141
In their response, the Institute for Chartered Accountants also set out
their concerns about the retrospective aspect to these proposals, as well
as the relatively short amount of time for interested parties to respond:
[The consultation] proposes … all DOTAS registered tax planning
arrangements under enquiry by HMRC would come within the
accelerated payment scheme, even if they were entered into many
years previously and in some cases a DOTAS registration was
submitted as a precautionary measure. In principle we believe that
retrospective legislation of this nature is wrong.
We have seen a proposal that the accelerated payment regime
should not apply to existing DOTAS registered schemes ‘where it
can be shown that the promoters/taxpayers have taken all
reasonable measures, and have acted with reasonable expedition,
to enable the dispute to be brought before the statutory appeals
tribunal.’ That sounds a reasonable suggestion.
The proposal is also likely to lead to a perverse outcome in that it
will offer no incentive for HMRC to reach closure on the case.
Given that the tax may not legally be due that sounds completely
contrary to natural justice and must inevitably result in further
litigation …
Finance Bill 2014 will be published, probably before the end of
March ... we strongly urge the government to withhold those of
the current draft clauses which they accept will need further
improvement. We would welcome the opportunity to work with
HMRC to deliver the necessary amendments and the improved
clauses can then be introduced, as a Government amendment,
during the course of the Public Bill debates on the Finance Bill. 142
4.2 Budget 2014: accelerated payment

notices (APNs)
Despite these concerns, in his Budget on 19 March the Chancellor
confirmed the introduction of a system of accelerated payments, which
would provide a substantial cash flow boost to the Exchequer:
While the vast majority of wealthy people pay their taxes, there is
still a small minority who do not. We will now require that those
who have signed up to disclosed tax avoidance schemes pay their
taxes, like everyone else, up front. This will apply in future to
schemes covered by our general anti-abuse rule too. If people feel
they have been wronged, they can of course go to court. If they
win, they get their money back with interest. We have already
consulted on this idea; now we will implement it. The OBR
confirms that this will bring forward £4 billion of tax receipts and
it will fundamentally reduce the incentive to engage in tax
avoidance in the future. 143
141
CIOT press notice, Tax avoidance schemes: 'Emergency measures' tolerable for dealing
with courts backlog, but wider application goes too far, 4 March 2014. The CIOT also
published formal responses to both consultation papers.
142
ICAEW (Tax Faculty), Tackling marketed tax avoidance (TAXREP 16/14), 26 February
2014 para 19, paras 45-7, paras 20-23
143
HC Deb 19 March 2014 c785
The Budget report gave more details, noting that accelerated payments
would apply to follower cases and to those within DOTAS or
counteracted by the GAAR:
Following a consultation that closed in February 2014, the
government will legislate to provide that HMRC may issue a notice
to the user of a tax avoidance scheme that they should settle their
dispute with HMRC when the claimed tax effect has been
defeated in other litigation. If the taxpayer does not settle they
risk a penalty and must make upfront payment of the tax in
dispute. Budget 2014 announces that the requirement to pay
upfront will also apply to the disputed tax associated with any
scheme that falls within the disclosure of tax avoidance scheme
rules (DOTAS) and with schemes that HMRC counteracts under
the general anti-abuse rule (GAAR). 144
The report also underlined that the new power “will only apply to tax
avoidance schemes that are disputed by HMRC”:
The legislation will make it clear that HMRC will only be able to
issue an accelerated payment notice where they have first sent the
taxpayer an enquiry notice or issued them with a notice of
assessment. It is not a new tax demand and does not make any
changes to tax liabilities. If the taxpayer subsequently wins their
case in the courts, they will be reimbursed with interest. 145
It was estimated that applying accelerated payments to follower cases
will raise around £300m in both 2015/16 and 2016/17, with the annual
yield falling to £100m by 2018/19. Extending the scheme to DOTAS and
GAAR schemes was projected to raise considerably more: 146
The department’s Policy Costings document underlines the significant

size of the amounts of tax that are under dispute, as a consequence of
marketed avoidance schemes:
The total value of tax under dispute by HMRC related to
marketed, artificial avoidance cases is around £14 billion,
associated with a population of around 65,000 taxpayers. Of this,
£2.5 billion concerns avoidance arrangements that fall outside the
scope of the Budget and Autumn Statement measures as the
schemes are outside the DOTAS rules and relate to taxpayers will
not be issued with follower penalty notices.
To arrive at the £7.1bn that is estimated to be the value of
accelerated payments notices that will be issued in relation to
existing cases the following adjustments are then made:
• for cases where the issuance of a notice is dependent on
future court decisions, the costing assumes a HMRC win
rate of 80 per cent. This is based on HMRC‘s win rate in
associated avoidance cases between 2010 and 2013
144
Budget 2014, HC 1104, March 2014 para 2.188
145
op.cit. para 1.201
146
op.cit. pp57-8 (Table 2.2 – item r; Table 2.1 – item 52). see also, HM Treasury,
Budget 2014: policy costings, March 2014 p37.
• an adjustment is also made for individuals that already

concede their position and settle once their scheme is
shown to fail in the courts in another party’s litigation
• an adjustment is made to take account of the fact that in a
relatively small number of cases some taxpayers will have
already paid the amounts in dispute, while continuing to
dispute the amounts in question
• HMRC will also issue notices in relation to the future flow
of cases which would arise from new avoidance, for which
the estimated value of tax that would be disputed in the
absence of this measure is estimated to be around £700
million per annum.
To arrive at its costings, HM Treasury had made a number of
assumptions:
The costing is produced by making adjustments for:
• The responses by taxpayers issued with payment notices. It
is estimated that the majority of those issued with notices
will pay, either (a) within the allowed 90 day payment
period, (b) through managed payment plans (this will be
evaluated on a case-by-case basis and will result in some
payments being spread over time), or (c) following payment
enforcement action by HMRC.
• Repayments. HMRC will make repayments with interest in
cases where upfront payments of tax have been made but
where a taxpayer wins a subsequent tribunal or court
decision.
• Behavioural responses. A further adjustment is made for
those taxpayers who stop using avoidance schemes as a
result of this measure, which increases tax yield from this
group. In line with the standard methodology for anti-
avoidance costings, a behavioural adjustment is made to
reflect evidence of attrition in the yield from previous anti-
avoidance measures.
• Tax under dispute which would have been collected in later
years but which is now collected upfront. This reduces the
costing by around £500 million in each year from 2015-16.
• Amounts scored under the follower notices measure
announced in Budget 2013 and the accelerated payment
measure announced at Autumn Statement 2013 are
subtracted from the final costing to avoid double
counting. 147
The Office for Budget Responsibility is required to certify that all Budget
costings represent a ‘reasonable and central view given the information
currently available’. In some cases the OBR highlights that the cost is
subject to a greater level of uncertainty – so, with regard to the
estimates for this scheme, the OBR noted these were “dependent on a
large number of assumptions, some of which … concern the
behavioural response of those affected.” 148
In September 2017 the OBR published a working paper which looked at
the costings of a variety of HMRC anti-avoidance and operational
147
Budget 2014: policy costings, March 2014 pp36-7
148
op.cit. p67; OBR, Economic & fiscal outlook, Cm 8820, March 2014 para 4.43
measures over the 2012-2016 period, including the introduction of

accelerated payments. 149 This found that current estimates of the
amounts that accelerated payments would raise from 2014/15 to
2018/19 were about 15% less than the original estimates. There were a
variety of explanations in this case, including the fact that the regime
appears to have had a stronger deterrent effect than initially assumed:
Tax base: The initial estimate of the existing stock of disputed tax
that would be subject to AP notices was too high, partly due to
some cases falling out of scope and partly due to more taxpayers
choosing to settle with HMRC than expected.
AP notices: The original costings underestimated the number of
notices issued, but also the length of time required to do so. This
is partly due to HMRC needing to issue separate notices for tax
and NICs, but also because the original costings underestimated
both the number of relevant avoidance cases and the proportion
of cases where AP notices would be used. Outturn data also
suggest the average value of cases was lower than assumed in the
original costings.
Timing: More payments were made upfront than assumed in the
original costings and, for those that made payment arrangements
with HMRC rather than paying upfront, the time period was
shorter than originally expected.
Behavioural response: It appears that the threat of receiving an
AP notice has acted as a stronger deterrent than originally
assumed. The number of avoidance schemes disclosed under
DOTAS and declared usages of DOTAS schemes on tax returns,
though already on a downward trend prior to the introduction of
APs, has fallen significantly faster since … HMRC estimates that
the number of DOTAS scheme usages has fallen by over a half
due to the deterrent effect of AP notices. 150
In two impact notes on this measure, HMRC confirmed that the new
rules would take effect from the date of the Finance Bill’s Royal Assent:
specifically, they would cover “all cases where there is an open enquiry
or open appeal on or after [this date]”. 151 These notes also give some
details of the cohort of taxpayers which would be affected:
It is estimated that accelerated payment notices relating to
existing avoidance cases currently under dispute will be issued to
approximately 33,000 individual taxpayers concerning £5.1 billion
of tax under dispute under this measure and the Autumn
Statement 2013 measure applying accelerated payments to
follower cases.
Estimates of the distributional impacts of these measures are
affected by the use of avoidance schemes that deflate the income
reported on self-assessment returns.
Having noted this caveat, analysis shows that the population of
individuals affected:
149
OBR, Working paper No.11: Evaluation of HMRC anti-avoidance and operational
measures, September 2017
150
op.cit. pp22-23
151
HMRC, Accelerated payments of tax for avoidance schemes & Avoidance schemes:
relevant judicial ruling - notice to settle dispute, 19 March 2014. In the case of
‘follower cases’ there will also have to be a relevant qualifying judgement.
• have a mean gross income of £262,000, compared to

£29,000 for the wider income tax paying population;
• around 85 per cent of individuals have multiple sources of
income, with employment income (including self-
employment) the predominant income source for 54 per
cent and non-employment, non-pension income the
predominant income source for 42 per cent of the
individuals affected respectively, compared to 78 per cent
and 5 per cent for the wider income tax paying population
respectively. 152
Budget 2014 also confirmed that the Government would proceed with
one other measure first proposed in Raising the stakes on tax avoidance:
the Promoters of Tax Avoidance Schemes (‘POTAS’) regime. Under these
rules HMRC have powers to issue conduct notices to promoters, and in
turn any breach of this notice triggers enhanced information powers
with large financial penalties for non-compliance. 153 At the time it was
anticipated that about 20 businesses might be designated in this way, 154
with a relatively small Exchequer impact, 155 and in general the regime
has attracted very little attention compared to accelerated payments. 156
Generally press coverage of the Budget focused on other measures,
though the Chartered Institute of Taxation issued a press notice,
arguing that extending accelerated payments “beyond follower cases to
DOTAS schemes raises serious questions about the breadth and
proportionality of these proposals.” It went on to argue that it was
incumbent on HMRC “to publish a list of DOTAS schemes to which this
legislation will apply as quickly as possible.” 157 The Financial Times
quoted Jason Collins, head of tax at Pinset Masons, saying, “this is an
audacious move. The backlash against tax planning is allowing them to
push this change through without consultation.” 158 By contrast the
Times quoted Bill Dodwell, head of tax at Deloitte, who suggested it
was “a realistic reaction to the current situation … The Revenue win
almost all the cases in this area. There is no reason why they should
have to wait 10 years to get their money. I hope this will discourage the
sort of mass-market tax scheme from being sold in the future.” 159
152
HM Treasury/HMRC, Overview of tax legislation and rates, 19 March 2014 ppA94-5
153
154
HMRC, Promoters of tax avoidance schemes (TIIN), 17 July 2014
155
£5m in 2014/15, rising to £35m a year in later years (Budget 2014, HC 1104, March
2014 p59, Table 2.2 – item be).
156
For details of how POTAS operates see, HMRC, Promoters of tax avoidance schemes:
guidance, September 2015
157
CIOT press notice, Tax avoidance schemes: Retrospective measures without proper
taxpayer safeguards go too far, 19 March 2014.
158
“Anti-avoidance measures attacked”, Financial Times, 20 March 2014
159
“Revenue wins power to raid bank accounts in battle over avoidance”, Times, 20
March 2014; see also, Law Society hits at tax crackdown plan”, Financial Times, 7
April 2014
4.3 Finance Bill 2014

Provisions with regard to these proposals for follower notices and
accelerated payments were included in the Finance Bill 2014, published
on 25 March. 160
When the Bill was published, HMRC also published a summary of the
responses it had had to its consultation on tackling marketed avoidance
schemes. Many responses had “acknowledged the underlying policy
issue”, but had gone on to argue “that there was no problem to
address” – a position based “on three contentions”:
• All taxpayers are entitled to have their dispute considered
and resolved without being forced to pay over the tax in
the meantime, irrespective of the nature of the dispute,
and that in effect the taxpayer would be treated as being in
the wrong until they were able to prove their case;
• Any delays are caused by HMRC’s “slow and tardy
response” and not by taxpayers, advisers and scheme
promoters; and
• HMRC already has adequate powers to force progress in
these types of dispute and this gave more power and
discretion than was necessary. 161
The document presented the Government’s reasons for not accepting
these contentions – first, on the cause of these delays and the
suggestion that the proposals invoke a new principle:
There is ample evidence that those who enter into these schemes
do so in the expectation that they will, as a minimum, keep hold
of the tax for many years, exploiting the current structure of the
enquiry, appeals and postponement legislation. The Government
is not prepared to let this continue.
HMRC can under current law deny repayments claimed while a
dispute is in progress. It is also the case that many taxpayers pay
their tax upfront under PAYE, or through deduction of tax at
source from interest. These proposals therefore introduce no new
principle – instead they extend the current circumstances where
the Exchequer holds the disputed tax. 162
The document also set out HMRC’s existing powers in this respect and
why, in the Government’s view, they were not sufficient to deal with
this problem:
HMRC currently has powers in section 28C of Taxes Management
Act (TMA) 1970 to issue a determination of tax where there has
been no return submitted – but that cannot be applied to these
avoidance cases, where returns will have been submitted, claiming
the tax advantage from the avoidance scheme.
Section 9C of TMA permits HMRC to amend a taxpayer’s self-
assessment where tax is at risk. This power is applicable in
circumstances where HMRC believes that the subsequent
settlement of the liability may be in jeopardy (for example, the
160
specifically, part 4 of the Bill (clauses 192-226). The text of the Bill, explanatory notes
and details of its scrutiny are collated on its Parliament Bill page.
161
Tackling marketed tax avoidance: summary of responses, 27 March 2014 para 2.14
162
op.cit. para 2.15-6
taxpayer may leave the UK). This is not applicable to the generality
of avoidance cases.
Where there is an appeal, the taxpayer may make a
postponement application under section 55 of TMA. If HMRC
disagrees with the postponement, the matter must be resolved by
the tribunal. Therefore, opposing postponement applications in
many thousands of cases under the current rule would impose a
substantial burden on the resources of the Tribunal Service.
Furthermore this route can only be used where there is an appeal
and not where an enquiry is still open.
In the vast majority of cases there is an open enquiry rather than
an appeal. HMRC has been criticised for delaying the issue of
closure notices. However, as a number of recent published
tribunal and court decisions show, these cases involve complex
and contrived arrangements that take a significant length of time
to resolve. HMRC cannot issue a closure notice prematurely as
that would risk the wrong amount of tax arising from the return.
Some responses pointed to HMRC’s ability under section 28ZA of
TMA to refer matters to the tribunal during an open enquiry.
However, this would make little impact on the overall problem in
that it would to a large extent require consideration of the
substantive tax point at issue. 163
The paper went on to address the charge that the proposals would be
retrospective:
[The proposals] do not change the underlying tax liability. Where
an accelerated payment is made and the taxpayer subsequently
wins their dispute the tax will be repaid with interest – no
different to the situation where, currently, a repayment is denied
whilst the dispute is resolved. Application of the proposals to
existing disputes will ensure that all taxpayers in an avoidance
dispute after Royal Assent will be in the same position, irrespective
of when their dispute began. 164
Annex C to the document gave more detail on how the new system
would work in practice, including a diagram of the ‘typical taxpayer
journey’, reproduced below, where someone has purchased an
avoidance scheme, submitted their assessment, and then had that
assessment investigated by HMRC:
163
op.cit. para 2.18-22
164
op.cit. para 2.25
The teal line shows the journey before accelerated payments was
introduced … The red line shows how accelerated payments will
fit in with the existing customer journey and require payment
sooner in the process. The journey can halt at any point when the
taxpayer decides to drop their claim and settle, or where HMRC
decides that the scheme works and repays the tax.
In its description of accelerated payments, HMRC emphasized that “this
measure in no way alters the underlying tax liability”:
When a person is advised to reduce their tax liability, they are
often introduced to a promoter who explains the scheme to them,
then the person signs documents to enter into the scheme and
pays a fee. The promoter tells the taxpayer that the scheme is a
Disclosed Tax Avoidance Scheme and gives them a reference
number which needs to be included in their tax return in
the tax avoidance section.
The taxpayer then submits their tax return with the scheme
reference number or their adviser submits it for them. In either
case, the taxpayer is responsible for the form being correct and a
declaration is made to that effect. This is the stage at which a
person would normally pay the tax due. The avoidance
scheme has reduced that amount but not the income that the
person has.
HMRC considers the self-assessment tax return and considers
more tax may be due than has been paid as a result of the
avoidance scheme. An enquiry notice is issued … Even where
taxpayers and promoters co-operate in full, the investigation and
litigation process inevitably takes a considerable time and some
take full advantage of that to hold onto the tax. From now on, tax
in dispute in suspected avoidance cases will sit with the Exchequer
…
HMRC will only be able to issue an Accelerated Payment notice
where they have sent the taxpayer an enquiry notice or where
they have issued a notice of assessment for the disputed tax. So,
as a minimum, everyone who receives an AP notice will have been
notified by HMRC that their tax affairs are under consideration.
Once an accelerated payment notice is issued the tax payer will

have 90 days to pay. If they cannot pay, they can contact HMRC
in that time to agree arrangements for payment. If they think the
tax due is incorrect they can also raise that with HMRC who will
review the facts. HMRC will then issue a decision notice
confirming the amount of tax due to be paid up front at which
point the taxpayer has a further 30 days to pay.
This measure in no way alters the underlying tax liability. A person
will still have full access to the courts to determine their tax
liability. HMRC wins around 80% of avoidance cases in the courts.
If HMRC loses, they will repay the tax with interest. 165
The response document noted that some revisions would be made to
the legislation as initially drafted 166 The Government also confirmed
that it would issue detailed guidance on the scheme in the next weeks,
and, picking up a point made by the CIOT after the Budget, publish a
list of existing DOTAS schemes to be subject to accelerated payment by
the time the Finance Bill received Royal Assent. 167 However, the
Government rejected the case, made by many respondents, that
taxpayers should be able to formally appeal HMRC’s decision to issue a
demand for an accelerated payment:
Many respondents objected to the discretion that HMRC would
have to determine the amount and the absence of a formal
appeal right at this stage. One response referred to this as
appearing to make HMRC “the sole arbiters of the tax law.” Most
responses, where comments were made, restated the view that
there should be an appeal right to the tribunal, or recommending
“some more independent review”, and that the proposed
objection criteria were not sufficient in themselves. Other
responses suggested a modified appeal right to restrict the
possibility of the appeal being simply a delaying tactic …
The Government does not intend to extend an appeal right
against the issue of the accelerated payment ... Provision of a
formal appeal right would in practice involve arguing the
substantive issue of the dispute itself, which would do nothing to
change the current position.
HMRC is committed to applying clear and strong governance to
the use of this measure and only “designated” officers will be
authorised to calculate the tax due for the payment notice. It is
also the case that taxpayers will have 90 days in which to dispute
the amount calculated with a view to getting the correct figure
agreed.
The accelerated payment does not determine the final liability.
Whilst the amount will be calculated as accurately as possible,
taxpayers will still have full appeal rights against the eventual
closure notice or any assessment or determination that may be
issued … The Government does not believe that a specific
165
Tackling marketed tax avoidance: summary of Responses, 27 March 2014 pp34-5.
See also, HC Deb 3 July 2014 c688W
166
First, when a late payment penalty is charged on an accelerated payment and,
subsequently, that accelerated payment is found to have been too high, the excess
penalty plus interest is to be paid back, when the overpayment is repaid (op.cit. para
3.41-2). Second, where HMRC seeks to apply accelerated penalties to a scheme it
seeks to challenge using the GAAR, the GAAR Advisory Panel will have to agree this
is appropriate (op.cit. para 4.25-6)
167
op.cit. para 5.1-3. See also, “Accelerating away”, Taxation, 8 May 2014 & “Analysis:
FB2014 - Follower notices and accelerated payments”, Tax Journal, 9 May 2014.
provision for ‘financial extremity’ is necessary. HMRC will use its

full range of existing tools in pursuing the collection of tax,
including appropriately structured payment arrangements, to
assist taxpayers in paying the required amounts. 168
In their report on the Budget published on 9 May, the Treasury
Committee argued that the Government had failed to make the case for
making the new system of accelerated payments retrospective. 169 In a
press notice on their report the Committee said:
Retrospective tax legislation conflicts with the principles of tax
policy recommended by this Committee. In our Budget 2012
Report we recommended that the Government restrict the use of
retrospection to wholly exceptional circumstances. Witnesses told
us that the Government was not abiding by this recommendation.
Furthermore, the Red Book announced an additional retrospective
taxation policy: an extension of the requirement for taxpayers to
pay upfront any disputed tax associated with anti-avoidance
schemes. This policy will retrospectively apply to some of the
65,000 outstanding tax avoidance cases. There may be a case for
this policy but the Government has yet to explain what is wholly
exceptional about these cases that justifies this retrospective
measure. It should do so in response to this Report.
The then Chair of the Committee, Andrew Tyrie, added: “we have deep
reservations about any extension of retrospection in the tax system.
Retrospection runs counter to the Committee’s principles of tax policy.
In particular, it undermines certainty. Retrospection should be
considered only in wholly exceptional circumstances. The latest measure
would have to be justified on those grounds. Retrospection puts policy
on a slippery path to arbitrary taxation, discouraging investment and
innovation and creating the scope for great unfairness.” 170
The Government’s response to the Committee’s report was published
two months later, and in this, the Government refuted the charge that
these provisions were retrospective:
The Government does not agree that this legislation is
retrospective. This legislation does not take effect on a date
before its announcement or enactment, and it does not change
any tax liability arising from any transaction or arrangement,
whether undertaken before or after the introduction of these new
rules. It puts in place a new requirement that takes effect in the
future, to pay over a sum of money in dispute. Those disputes will
be resolved in the same manner as before, with full appeal rights
to the tribunal and courts. 171
Turning back to the Finance Bill, on 17 June 2014 the Public Bill
Committee scrutinising the Finance Bill debated, and approved, these
provisions, with just a small number of minor, technical amendments
tabled by the Government. 172
168
169
Thirteenth report of Session 2013-14, HC 1189, 9 May 2014, pp76-8
170
Treasury Committee press notice, 9 May 2014
171
Treasury Committee, Second special report of 2013-14, HC 609, 1 August 2014 p13
172
PBC (Finance Bill), Thirteenth Sitting & Fourteenth Sitting, 17 June 2014 cc 467-510.
For details see, HMT, Amendments 32 to 38 to Clauses 212 & 222 and Schedule 28
(Accelerated payments), 6 June 2014
Speaking for the Opposition Shabana Mahmood raised concerns over

the relatively short time frame set for the consultation on these
measures, but went on to say that, in the light of the sheer number of
outstanding cases, “Opposition Members … support the principle of
follower notices as a practical measure that should—hopefully—
decrease the amount of time it takes to settle those matters and ensure
that the currently uncollected tax is collected quickly.” 173 Ms Mahmood
noted two concerns about follower notices that had been raised: the
fact that HMRC could rely on decisions made by a tribunal, as well as
the court, in issuing a follower notice and that taxpayers could not
appeal HMRC’s decision to take this action. 174 She also asked if HMRC
would have sufficient resources to administer the system.
In response the then Exchequer Secretary, David Gauke, acknowledged
that the time allotted for consultation had been shorter than normal,
“because we were keen to ensure that we could progress this matter on
a Budget timetable and make it part of the Finance Bill. HMRC made
every effort to ensure that anyone who wanted to make a comment
was able to, and it continued to accept responses and meet with
concerned parties after the consultation formally closed.” 175 On the use
of tribunal decisions, and the absence of a formal right of appeal, Mr
Gauke said:
HMRC wins an overwhelming majority of avoidance cases at
tribunal, and most taxpayers who lose accept the tribunal’s
decision and do not take their case further. Therefore, in most
cases the first-tier tribunal settles the matter. However, if a case is
appealed further, follower notices cannot be issued until the
litigation is finally settled in HMRC’s favour. Excluding first-tier
cases would remove an important source of judicial decisions and
might lead to taxpayers deliberately avoiding an appeal against
and adverse judgment, so it could not be used to generate
follower notices …
Creating a right of appeal against a notice would simply clog up
the process and not deliver a saving. Taxpayers will be able to
require HMRC to reconsider any notice that they receive. There
will be a full right of appeal against any penalty issued and against
any amendment made to the taxpayer’s return if the taxpayer
does not amend it himself. HMRC will be ensuring strict
governance over the issue of notices, which will have to be
authorised by senior leaders. 176
As Mr Gauke noted, HMRC would be empowered to charge penalties
for failure to response to a follower notice:
Clause 200 allows a taxpayer to make representations about a
notice within 90 days and requires HMRC to consider them.
Having done so, if HMRC confirms the follower notice, the
taxpayer is given a further 30 days to take corrective action …
Clause 201 applies a penalty if a taxpayer is served with a follower
notice, but does not take corrective action within the specified
period. The penalty is charged on the amount of tax advantage
173
PBC (Finance Bill), Thirteenth Sitting, 17 June 2014 c469
174
Both of these concerns were raised by the Law Society (Finance (No.2) Bill 2013-14
committee stage - follower notices and accelerated payments, 3 April 2014).
175
PBC (Finance Bill), Thirteenth Sitting, 17 June 2014 c483
176
op.cit. c484
denied: the extra tax that becomes due, or the reduction in tax
repayable, when the scheme is counteracted … [Under] clause
202 … the penalty … is set at 50% of the denied tax advantage.
That is in line with the scale of penalties for inaccurate returns,
which range from 30% to 100%, depending on behaviour. To
encourage taxpayers to co-operate with HMRC to resolve their
case, clause 203 allows the penalty due to be reduced to as little
as 10% to reflect any co-operation. 177
That said, taxpayers will be entitled to appeal against a penalty charged
in these circumstances. Under clause 207, if a tribunal thinks that the
basis of a follower notice is wrong, any penalty will be cancelled or
reduced. Although this clause was agreed, unamended, by Committee,
the Government tabled amendments for the Finance Bill’s Report Stage,
to make clear the grounds on which a taxpayer could appeal against a
penalty: a taxpayer may appeal on the grounds that the follower notice
should not have been issued to him in the first place or that it was
reasonable for him to continue his dispute rather than settle with HMRC
on receipt of a follower notice. The amendments also provided that only
a designated officer of HMRC will be allowed to issue a follower
notice. 178
In his comments in Committee, the Minister also addressed the question
of whether HMRC had sufficient resources:
In November 2013, HMRC created a new counter-avoidance
directorate to bring together all marketed avoidance work in one
place. The directorate is mainly made up of departmental
resources that were already working in the marketed avoidance
area rather than additional resource, but about 100 of its 850
people will be funded from new money announced by the
Chancellor at the Budget to deliver accelerated payments. We do
not believe there will be a detrimental impact on HMRC’s other
operations. 179
The Committee went on to consider accelerated payment notices, and
the Minister was asked about the possibility that taxpayers might be
made bankrupt. Mr Gauke said, “I record the fact that HMRC has time
to pay arrangements for those who are constructively engaged with it
and who are looking to pay off their tax debts in a constructive way but
are constrained by cash flow matters. That is a perfectly reasonable
approach.” While the Minister did not propose any substantive changes
to the proposals, he noted that he had “asked HMRC to ensure that
there is active consultation on the published guidance, to ensure that
the important issues raised are dealt with in that process.” 180
Mr Gauke was asked about the extension of accelerated payments to
DOTAS cases, and whether this was not penalising those taxpayers who
had been cautious to make sure they were fully compliant with the law,
177
op.cit. cc477-8
178
HM Treasury, Government amendment 1-3: Right to appeal follower penalty (Clause
207), 24 June 2014. This is discussed in a little more detail below.
179
PBC, Thirteenth Sitting, 17 June 2014 c485. The Chancellor mentioned this rise in
funding in his Budget speech: HC Deb 19 March 2014 c785.
180
op.cit. c487, c488
and used DOTAS in good faith; in reply, the Minister made two
observations:
Disclosure under DOTAS does not necessarily mean that someone
will be affected by the accelerated payments regime. HMRC will
look at the particular scheme and assess whether it is effective.
There may well be circumstances in which HMRC will look at a
particular scheme and say, “A DOTAS disclosure has been made,
but as far as we can see this scheme is entirely consistent with the
law. It is effective and there is no tax under dispute, so no
accelerated payment will need to be made.” If there is no tax
under dispute, there is no accelerated payment.
The other point that is worth bearing in mind is that the trend for
DOTAS disclosures is a significant fall, and all the evidence
suggests that that trend has been driven not by concerns about
accelerated payments, because it was in place before that policy
was announced, but due to the fact that not as much aggressive
tax avoidance is being undertaken as a few years ago. 181
On the question of retrospection, the Minister noted the nature of
payments made this way:
We are clear that the legislation is not retrospective. It does not
change anybody’s tax liability, but it changes who holds the tax
during an avoidance dispute ... [The accelerated payment] will be
treated as a payment on account of the final liability, which
means that interest will stop running on the amount paid from
the date that the taxpayer pays it over. This is emphatically not
any form of determination of the final tax liability, which will still
be subject to all existing appeal rights. If the taxpayer is ultimately
successful, they will get a repayment, with interest, just like the
vast majority who have to reclaim any tax they think they are
owed. 182
Several Members contributed to the debate. Teresa Pearce took issue
with the Minister’s view on retrospection:
The definition of retrospection is to change the legal
consequences of actions that were committed, or relationships
that existed, before the enactment of a law, and that is exactly
what this legislation does. I agree that it might not change an
underlying tax liability, but it changes the consequences of actions
...
It is not only my interpretation that the legislation is retrospective,
but that of the Treasury Committee. The Chartered Institute of
Taxation, the Law Society and several well-respected chambers
have said that they find the legislation’s retrospective element
unacceptable … If the Minister and the Government are trying to
change behaviour, surely they cannot change behaviour in the
past. They need to change it going forward, but the retrospective
element will not do anything about that. People cannot change
what they have already done, but they can change what they will
do in the future. 183
By contrast, Charlie Elphicke argued that retrospection was about the
creation of uncertainty for the taxpayer:
181
op.cit. c490
182
op.cit. cc491-2. The Minister also gave a summary of the Government amendments
to these provisions: c493.
183
op.cit. c494
That is not the case with these provisions, as they apply only in a
DOTAS case when a filing has been made to the Revenue. If an
adviser has been making a filing, they will say, “I have had to file
this with the Revenue.” If they were a competent advisor, they
would say, “Keep the money to one side; don’t go out and spend
it.”
The argument that we hear being made is that if a person puts
£100 on red or black in a roulette tournament, it is okay for them,
while the ball is still spinning, to take 50 quid of that stake and
buy a round of drinks on the grounds that they might win, but
that is a poorly founded argument. If someone is going to put a
bet down … the stake should stay on the table. The principle that
the Government are setting out is that the stake should remain on
the table and in the hands of the house. In this particular case, the
money should be held with the Revenue if it is making a challenge
and has issued a follower notice. 184
For the Opposition Shabana Mahmood argued that the Minister’s case
was persuasive:
This feels much more like a situation where, to borrow a concept
from another aspect of our legal system, the legitimate
expectations of a taxpayer have been changed. When that
happens, as it does in other aspects of our law, particularly when
we discuss concepts of reasonableness in judicial reviews and
other matters, if legitimate expectations of taxpayers or others are
changed, that mischief—the changing of legitimate
expectations—is remedied by the time-to-pay arrangements,
which should assist in righting any wrongs. There is also the
remedy of an interest payment on top of the tax that was in
dispute if it is found that it needs to be paid back to the taxpayer.
If there is any unfairness as a result of the measures, it can be
remedied by those other measures. 185
In his response to the debate Mr Gauke addressed the point made by
Ms Pearce:
The point was made that, if this is about changing behaviour, it
should only apply to arrangements people enter into after the
measures come into effect. The point I would make in response is
that new rules are intended to achieve two things: they change
behaviour away from avoidance but have the additional objective
of accelerating the resolution of the large number of existing
cases and the receipt of the revenue tied up in them. We want all
taxpayers in this type of dispute to be in the same predicament so
that there is no reason to apply the rules differently depending on
when the particular arrangements began. 186
Members also raised concerns over the impact that the new regime
would have on the legal service. In response to this Mr Gauke said:
On some of the practical issues involving the impact on HMRC
and the tribunal … the measures are expected to prompt a range
of legal challenges, including judicial review proceedings, an
increase in closure applications to the tribunal and disputed
enforcement activity. Flexible legal resource options are being
considered to meet the expected demands of the work. That legal
resource will be increased and adapted depending on the scale
184
op.cit. c496
185
op.cit. cc502-3
186
op.cit. c507
and scope of any challenges … HMRC is in discussion with the

Ministry of Justice to plan for the introduction of these measures
and to deal with the likely consequences. 187
The Minister went on to discuss concerns over the financial burden of
payments and the position of taxpayers who had made disclosures
simply to be sure they were being fully compliant, before confirming a
formal review of DOTAS over the summer:
In cases of genuine hardship, HMRC will consider alternative
payment arrangements, as it does with any debt. The priority in
cases of genuine hardship will be to get people on to a payment
track so that the debt is paid as quickly as possible … Where
individuals do not immediately have the cash, it may be
appropriate in some instances to back up a payment arrangement
with a security against assets. In cases where, for instance,
individuals have taken deliberate action to put their assets out of
reach of HMRC … so that they cannot pay the tax, bankruptcy
action may well be appropriate, but the particular action will
always depend on the precise facts and circumstances of the
taxpayer …
I took one or two interventions on the issue of whether DOTAS
disclosures are on the safe side. If disclosures are made but there
is no additional tax, there will not be an accelerated payment.
HMRC will publish a list of scheme reference numbers before
Royal Assent to tell taxpayers which schemes will get a payment
notice and which will not ...
DOTAS has been in place for 10 years and has been revised at
various times. We believe that now is the right time to look at its
hallmarks to see whether they still work properly or whether they
need updating. We also want to look at how compliance can be
updated. We will publish a consultation in the summer, and
HMRC will … shortly publish draft guidance in consultation with
professional bodies and other interested parties. 188
Subsequently HMRC published its proposals to strengthen the DOTAS
regime on 31 July. 189
As mentioned, the Government tabled amendments to these provisions,
specifically in regard to the grounds for making an appeal against
follower notice penalties. These were debated and agreed without
further changes at the Report stage of the Bill on 2 July. 190
On this occasion the Exchequer Secretary clarified two points that he
had made in Committee; first on the number of responses made to the
draft provisions for follower notices, published in January:
[In Committee] I mentioned then that 22 responses had been
received to the January consultation on the draft legislation. Some
commentators have subsequently questioned whether the
number was not in fact higher. The draft legislation on follower
notices was issued in two separate documents in January, one of
which was on tackling marketed tax avoidance. Although we
received a total of more than 800 responses, the vast majority
187
op.cit. c508. See, “Tide of tax bill challenges to spur hiring spree for judges”,
Financial Times, 23 June 2014
188
op.cit. cc507-8, c509. The Committee proceeded to agree to this section of the Bill
without a division.
189
Strengthening the Tax Avoidance Disclosure Regimes – consultation, 31 July 2014
190
HC Deb 2 July 2014 cc961-1017
related to accelerated payments, and only 22 specifically related

to the draft legislation on follower notices that was published at
the same time. I hope that that provides clarification.
Mr Gauke went on to discuss the potential scope of accelerated
payments to previous tax years:
In Committee, I was asked whether the accelerated payments
regime would “reach back to disputed tax liabilities relating to
periods prior to the introduction of the DOTAS reporting?”––
[Official Report, Finance Public Bill Committee, 17 June 2014; c.
507.]
I said that it would not. I want to clarify that an accelerated
payment notice may not be issued to a taxpayer with a pre-
DOTAS tax dispute where DOTAS—disclosure of tax avoidance
schemes—is the only criterion available. Even though a scheme
may have come into DOTAS after its introduction, anyone using it
before DOTAS will not be subject to accelerated payment on
DOTAS alone. However, accelerated payment based on a follower
notice can apply to pre-DOTAS cases because the notice does not
depend on the DOTAS disclosure. 191
Subsequently the Minister confirmed that HMRC was ‘on course’ to
issuing guidance, and details of those DOTAS schemes to be subject to
accelerated payments notices, 192 and HMRC’s guidance on acclerated
payments, and a list of DOTAS schemes, are published online.
4.4 Impact of the new APN regime

When the legislation to introduce accelerated payment notices (APNs)
was agreed, there was some press coverage of the fact that several
celebrities would be amongst those taxpayers who were anticipating
that they would be served with a demand for this type of payment. 193 In
October 2014 HMRC confirmed that over 600 APNs had been sent since
late August, relating to over £25 million of disputed tax. In a press
notice the department stated that it would be issuing 2,500 notices per
month by January 2015, and that it was “on track to deliver notices to
43,000 tax avoidance scheme users, covering £7.1 billion of disputed
tax, by the end of March 2016.” 194
As noted above, it is a Parliamentary convention that Finance Bills do
not include legislation relating to National Insurance, so that provision
to extend both the system of accelerated payments, and the ‘POTAS’
regime, to NICs was included in a separate National Insurance Bill,
published in July. 195 When the Public Bill Committee took evidence of
191
HC Deb 2 July cc965-6
192
op.cit. c986. These provisions now form part 4 (ss 199-233) of the Finance Act 2014.
See also, “Thousands of taxpayers in avoidance schemes to repay billions”, Financial
Times, 15 July 2014.
193
“Thousands of taxpayers in avoidance schemes to repay billions” & , “Ingenious
Media tells celebrity investors they face tax crackdown”, Financial Times, 15 July & 7
July 2014. For a technical discussion see, “Press the accelerator”, Taxation, 9
October 2014.
194
HMRC press notice, Tax avoidance demands top £250m, 23 October 2014. By 9
January 2015 3,000 notices had been issued and £99m received (Strengthening
Sanctions for Tax Avoidance, January 2015 p5).
195
For more details on the legislation see, Library Research paper 14/45, 21 August 2014,
and Commons Briefing paper CBP6975, 11 February 2015.
the Bill on 21 October, Members asked witnesses about the state of

play regarding accelerated payments.
Both Andrew Hubbard (from accountants Baker Tilly) and Frank Haskew
(from the ICAEW) suggested it was too early to make a definitive
assessment, though Mr Haskew suggested that the market for
avoidance schemes “is starting to move already in relation to things
such as … professional indemnity insurance.” 196 Mr Haskew noted that
both the ICAEW and the CIOT were worried that HMRC might not have
the legal powers to return any overpayment of NICs associated with an
accelerated payment. When asked, the Minister David Gauke assured
the Committee this was not the case:
If the courts determine that the amount that has been paid under
an accelerated payments notice, whether in respect of tax or
national insurance contributions, ultimately does not need to be
paid, and if the scheme in question, for example, was legal and
effective, HMRC would be obliged to make that repayment.
Although it is not in the Bill, I am grateful for that question and I
am happy to make that statement and to make it clear that that is
the view of HMRC and the Government, having looked at it very
closely. 197
Both the Minister, David Gauke and David Edney, policy adviser at
HMRC, gave details of how the new regime was working, and the
department’s resources to administer it:
Mr Gauke: The plan from HMRC has always been to start off
relatively cautiously in terms of numbers and ramp it up. The first
notices went out at the end of August. Something like 600
notices have been sent out, covering tax liability of up to £250
million. The notices give the parties concerned 90 days in which to
settle and make the payment, so one would not expect us
necessarily to see the money coming in until the end of
November. I can inform the Committee that, up until now, over
£25 million has been paid as a consequence of the accelerated
payments project. There is clearly much more to come …
Mr Edney: We set up a dedicated helpline for people to contact
us. It was noticeable that, as soon as accelerated payments were
talked about and the first notices went out, the calls started
coming in. They first asked, “What is this all about and am I
affected?” and then minds started to concentrate and people
said, “I really want to get out of this. I see now that I cannot hold
on to the money any longer. What do I have to do to settle?” As
well as the advisers we have in place to issue the notice, we have
advisers to settle their liabilities without even receiving a notice …
We have added a little bit of resource to issue the first tranche of
notices. We will build up the staffing into the new year as we
build up to full capacity. As the reaction builds in, we will then
look at resources on our debt management teams, for example,
and our legal teams. Rather than recruiting very large numbers up
front, we are taking it in stages as the programme unfolds. 198
196
Public Bill Committee (National Insurance Contributions Bill), First sitting, 21 October
2014 c10
197
op.cit. c26
198
Public Bill Committee, Second sitting, 21 October 2014 c25
When the Committee debated that part of the Bill relating to

accelerated payments, Shabana Mahmood reiterated the Opposition’s
support for these changes and their view that these arrangements did
not constitute retrospective legislation. Ms Mahmood went on to ask if
HMRC had sufficient resources to administer the new regime; in
response, Mr Gauke said:
The Government have provided significant reinvestment of £1
billion specifically to combat revenue lost and at risk through non-
compliance … [so] while most of HMRC’s lines of business are
reducing in size, the number of roles in compliance is increasing
… Around 100 staff have been recruited into counter-avoidance
to deal with the issue of accelerated payment notices, and
another 100 will be added in 2015. In addition, HMRC is
deploying additional staff to handle collection work. HMRC is
taking a flexible approach on additional legal staff, which will
depend on the number and nature of legal challenges.
Her Majesty’s Courts and Tribunals Service is recruiting additional
tribunal judges to handle the cases involving accelerated
payments and follower notices and to accelerate the number of
cases going through the tribunal generally. The Government have
invested extra funds into HMRC’s work to tackle avoidance and
evasion. That is bearing fruit, with compliance in 2013-14
bringing in £23.9 billion up substantially from where it was when
we came to office. 199
In January 2015 the National Audit Office published an overview of the
department’s work to improve tax collection since 2010. On the
question of compliance, the NAO found that HMRC had made
“significant progress since the 2010 spending review in delivering its
strategic objectives, successfully reducing the cost of tax collection while
increasing the tax it raises from its compliance work.” 200
The report also looked at HMRC’s response to concerns raised by the
NAO and the Public Accounts Committee in 2012-13 over the scale of
marketed avoidance schemes. Reviewing the introduction of accelerated
payments & follower notices, as well as associated changes to the
avoidance landscape – the GAAR, the strengthened disclosure regime,
new sanctions on scheme promoters – the NAO concluded, “HMRC’s
response … has been exemplary”:
HMRC’s response to our and the Committee’s recommendations
on marketed tax avoidance has been exemplary. In the next
parliament, the Committee may want to examine whether
HMRC’s new powers to tackle marketed avoidance are working as
intended. HMRC will need to demonstrate that it is reducing its
backlog of 65,000 open avoidance cases. It also faces the
challenge of finding ways to measure the impact of new
approaches it is introducing to promote compliance and prevent
tax avoidance from happening. The impact of these will be harder
for HMRC to measure than the additional tax yield HMRC secures
from its investigations. 201
199
op.cit. cc47-8
200
Increasing the effectiveness of tax collection: a stocktake of progress since 2010, 6
February 2015, HC 1029-I of 2014-15 p7
201
HC 1029-I of 2014-15 p22
Figures on the numbers of APNs issued and payments received were

given in HMRC’s 2016/17 Annual Report, published in July 2017:
Last year, as planned, we reached the end of our three-year
programme of issuing Accelerated Payment Notices (APN) to users
of eligible avoidance schemes. APNs are one of the most
significant tools that we have to tackle avoidance by individuals
and companies, removing their ability to defer payment of tax in
ongoing disputes involving marketed tax avoidance schemes.
Since 2014 we have issued more than 75,000 notices worth in
excess of £7 billion and collecting nearly £4 billion.
During the last year we issued more than 30,000 notices, worth
£2.3 billion, with total revenue generated of £1.3 billion. This
included £180 million of estimated compliance yield protected by
APNs, through making the use of avoidance schemes less
attractive to existing and potential avoidance scheme users. …
Where a customer disagrees with an Accelerated Payment Notice,
they have the right to make representations to us. Of the 75,000
notices issued we received a total of 40,000 representations. So
far we have considered more than 32,000 of these
representations and around 90%of the notices were upheld as
valid, with more than 80% confirmed in the original amount. 202
Since the introduction of this legislation there has been relatively little
debate or comment on the APN regime in the House. In March 2016
Greg Mulholland MP tabled an EDM critical of APNs – though only 3
Members signed it. 203 Subsequently the operation of the regime has
been raised in a few PQs: two examples are reproduced below:
Asked by Mr Charles Walker : To ask Mr Chancellor of the
Exchequer, what mechanisms there are for companies to appeal
the terms of accelerated payment notices issued by HM Revenue
and Customs; and if he will make a statement.
Answered by: Jane Ellison : The accelerated payment regime
was introduced in Finance Act 2014 to change the underlying
economics of tax avoidance by requiring disputed tax to be paid
upfront while an avoidance scheme is being challenged. Disputed
tax remains due and payable under the accelerated payment
regime until such time as the dispute is settled by agreement with
HM Revenue and Customs (HMRC) or the dispute is litigated and
there is a judicial decision. Where an accelerated payment has
been made, it is repayable if HMRC agrees, or the courts decide,
that the scheme in question does produce a tax advantage under
the legislation. Taxpayers can make representations to HMRC
about an accelerated payment notice if they believe the conditions
for issue have not been met or the amount shown is incorrect.
They can also ask the courts to judicially review the issue of an
accelerated payment notice. 204
*
Asked by Grant Shapps :To ask Mr Chancellor of the Exchequer,
what comparative assessment HM Revenue and Customs has
made of the amount it will recover if a company goes into
liquidation because of accelerated payment notice debt or if that
company continues to trade.
202
HMRC Annual Report 2016/17, HC 18, July 2017 p24
203
EDM 1321 of 2015-16, 23 March 2016
204
PQs 59586, 59587 & 59588, 16 January 2017
Answered by: Mel Stride : HM Revenue and Customs (HMRC)

has stringent governance arrangements in place where insolvency
is considered. Each case is considered individually and, where a
company is trading insolvent, HMRC must take the most
appropriate action to mitigate the tax losses. Many factors are
considered when deciding whether to petition against a company.
HMRC treats unpaid Accelerated Payments as any other
established debt using their range of debt collection powers as
necessary to recover what is owed, including insolvency powers
where appropriate.
HMRC does not hold information on the amount recovered from
company liquidations caused by unpaid accelerated payment
notice debts. Any insolvency action in relation to unpaid
accelerated payment notices is currently at an early stage. 205
In July 2015 the Court of Appeal rejected a legal challenge to the APN
regime. 206 One part of the judgement is striking in relation to the
claimants’ argument that it was unfair to apply APNs to the scheme,
given they had bought into this scheme essentially in good faith, several
years ago (para 126)
The claimants assert that “if they had known that participating in
a business notified under DOTAS meant that monies contributed
would be claimed by executive act some 10 years later at short
notice and prior even to any enquiry or assessment to tax, it is
highly unlikely that they would have made the investment”. This is
untenable. The primary risk to the claimants was not precisely
when they might have to pay the relevant tax, but whether they
would have to pay it. That was a risk that must have been well
understood and for which financial provision can be expected to
have been made.
At the time they participated in the schemes, the claimants could
not have known when HMRC’s enquiries and any FTT appeal
process would end. It was possible that the appeal process could
have concluded much earlier, with a consequential requirement to
pay the disputed sums.
Writing on this judgement in Taxation, editor Andrew Hubbard, argued
that “clients who have received APNs or PPNs [given to partnerships]
must face the fact that they will almost certainly have to pay.” 207
Subsequent legal challenges have failed. 208 In November 2016 the
Tribunal considered an appeal against penalties that HMRC had
imposed on a taxpayer for late payment of an accelerated notice – in
this case a ‘PPN’ as it was issued against a partnership. As part of the
judgement the Tribunal noted that, “Parliament had deliberately
enacted provisions that a challenge against a PPN should be made by
way of judicial review. The taxpayer, having chosen not to make such an
application, could therefore not argue that the invalidity of the
underlying assessment was a reasonable excuse not to pay the PPNs.” 209
205
PQ4787, 18 July 2017
206
Rowe, Worrall and others v CIR [2015] EWHC 2293. The judgement is online. See
also, HMRC press notice, HMRC win Accelerated Payments challenge, 31 July 2015.
207
“Not so ingenious”, Taxation, 6 August 2015
208
“The failed JR challenges to APNs: lessons learned?”, Tax Journal, 9 September
2016; “Still in the fast lane?”, Taxation, 14 July 2017; “Judicial review applications
against HMRC”, Taxation, 31 October 2018.
209
“Got to pay: Case summary”, Taxation, 23 November 2016
In December 2017 the Court of Appeal handed down judgement in two

joined cases involving dozens of taxpayers, and, once again, upheld
HMRC’s position. 210 There have been two recent exceptions to this
pattern, in cases decided by the Court of Appeal in April 211 and October
2019 212 striking down APNs that HMRC issued to taxpayers in two
specific cases, though these have not led to the APN regime as a whole
being put into question.
HMRC regularly publish details of avoidance schemes which they believe
are being used to unfairly avoid tax – their ‘Spotlights’ publication. In
February 2016 HMRC published a notice, Misleading claims from tax
avoidance scheme promoters, which observed, “promoters marketing
these avoidance schemes and arrangements use a variety of terms or
statements to reassure the potential user that the products they are
marketing are acceptable. Such statements are often short and snappy
and made without context so could be misleading”:
There are a wide variety of claims and statements made but some
examples include:
• these arrangements fall outside the scope of tax avoidance
• the scheme is not disclosable to HMRC and leading Tax
Counsel (QC) have agreed this
• the scheme has been disclosed and therefore you cannot
be penalised
• we have been offering these schemes for years and have
not been challenged
• you can receive tax-free payments that are compliant with
tax law
• we have won all previous court cases in relation to these
arrangements
• HMRC will write you a few letters and then give up and go
away
• the arrangements are recognised by HMRC as not an
avoidance scheme
• we have a successful track record of implementation
• leading Tax Counsel have advised that the arrangements
are legal and work
• penalties can’t be applied as you have relied on advice of
Tax Counsel
• you can earn more and mitigate tax and do so using tax
efficient structures fully compliant with the law
210
Rowe v HMRC [2017] EWCA Civ 2105. See also, Stephen Daly, “A case note on
‘notices’”, taxatlincolnox blog, 13 December 2017; and, Carlton & Ors v HMRC
[2018] EWHC 130 (Admin)
211
R (oao Haworth) v HMRC [2019] EWCA Civ 747. See also, “Faulty follower: Haworth
on follower and accelerated payment notices”, Taxation, 18 June 2019
212
R (oao Locke) v HMRC [2019] EWCA Civ 1909. See also, Stephen Day, “Access to
justice and taxpayer protection”, taxatlincolnox blog, 8 November 2019; “Locke:
Court of Appeal again quashes follower and accelerated payment notices”, Tax
Journal, 14 November 2019.
• the product is low risk

• you’re fully insured against any defeat
• HMRC has approved the scheme - they’ve given it a
reference number
Such claims are made without context and are usually misleading.
HMRC never approves avoidance schemes. Assertions that HMRC
has never challenged schemes of a particular type, or claims that a
scheme produces tax free payments that are compliant with tax
law, are often simply incorrect. Saying ‘the scheme has been
disclosed and therefore you can’t be penalised’ doesn’t mean that
you won’t have to pay the disputed tax, interest and possibly
penalties. Similarly, saying ‘leading Tax Counsel have advised that
the arrangements are legal and work’ does not necessarily mean
the scheme works.
Counsel may be advising the promoter on the basis of
assumptions which may not turn out to be correct when the
scheme is implemented. And whilst Counsel may have advised
that the scheme works, their advice is only one opinion. HMRC
has a strong track record on avoidance and wins around 80% of
all avoidance cases taken to court. 213
4.5 Subsequent proposals regarding ‘serial

avoiders’ and offshore evasion
In the Autumn Statement in December 2014, the Coalition Government
announced that it would consult on action to “impose additional
financial costs, compliance and reporting requirements or repeat users
of known avoidance schemes.” 214 In January 2015 HMRC launched a
consultation – Strengthening the sanctions for tax avoidance – which, as
noted above, asked for views on having penalties for GAAR cases, and
on measures to tackle ‘serial avoiders’: “a small group of risk takers,
each of whom is repeatedly involved in tax avoidance schemes to avoid
significant amounts of tax.” 215
The consultation paper gave more details of what additional sanctions
might be applied, while underlining that any new regime would have to
be underpinned by certain safeguards:
Introducing surcharges for repeated use of schemes that fail
When a tax avoidance scheme fails, the tax return is inaccurate
and penalties may be chargeable. This depends in each case on
establishing that the taxpayer failed to take reasonable care.
However, the law must look at each case in isolation, and cannot
consider the evidence of a pattern of previous or parallel
behaviour. Introducing a surcharge on the repeated or concurrent
use of tax avoidance schemes that fail could help deter serial
avoiders from persisting with flawed schemes year after year …
213
HMRC, Misleading claims from tax avoidance scheme promoters, Spotlight 29,
February 2016
214
Autumn Statement, Cm 8961 December 2014 para 2.158. At this time the
Government also proposed changes to make DOTAS more effective (paras 2.160-2).
215
Strengthening Sanctions for Tax Avoidance, 30 January 2015 p7
Special Measures for Serial Avoiders

Serial avoiders may be largely insulated against the personal
impact of an intensive enquiry into their tax affairs by their agent
or the scheme promoter. Currently, neither the threat of enquiry
nor the burden of compliance are likely to carry weight with the
serial avoider; or move them to cooperate and progress matters at
pace; indeed, delay is a tactic frequently used to hold up
settlement and payment.
Increasing the level of scrutiny and obligation on taxpayers during
an enquiry could raise the stakes for the avoider and help shift
their behaviour ... On entering special measures, serial avoiders
could be required:
To provide certificates about their use of tax avoidance schemes
to show whether or not they have used a tax avoidance scheme in
a particular period, with a view to influencing their behaviour by
making them formally acknowledge their involvement in tax
avoidance;
To provide as a matter of course more documents and
information about their tax affairs or with their tax return rather
than waiting for an enquiry or information request from HMRC,
with a view to making clear that serial avoidance will result in the
imposition of additional obligations on an avoider;
To comply with a conduct notice or a stop notice requiring them
to do, or refrain from doing, certain things, with a view to
improving their tax compliance …
Publishing the names of serial avoiders
Some serial avoiders may be particularly sensitive to reputational
risk. Introducing the additional prospect of publicity could alter
the balance of risk for serial avoiders, and act as a deterrent to
future involvement in high risk tax avoidance schemes. This
sanction could be directly triggered by the imposition of a
surcharge for repeated use of schemes that fail; or it could be a
further consequence of failure to comply with special measures,
which could themselves be triggered by imposition of a
surcharge…
Safeguards
Whether in raising a surcharge, imposing special measures or
naming a serial avoider there would need to be appropriate
safeguards. Any new regime would need to include procedural
safeguards and rights of appeal to ensure that it catches and
sanctions only its intended, narrow target. The power to name
would require especially careful handling, as it would be harder to
demonstrate that any perceived reputational damage could be
effectively undone. 216
The Chancellor George Osborne presented his last Budget of the
Parliament on 18 March 2015, and in the Budget report the
Government confirmed that it would go ahead with the proposed
changes regarding serial avoiders in a future Finance Bill:
2.203 Serial avoiders – The government will introduce legislation
for tougher measures for those who persistently enter into tax
avoidance schemes which fail (serial avoiders), including a special
reporting requirement and a surcharge on those whose latest tax
216
op.cit. pp 8-10. Responses to this consultation were invited by 12 March 2015.
return is inaccurate as a result of a further failed avoidance

scheme.
The government will also look to restrict access to reliefs for the
minority who have a record of trying to abuse them through
avoidance schemes that don’t work and intends to develop
further measures to name those who continue to use schemes
that fail. Legislation will be introduced in due course that will
widen the current scope of the Promoters of Tax Avoidance
Schemes regime by bringing in promoters whose schemes
regularly fail. (Future Finance Bill). 217
The Budget report went on to note that the forthcoming Finance Bill, to
be passed before the Dissolution, would enable HMRC to issue Conduct
Notices to a broader range of connected persons under the POTAS
regime, and, ensure that the 3 year time limit for issuing Conduct
Notices to promoters who have failed to disclose avoidance schemes to
HMRC applied from the date when a failure is established. 218
Alongside the Budget the Coalition Government published Tackling tax
evasion & avoidance – a paper setting out the action it had taken over
the Parliament to deal with avoidance and evasion, both domestically,
and in response to international concerns about corporate tax
avoidance, as well as bank secrecy laws and their exploitation for the
purposes of evasion and money laundering. 219 With regard to the
domestic scene it confirmed the Government’s intention to introduce a
system of penalty payments for GAAR cases, while noting that only “a
fairly small number of cases” were expected to fall foul of the rule. 220
Following the introduction of accelerated payments, consideration
would be given as to “whether the principle might be appropriate for
different types of cases and whether the government should extend the
acceleration of tax payments to more avoidance cases.” 221
This paper also mentioned four initiatives to tackle offshore evasion.
HMRC published a strategy paper on this issue in March 2013, which
gave a summary description of what this constitutes …
Offshore evasion is using a non-UK jurisdiction with the objective
of evading UK tax. This includes moving UK gains, income or
assets offshore to conceal them from HMRC; not declaring
taxable income or gains that arise overseas, or taxable assets kept
overseas; and using complex offshore structures to hide the
beneficial ownership of assets, income or gains.
… and estimates as to the scale of this activity:
The hidden nature of the problem and the way that information is
currently recorded mean that there is no clear view of the cost of
offshore evasion. However, HMRC’s recent progress in tackling
offshore evasion through exchange of information agreements
and disclosure facilities indicates that it has a significant cost to
the UK. That is why we are undertaking innovative new work to
use a wide range of data sources and engage experts and
217
Budget 2015, HC 1093, March 2015 p91
218
op.cit. para 2.204. This was made by s119 of FA2015
219
HM Treasury, Tackling tax evasion & avoidance, Cm9047, March 2015. The paper
lists a series of measures taken from 2011 to 2015 to ‘close loopholes’ (Table 2.A).
220
Tackling tax evasion & avoidance, Cm9047, March 2015 para 3.22
221
op.cit. para 3.34
academics to develop a comprehensive evidence base on the scale

and nature of offshore evasion. 222
The difficulties faced by many countries in tackling offshore evasion was
a theme to the 2013 G8, and in July 2014 the OECD published a new
global standard on automatic information exchange – the ‘Common
Reporting Standard’ (CRS) – to tackle offshore tax evasion:
The Standard provides for annual automatic exchange between
governments of financial account information, including balances,
interest, dividends, and sales proceeds from financial assets,
reported to governments by financial institutions and covering
accounts held by individuals and entities, including trusts and
foundations. The new consolidated version includes commentary
and guidance for implementation by governments and financial
institutions, detailed model agreements, as well as standards for
harmonised technical and information technology solutions,
notably a standard format and requirements for secure
transmission of data. 223
The UK was one of an initial group of 51 countries that agreed later
that year to implement the standard, 224 including all EU Member States
under an EU-wide Administrative Co-operation Agreement. Following
consultation, legislation to give effect to these provisions was
introduced in March 2015. 225 Notably the Crown Dependencies and
Overseas Territories agreed bilateral arrangements with the UK on
automatic information exchange in 2013 and, in turn, signed up to
implement this new global standard. 226
Following consultation over 2014, the March 2015 Budget confirmed
the introduction of enhanced civil penalties for offshore tax evasion. 227
In addition the Government proposed that these civil penalties could be
strengthened, possibly supplemented by other measures, including a
new criminal offence for corporations that fail to take adequate steps to
prevent the facilitation of tax evasion by their agents:
3.11 The government has reached ground-breaking agreements
to exchange information on financial accounts automatically every
year with over 90 other countries. Building on this, it is
introducing stronger sanctions for those who continue to evade
tax and for those who assist them.
3.12 The Government today announces the introduction of
a new strict liability offence for those who have not paid
the tax due on offshore income. This will act as a significant
deterrent to the minority of people who evade their tax and will
help to stamp out offshore tax evasion. There was previous
consultation on a strict liability offence in 2014 at a time when
222
HMRC, No safe havens: Our offshore evasion strategy 2013 and beyond, March
2013 p2. HMRC published an update to this strategy the following year: No safe
havens 2014, April 2014.
223
OECD press notice, OECD releases full version of global standard for automatic
exchange of information, 21 October 2014 Details are on the OECD’s site here.
224
HM Treasury press notice, Next step taken in stamping out international tax evasion,
30 October 2014
225
HMRC, Tax administration: regulations to implement the UK's automatic exchange
of information agreements, March 2015
226
PQ HL4852, 18 February 2015. See also, PQ67167, 17 March 2017
227
Budget 2015, HC1093, March 2015 para 2.202. see also, HMRC, Strengthening
penalties for offshore non-compliance, December 2014
fewer countries had agreed to begin exchanging information

automatically in 2017 or 2018. In light of the significant increase
in the number of participating countries, there will be a further
consultation before legislation is introduced which takes account
of this and considers appropriate defences and thresholds.
3.13 The Government is also taking tough action against those
who enable offshore tax evasion. The Government today
announces new civil penalties for enablers of tax evasion
and will consult on the detail of this. This will include a new
collateral penalty under which enablers will pay a fine equivalent
to that paid by the individual that they helped to evade tax; and
public naming of those that enable tax evasion. Criminal sanctions
are already available against individuals who facilitate or
encourage tax evasion. The Government today announces it
will create a new offence of corporate failure to prevent tax
evasion or the facilitation of tax evasion, following
consultation.
3.14 HMRC is already able to apply penalties of up to 200% of
the tax due. Changes introduced in Finance Bill 2015 will extend
the scope of these. The government today announces that
there will be a further toughening of the range of penalties
available to HMRC, following consultation. This will include a
new penalty that would take a portion of the asset that has been
hidden and increasing the scope of the power to name those who
have evaded tax. 228
At this time the Government also announced that it would introduce a
new ‘disclosure’ programme, for taxpayers to declare unreported tax
liabilities connected with assets held offshore. As noted in Tackling tax
evasion & avoidance, “without access to information on offshore
financial assets, HMRC’s approach has long been to encourage people
to come forward and disclose information voluntarily. It has done this by
offering time-limited ‘disclosure facilities’, including through bilateral
agreements, which encourage tax evaders to come forward and to
disclose their offshore affairs, pay the tax due together with penalties
and interest.” 229
The Budget report noted that the new Worldwide Disclosure Facility
(WDF) would not offer taxpayers similar incentives as previous schemes,
that had sought to encourage voluntary disclosures by imposing lower
penalties on unpaid tax recovered this way. The Government also stated
that it would “invest £4 million in data analytics resource to maximise
the yield from the Common Reporting Standard data.” 230 The Budget
report estimated that this would yield about £570m over 2015-20. 231
The WDF was launched in September 2016. Writing in Taxation
magazine on its launch, Dawn Register & Helen Adams (BDO LLP) noted
that, “the reason for no further incentives to encourage voluntary
228
Tackling tax evasion & avoidance, Cm 9047, March 2015 p16. Consultation on each
of these measures was launched in July 2015, and subsequently the Conservative
Government confirmed it would introduce them (Autumn Statement Cm 9162,
November 2015 para 3.77-80). This is discussed below.
229
Tackling tax evasion & avoidance, Cm 9047, March 2015 para 2.16
230
Budget 2015, HC 1093, March 2015 para 2.197-9, para 2.201
231
op.cit. p64 (Table 2.1- item 25)
disclosure is HMRC’s improved capability of detecting and investigating

offshore tax evasion and non-compliance”:
The common reporting standard (CRS) is described by HMRC as a
‘game changer’, bringing the automatic exchange of bank
information from more than 100 countries around the world over
the next two years. This is in addition to data from more than 40
territories on the beneficial ownership of offshore companies and
trusts. The result is to revolutionise tax transparency and make it
easier for HMRC to tackle offshore tax evasion and avoidance.
The author went on to note that this was one of a series of
initiatives that HMRC was introducing to reduce offshore tax
evasion:
The WDF must be viewed with two other measures on which
HMRC is working. First, the requirement to correct (RTC)
[initiative] … will create a statutory obligation to correct any
undeclared UK tax liabilities in respect of an offshore matter by 30
September 2018. These proposals will introduce tough new
penalties for ‘failure to correct’ if the non-compliance is not
resolved by then.
Second, HMRC is putting into place the client notification
regulations. The new SI 2016/899 states that advisers will need to
contact specified clients to warn them of the consequences of
failing to disclose fully their UK tax liabilities and advertise the
WDF. Further guidance is expected before advisers contact these
clients between 30 September 2016 and 31 August 2017. HMRC
will use both the RTC and notification letters to encourage
individuals to use the WDF to bring their tax affairs up to date,
with a particular focus on anything offshore. 232
In a second piece on the WDF that appeared in the Tax Journal at this
time, Ms Adams and James Kennedy (also BDO LLP) noted:
The launch of WDF is interlinked with the common reporting
standard (CRS), the automatic information exchange of bank data
from around the world and registers of beneficial ownership.
HMRC has improved its efficient, effective data analysis
capabilities to handle bulk data. Consequently, it simply does not
believe that it needs to offer incentives for disclosure, as it will
soon receive data from over 100 countries from which it will
identify cases for investigation. 233
Prior to the 2015 General Election the Institute for Fiscal Studies
published an assessment of the Coalition Government’s tax policy,
including its efforts to tackle tax avoidance and evasion. 234 On the
impact of the new GAAR the authors noted that it was still “very early
days”: “to date there have been no test cases of the GAAR – not
necessarily because it has no practical application, or because it is a
completely effective deterrent, but because it takes time for relevant
transactions to arise, come to the attention of HMRC, be investigated
and come to court.” DOTAS had facilitated the practice of clamping
232
“Sticks instead of carrots”, Taxation, 29 September 2016. For details of the first of
these measures – the ‘requirement to correct’ – see, HMRC, Tackling offshore tax
evasion: requirement to correct, December 2016. It is also discussed below.
233
“Q&A : the Worldwide Disclosure Facility”, Tax Journal, 23 September 2016
234
Stuart Adam & Barra Roantree, The Coalition Government’s Record on Tax: IFS
Briefing note BN167, March 2015
down on avoidance schemes as they came to light, but it was hard to

say what the revenue impact of these initiatives had been:
The principal weapon [to tackle avoidance] has still been to clamp
down on specific avoidance schemes when they are uncovered
(often through the Disclosure of Tax Avoidance Schemes, or
DOTAS, provisions introduced by the previous Labour
government). Every Budget and Autumn Statement has included a
raft of anti-avoidance measures, most of them small individually
but collectively forecast to raise billions of pounds.
There is no clear dividing line between reducing avoidance
opportunities and broadening the tax base, so it is hard to
separate out ‘anti-avoidance’ measures and quantify their
intended revenue yield. It is even harder to know whether the
measures in fact bring in the sums forecast. 235
More generally the authors argued that even though the GAAR
represented “a move beyond the traditional approach of simply dealing
with each avoidance scheme as it is uncovered”, it was “still tackling
the symptoms rather than the underlying cause – often a lack of clarity
or consistency in the tax base”:
As the Mirrlees Review noted, ‘If activities were taxed similarly,
there would be no (or, at least, much less) incentive for taxpayers
to dress up one form of activity as another – and there would
correspondingly be little or no revenue loss to the Exchequer if
they did so.’ 236
If tax evasion is a function of enforcement, avoidance is a function
of the tax base. Preventing tax avoidance is not an administrative
exercise to be layered on top, but inextricably intertwined with the
design of tax policy. Design a coherent tax policy and the problem
of avoidance will be much reduced. 237
235
The Coalition Government’s Record on Tax, March 2015 p27
236
Tax by Design: The Mirrlees Review, IFS 2011 p501
237
The Coalition Government’s Record on Tax, March 2015 p27
5. The Conservative Government’s

approach
5.1 Budget 2015
In the Conservative Government’s first Budget after the 2015 General
Election, the then Chancellor George Osborne did not announce any
major change in the Government’s approach to this issue. The Budget
report included a number of separate measures relating to tax planning,
tax avoidance, evasion and compliance, 238 and confirmed consultation
on a penalty regime for GAAR, as well as measures, previously
announced, regarding serial tax avoiders:
The government will publish a consultation, ahead of introducing
legislation in Finance Bill 2016, for serial avoiders who persistently
enter into tax avoidance schemes which are defeated. These
include a special reporting requirement and a surcharge on those
whose latest tax return is inaccurate as a result of a further
defeated avoidance scheme, restricting access to reliefs for the
minority who have a record of trying to abuse them, and
developing further measures to name serial avoiders. The scope of
the Promoters of Tax Avoidance Schemes regime would be
widened by bringing in promoters whose schemes are regularly
defeated. (Finance Bill 2016). 239
Following a consultation exercise, the Government confirmed it would
introduce these arrangements with effect from 6 April 2017:
Legislation will be introduced in Finance Bill 2016 to allow HMRC
to send a notice when they defeat a tax avoidance scheme which
puts that person on warning for 5 years. During this time,
taxpayers will be required to notify HMRC each year that they
have not used any further avoidance schemes, or if they have, to
give full details of the schemes and the amount of the tax
advantage the schemes are asserted to deliver.
For taxpayers who use further avoidance schemes while under
warning which HMRC defeat, they will become liable to a penalty
of 20% of the understated tax. Subsequent defeats of such
schemes will result in increasing penalties to a maximum of 60%.
Taxpayers who use three schemes during a warning period which
HMRC defeats will have their names and other details published
by HMRC.
Taxpayers who use at least three tax avoidance schemes during
the warning period which exploit reliefs in a way not intended by
Parliament and which HMRC defeats will have their access to
certain reliefs deferred for a period of three years. If they use no
further avoidance schemes which exploit reliefs in this time which
HMRC defeat, they will be able to claim reliefs in relation to the
deferred period, provided they are still in time to do so. 240
238
Summer Budget 2015, HC 264, July 2015 pp94-6, Table 2.1 – items 27-36.
239
Summer Budget 2015, HC 264, July 2015 para 2.174
240
Tax administration: serial avoiders special regime - tax information & impact note
(TIIN), December 2015. The Exchequer impact was estimated to be negligible.
Draft legislation was published at the time, and these provisions now
form s159 & schedule 18 of FA2016. 241
The Government also confirmed that it would introduce a new
threshold condition for the ‘promoters regime’:
Legislation will be introduced in Finance Bill 2016 to provide a
new threshold condition for the POTAS regime. The July 2015
consultation proposed the detail for a new threshold condition for
promoters who have marketed multiple tax avoidance schemes
that are regularly defeated.
Three such defeats over an eight-year period will trigger the
threshold condition and bring the scheme promoter into
consideration for a Conduct Notice. For this threshold condition, a
defeat is defined as: litigation finally being in HMRC’s favour; the
user of the scheme reaches agreement with HMRC about their
case or makes no appeal against an assessment; a GAAR
counteraction has been issued; or the user of the scheme corrects
their return on receipt of a Follower Notice. Where there are
multiple users of a defeated scheme, a scheme will be defeated if
litigation is finally found in HMRC’s favour or 75% of the scheme
users agree with HMRC that the scheme does not provide the
asserted tax advantage. 242
Finally, in the Summer 2015 Budget the Government also stated it
would consult “on new measures to increase compliance and tax
transparency in relation to large business tax strategies”:
These will include the introduction of a ‘special measures’ regime
to tackle businesses that persistently adopt highly aggressive
behaviours including around tax planning, and a voluntary Code
of Practice defining the standards HMRC expects large businesses
to meet in their relationship with HMRC. 243
Following consultation over the summer, in December 2015 the
Government published details of how these initiatives would work; first,
the ‘special measures’ regime -
The government is legislating to provide that large businesses with
an ongoing history of aggressive tax planning and/or refusing to
engage with HMRC may be subject to special measures.
A business in this position will be advised that they may be of risk
of being put into special measures. A twelve month improvement
period will then allow HMRC and the business to work together
to resolve issues. At the end of the period, the business will either
have improved and so not enter special measures or be notified of
entry into special measures. At this stage no sanctions are
triggered.
Businesses who enter special measures risk sanctions if they
demonstrate further instances of the behaviours that led to their
inclusions in special measures. Sanctions could include, removing
access to non-statutory clearances, removing the defence of
‘reasonable care’ or potentially naming as being in special
measures. Businesses enter special measures for a minimum of 2
241
No changes were made to the draft legislation: HM Treasury, Overview of tax
legislation & rates, March 2016 p24
242
HMRC, Tax administration: new threshold condition for promoters of tax avoidance
schemes – TIIN, December 2015. Again, the Exchequer impact of this change is
thought to be negligible. This provisions forms s160 of FA2016.
243
Summer Budget 2015, HC 264, July 2015 para 2.176
years. Two years from entry into special measures HMRC will
conduct an ‘exit review’ to decide whether the behaviours have
improved and the business should exit special measures or
whether an extension of special measures is required. 244
- and second, the transparency strategy, which would cover 2,000
largest businesses in the UK:
The measure will introduce a legislative requirement for all large
businesses to publish an annual tax strategy, in so far as it relates
to UK activities, approved by the Business’s Executive Board.
The strategy will cover 4 areas:
1. the approach of the UK group to risk management and
governance arrangements in relation to UK taxation
2. the attitude of the group towards tax planning (so far as
affecting UK taxation)
3. the level of risk in relation to UK taxation that the group is
prepared to accept
4. the approach of the group towards its dealings with HM
Revenue and Customs (HMRC)
Non-publication of an identifiable tax strategy or incomplete
content based on the 4 areas outlined above could lead to a
financial penalty. This penalty will be subject to the usual HMRC
appeals process. 245
Draft legislation was published at the time, and in the 2016 Budget the
Government confirmed this would be included in the Finance Bill,
subject to certain revisions “to clarify the population of those entities in
scope of the legislation. The legislation will be effective for accounting
periods commencing on or after Royal Assent to Finance Bill 2016.” 246
The Exchequer yield from these changes was estimated to be £175m in
201/18, rising consistently to £635m by 2020/21. 247
These three measures were debated, and agreed, at the Committee
stage of the Bill on 28 June – though the debate focused on the
separate, if related issue of corporate tax avoidance, and the proposal
for multinational companies (MNEs) to provide public country-by-
country (CbC) reporting. Under provisions introduced in 2016 UK MNEs
have to provide HMRC with information on their global activities, profits
and taxes, 248 and Caroline Flint tabled an amendment to require MNEs
to make this information public, as part of their transparency strategy.
However, Ms Flint’s amendment was unsuccessful, as the Government
maintained its position that public CbC reporting should only be
implemented on a multilateral basis. 249
It is worth adding that, as with previous Budgets, the 2016 Budget also
included several new measures to reduce avoidance, evasion and certain
244
Tax administration: large business special measures regime, 9 December 2015
245
Tax administration: large businesses transparency strategy, 9 December 2015
246
Overview of Tax Legislation & Rates, March 2016 para 1.76. The provision forms
s161 & schedule 19 of FA2016.
247
Budget 2016, HC 901, March 2016 (Table 2.2 – item an). See also, HMT, Summer
Budget 2015 Policy Costings, July 2015 p35
248
HMRC, Country-by-country reporting – updated, March 2017
249
HC Deb 28 June 2016 cc157-9. For more details see, Public country-by-country
reporting, Commons Debate Pack 2017-233, 20 November 2017.
‘imbalances’ in the tax system (where support disproportionately

benefits certain groups or types of business structure.) 250
5.2 Offshore evasion & the Panama Papers

As noted above, in March 2015 the Coalition Government had
proposed four initiatives to tackle offshore evasion:
• A new criminal offence for corporations that fail to take adequate
steps to prevent the facilitation of tax evasion by their agents;
• Tougher financial penalties for offshore evaders, including the
possibility of a penalty based on the value of the asset on which
tax was evaded as well as wider public naming of offshore
evaders;
• A new penalty regime for those who enable tax evasion, based on
the tax they have helped taxpayers to evade and naming of
enablers;
• A new simpler criminal offence to make prosecution of offshore
evaders easier. 251
Consultation documents on each of these measures were published in
July 2015, and in December the Government confirmed it would bring
forward legislation for three of these measures in the Finance Bill 2016:
• a new criminal offence for tax evasion,
• new civil penalties for offshore tax evaders, and
• new civil penalties for those enabling offshore evasion. 252
Tax information notes on each measure were published at the time.
• Tax administration: criminal offence for offshore tax evaders
• Increased civil sanctions for offshore tax evaders
• Tax administration: civil sanctions for enablers of offshore tax
evasion
In turn provision for these measures was included in the Finance Bill
published after the 2016 Budget, well as provision for an additional
penalty for serious cases of deliberate offshore evasion, equivalent to up
to 10% of the underlying asset value. 253 In the 2016 Budget the
Government also announced that Finance Bill 2017 would include
provision for a new legal requirement to correct past offshore non-
compliance within a defined period of time with new sanctions for
those who failed to do so. 254 In the latter case, a consultation exercise
on a ‘requirement to correct’ was launched in the summer. 255
250
Budget 2016, HC 901, March 2016 (Item 2.1 – items 39-53). The term ‘imbalances’
seems to have been used first in the July Budget (HC264, July 2015 para 1.184).
251
Tackling tax evasion & avoidance, Cm9047, March 2015 p16
252
Autumn Statement Cm 9162, November 2015 para 3.77-80. See also, Budget 2016,
HC901, March 2016 para 2.200-2
253
HMT, Overview of Tax Legislation & Rates, March 2016 para 1.77. These now form
ss162-67 of FA2017. See also, “The door is closing”, Taxation, 16 June 2016.
254
Budget 2016, HC 901, March 2016 para 2.200-3
255
HMRC press notice, Tough new sanctions announced for offshore tax evaders, 24
August 2016; see also, “UK plans tougher penalties for offshore tax evaders”,
Financial Times, 24 August 2016.
In the case of a criminal offence for corporates, stakeholders and

respondents had been “broadly understanding of the need for greater
corporate responsibility in relation to the acts carried out by those who
represent the corporation”, though there were concerns that there
might be practical difficulties in prosecution. Given this response, the
Government proposed that it would publish draft legislation and draft
guidance in early 2016 for further consultation before proceeding. 256
The then Prime Minister David Cameron reiterated the Government’s
plans to introduce this criminal offence, in a statement on 11 April
2016. 257 This followed the publication a few days before of the ‘Panama
papers’ – a leak of financial records from Mossack Fonseca, a law firm
that had provided advice on establishing offshore companies in tax
havens to a wide variety of politicians, celebrities, and other wealthy
individuals. 258 Mr Cameron announced a joint taskforce would be
established to investigate potential cases of evasion, led by HMRC and
the National Crime Agency 259 – and gave details of ongoing efforts to
improve the financial information provided by the Crown Dependencies
and Overseas Territories to the revenue authorities. Part of Mr
Cameron’s statement to the House is reproduced below:
As the revelations in the Panama papers have made clear, we
need to go even further. So we are taking three additional
measures, to make it harder for people to hide the proceeds of
corruption offshore, to make sure that those who smooth the
way can no longer get away with it and to investigate
wrongdoing.
First, let me deal with our Crown dependencies and overseas
territories that function as financial centres. They have already
agreed to exchange taxpayer financial account information
automatically, and will begin doing so from this September …
Today I can tell the House that we have now agreed that they
will provide UK law enforcement and tax agencies with full
access to information on the beneficial ownership of companies.
We have finalised arrangements with all of them except for
Anguilla and Guernsey, both of which we believe will follow in
the coming days and months. For the first time, UK police and
law enforcement agencies will be able to see exactly who really
owns and controls every company incorporated in those
territories … Next month we will seek to go further still, using
our anti-corruption summit to encourage consensus not just on
exchanging information, but on publishing such information
and putting it into the public domain …
Next, we will take another major step forward in dealing with
those who facilitate corruption. Under current legislation it is
difficult to prosecute a company that assists with tax evasion,
but we are going to change that. We will legislate this year for a
new criminal offence to apply to corporations that fail to
256
Tackling offshore tax evasion: a new corporate criminal offence of failure to prevent
the facilitation of tax evasion - Summary of Responses, December 2015 pp7-8, p36
257
No.10 Downing Street press notice, PM: Companies to be liable for employees who
facilitate tax cheating, 11 April 2016
258
“What are the Panama Papers? A guide to history's biggest data leak”, Guardian, 5
April 2016
259
HMT press notice, UK launches cross-government taskforce on the ‘Panama Papers’,
10 April 2016
prevent their representatives from criminally facilitating tax

evasion.
Finally, we are providing initial new funding of up to £10 million
for a new cross-agency taskforce to swiftly analyse all the
information that has been made available from Panama, and to
take rapid action. That taskforce will include analysts,
compliance specialists, and investigators from across HMRC, the
National Crime Agency, the Serious Fraud Office, and the
Financial Conduct Authority. 260
With regard to the new corporate offence, in April HMRC published
draft legislation and draft guidance for consultation. 261 The paper set
out the policy objectives of the new offence as follows:
1.3 The new corporate offence aims to overcome the difficulties
in attributing criminal liability to corporations for the criminal acts
of those who act on their behalf. Whilst this consultation refers to
the application of the new offence to “corporations”, the draft
legislation refers to a “relevant body” to encompass the broad
range of legal persons to which the new offence will apply. 262
1.4 Attributing criminal liability to a corporation normally requires
prosecutors to show that the most senior members of the
corporation were involved in and aware of the illegal activity,
typically those at the Board of Directors level. This has a number
of impacts:
1. In large multinational organisations decision making is
often decentralised and may be taken at a level lower than
that of the Board of Directors, with the effect that the
corporation can be shielded from criminal liability. This also
makes it harder to hold such organisations to account
compared to a smaller organisation where decision making
is centralised.
2. The existing law can act as an incentive for the most senior
members of a corporation to turn a blind eye to the
criminal acts of its representatives in order to shield the
corporation from criminal liability.
3. The existing law can act as a disincentive for internal
reporting of suspected illegal activity to the most senior
members of the corporation.
1.5 The cumulative effect is an environment that does not foster
corporate monitoring and self-reporting of criminal activity. The
criminal law currently renders corporations that refrain from
implementing good corporate governance and strong reporting
procedures hard to prosecute, and offers no incentive to invest in
such procedures. It is those corporations that deliberately turn a
blind eye to wrongdoing and preserve their ignorance of
criminality within their organisation that the current criminal law
most advantages. 263
260
HC Deb 11 April 2016 cc23-26
261
Tackling tax evasion: a new corporate offence of failure to prevent the criminal
facilitation of tax evasion, April 2016
262
“Relevant body” is defined within section 1(2) of the new draft clauses.
263
Tackling tax evasion: a new corporate offence of failure to prevent the criminal
facilitation of tax evasion, April 2016 pp6-7. The consultation document gives a case
study of how the offence would work “to help inform stakeholder feedback” (see
para 3.6, pp24-26).
Subsequently the Government introduced legislation, as part of the

Criminal Finances Act 2017, to establish a new statutory offence to hold
corporations and partnerships criminally liable when they fail to prevent
their employees, agents, or others who provide services on their behalf
from criminally facilitating tax evasion. These new offences took effect
from 30 September this year; 264 further details are in two Library papers,
the first prepared for the Second Reading of the Criminal Finances Bill in
October 2016 (CBP7739), the second summarising the Committee stage
of the Bill (CBP7825).
With regard to beneficial ownership, the Government had introduced
provisions for this country as part of the Small Business, Enterprise &
Employment Act 2015. 265 In April 2014 the Prime Minister wrote to the
Crown Dependencies and Overseas Territories to encourage them to
follow the UK’s example. The speed with which individual territories
responded to this appeal has often been raised in the House – though,
as noted by the Foreign Office Minister, James Duddridge, in February,
“this is a matter of direction, rather than an ultimate destination.” The
Minister said that he wished to see “significant progress” ahead of the
anti-corruption summit in May. 266
On 14 April 2016 the Chancellor announced that the UK had agreed
with Germany, France, Italy and Spain for the automatic exchange of
information of data on company beneficial ownership between tax and
law enforcement agencies. 267 The five participants also made a
commitment to establish new registers of trusts. 268
Subsequently, just before the anti-corruption summit, the Government
announced that the UK had completed a series of bilateral agreements
with the Crown dependencies and overseas territories on sharing
beneficial ownership information. Details are collated on Gov.uk, but, as
underlined in a written answer, generally this information would be
shared with the relevant legal and tax authorities only:
Jonathan Ashworth : To ask the Secretary of State for Foreign
and Commonwealth Affairs, what plans the Government has to
force Overseas Territories and Crown Dependencies to establish
public central registers of beneficial ownership.
Answered by: Sir Alan Duncan : While the Overseas Territories
(OTs) and Crown Dependencies (CDs) are separate jurisdictions,
and are responsible for their own fiscal matters, we are working
closely with them on their role on company transparency. Our
priority has been for them to establish a central register of
beneficial ownership information (or a similarly effective system)
where they do not already have one, and for UK law enforcement
264
HMRC press notice, 30 September 2017. For discussion of its impact see, “FTSE 100
split down the middle on the CFA”, Tax Journal, 28 September 2018.
265
For more details see, Small Business, Enterprise and Employment Bill, Commons
Briefing paper RP14-39, 14 July 2014.
266
HC Deb 23 February 2016 cc145-6. The Prime Minister had first announced this
summit in a speech in Singapore last year (No.10 Downing Street, 28 July 2015).
267
HM Treasury press notice, UK leads European calls for G20 action on beneficial
ownership, 14 April 2016
268
HM Treasury, G5 letter to G20 counterparts regarding action on beneficial
ownership, 14 April 2016. Several countries joined this initiative some days later:
HMT press notice, Tax transparency progress hailed by Chancellor, 22 April 2016
and tax authorities to have full and automatic access to that

information.
Bilateral arrangements to this effect have now been concluded
with all the relevant OTs and with the CDs, and these will enter
into effect by June 2017. The registers will, with one exception,
not be public, but these measures will place our Crown
Dependencies and Overseas Territories well ahead of other similar
jurisdictions and represent a significant step forward in our ability
to counter criminal activity. 269
Two Library papers give more details on the anti-corruption summit,
which was held on 12 May, and on the developments since then
regarding beneficial ownership. 270
The question of requiring the Crown Dependencies and Overseas
Territories to establish public registers of beneficial ownership has
continued to be debated – particularly during the proceedings of the
Criminal Finances Bill . 271 As a compromise at the Report stage of the Bill
in the Lords in April 2017, the Government introduced a new provision
to require Ministers to report to the House on the effectiveness of the
arrangements for the exchange of beneficial ownership information
with these territories. 272 Over this period the Government has reiterated
that should public registers become the global standard, “we would
expect the Crown Dependencies to follow suit.” 273 In a short Lords
debate on the Paradise Papers on 14 December DIFD Minister Lord
Bates said, “we already have central registers in four of those
authorities, including the Cayman Islands, Bermuda and Gibraltar.
Montserrat and Anguilla will have registers by April of next year. The
Turks and Caicos Islands have been particularly affected by the
hurricane, so they have been given a little extra time, but we are very
clear that action needs to be taken.” 274
Of related interest, on 5 April 2017 the Government launched a call for
evidence, setting out proposals for a new beneficial ownership register
of overseas companies that own UK property or participate in UK
government procurement. 275
Finally, with regard to the new task-force, in a press notice following
the announcement the CIOT’s Tax Policy Director, John Cullianane, said,
“This is a sensible, joined-up approach from the Government. There is a
huge amount of data to work through, and this is an extremely complex
area, with a number of different criminal offences in scope, with
different expiry periods and burdens of proof. So it makes sense to
bring together specialists from HMRC, the National Crime Agency and
elsewhere in a dedicated, focused taskforce.”276
269
PQ43422, 2 August 2016
270
The international anti-corruption summit in May 2016, CBP7580, 20 May 2016;
Registers of beneficial ownership, CBP8259, 24 August 2018.
271
See, Criminal Finances Bill: Committee Stage Report, CBP7825, 16 February 2017.
272
HL Deb 25 April 2017 cc1309-35. This now forms s9 of the Criminal Finances Act
2017.
273
PQ68007, 21 March 2017. See also, PQ112793, 20 November 2017.
274
HL Deb 14 December 2017 c1664
275
HLWS592, 5 April 2017. Details are published on Gov.uk.
276
CIOT press notice, 11 April 2016
In a debate on tax avoidance just after Mr Cameron’s statement to the

House, Treasury Minister David Gauke said the following:
The taskforce will report to my right hon. Friends the Chancellor
of the Exchequer and the Home Secretary on the strategy for
taking action, and we will update Parliament later this year. I
stress that the taskforce will have total operational independence.
If it finds people to prosecute, it will prosecute them. If it finds
information about illegality, it can act on it. In addition, the
independent FCA has written to financial firms asking them to
declare their links to Mossack Fonseca. If the FCA were to find any
evidence that firms have been breaking the rules, it, too, has
strong powers to take punitive action. 277
In June 2016 Edward Troup, HMRC Permanent Secretary, gave evidence
to the Treasury Select Committee, and on this occasion Wes Streeting
asked Mr Troup about the setup of the task force, and its progress to
date. In response, Mr Troup made a couple of points:
Although I would not understate the importance of this, I would
not suggest that somehow [the leak] has given us information
that we had not had before; we were already following up on
700 leads that, in some way, were linked to Panama before this
dataset was published. The task force … currently has about 100
staff and, of those, around 70 are HMRC staff working on this
project …
We are not suddenly going to produce thousands of prosecutions
that we would not otherwise have done ... the ICIJ, which actually
holds the dataset—because the BBC and The Guardian have just
had bits of information from the ICIJ—have a stated policy of not
releasing information to government agencies. Although we have
asked them for it, we do not have the dataset from the ICIJ, so I
have to be a bit careful... There is progress. There are people on
the ground from the task force in Panama. The Financial Conduct
Authority is analysing the returns from 64 companies … with
contacts with Mossack Fonseca. I am not going to either give an
update on progress or say exactly what we expect and when,
because it depends on the outcome of that work. 278
The Chancellor Philip Hammond provided an update to the House on
the work of the taskforce on 8 November 2016, in a detailed written
statement; 279 this is reproduced in full over the following two pages.
277
HC Deb 13 April 2016 c374. See also, PQ33514, 18 April 2016. On the impact for
individuals with offshore accounts see, “Stormy skies”, Taxation, 18 August 2016.
278
Treasury Committee, Oral evidence: HMRC Executive Chair and Chief Executive, HC
232, 8 June 2016 Qs17-18
279
These details were also set out in a press notice published at the time. See also,
PQ60460, 21 January 2017.
Panama Papers Taskforce

Written statement HCWS247, 8 November 2016
In his statement to the House on 11 April 2016, the former Prime Minister David Cameron
announced the creation of a cross-agency taskforce to analyse all the information that had been
made available from the International Consortium of Investigative Journalists (ICIJ)’s Panama
papers data leak. My right hon. Friend the Home Secretary and I now wish to update the House
on the work of the taskforce.
In its short existence, the taskforce has added greatly to the UK’s understanding of the evermore
complex and contrived structures that are being developed to mask offshore tax evasion and
economic crime. This intelligence will ensure that the UK remains uniquely placed to contribute to
the international effort to uncover, and take action, on wrongdoing, regardless of how deeply
hidden the arrangements are, as well as identify those jurisdictions where regulatory oversight
requires improvement.
We can today report that the taskforce has:
- opened civil and criminal investigations into 22 individuals for suspected tax evasion
- led the international acquisition of high-quality, significant and credible data on offshore activity
in Panama—ensuring the important work of the taskforce was not delayed by the ICIJ’s refusal to
release all of the information that it holds to any tax authority or law enforcement agency
- identified a number of leads relevant to a major insider-trading operation led by the Financial
Conduct Authority and supported by the National Crime Agency
- identified nine potential professional enablers of economic crime—all of whom have links with
known criminals
- placed 43 high net worth individuals under special review while their links to Panama are further
investigated
- identified two new UK properties and a number of companies relevant to a National Crime
Agency financial sanctions enquiry
- established links to eight active Serious Fraud Office investigations
- identified 26 offshore companies whose beneficial ownership of UK property was previously
concealed, and whose financial activity has been identified to the National Crime Agency as
potentially suspicious
- contacted 64 firms to determine their links with Mossack Fonseca to establish potential further
avenues for investigation by the taskforce
- seen individuals coming forward to settle their affairs in advance of taskforce partners taking
action.
The taskforce’s respective partners will engage the relevant prosecuting authorities to bring any
identified wrongdoing before the courts.
The Government have also invested to develop their expertise in data and intelligence
exploitation. This has ensured that Departments and agencies are well placed to forensically
analyse massive-scale data of this kind, which are becoming ever-more frequently available.
The taskforce has established a Joint Financial Analysis Centre (JFAC). Using the data and
intelligence gathered from across the taskforce, the JFAC has developed cutting-edge software
tools and techniques, ensuring the taskforce has access to the very best information from which
to work.
The proactive acquisition of data, alongside the establishment of the JFAC, has enabled the
taskforce to identify a number of areas for further investigation across the full range of tax and
economic crime, as well as links to organised crime, which will be the focus of its work over the
coming months.
Taskforce members are present in Panama, using established relationships with the
Panamanian authorities, and working with diplomatic colleagues, to offer support to
analyse all the available data. Taskforce members have also worked with international
partners as part of the Joint International Tax Shelter Information Centre to exchange
information and intelligence as part of the wider international effort.
More generally, the Government have introduced tough new powers, increased penalties
and game-changing measures to tackle offshore and onshore tax evasion. In the summer
2015 Budget, the Government gave HMRC an additional £800 million to invest in
compliance and tax evasion work. This is expected to recover £7.2 billion in tax by the end
of 2020-21. This includes tripling the number of criminal investigations that it undertakes
into serious and complex tax crime, focusing particularly on wealthy individuals and
companies. The aim is to increase prosecutions in this area to 100 a year, by the end of
this Parliament.
The Government have also been pivotal in increasing global financial transparency in more
than 100 countries, including British overseas territories and crown dependencies, by
automatically sharing offshore account data. This additional data will help identify and
pursue the tiny minority of tax evaders still hiding their money offshore.
The Government aim to make the UK a more hostile place for those seeking to move, hide
or use the proceeds of crime or corruption. In October 2015, the Government published
the national risk assessment for money laundering and terrorist financing to better
understand the risks and vulnerabilities for the UK. The action plan, published in April
2016, and the Criminal Finances Bill, introduced to Parliament in September, will
significantly improve our capabilities to tackle money laundering and recover the proceeds
of crime, including proceeds of corruption.
The London anti-corruption summit earlier this year brought more than 40 countries
together and resulted in a commitment to more than 600 actions. Since then, the UK has
made real progress on its own commitments —our public register of beneficial ownership
information is now live, the first G20 country to do so; and the National Crime Agency is
working to get the new international anti-corruption co-ordination centre operational by
next April.
At this time the National Audit Office published a report on HMRC’s

strategy to collect tax from the wealthiest individuals. Part of this looked
at HMRC’s approach to tackling offshore evasion, noting “HMRC
expects that criminal investigations and sanctions will play a more
prominent role in its response to offshore evasion in the future”:
HMRC offered disclosure facilities with incentives for people to tell
it about the tax they had evaded because it found it very difficult
to identify assets held overseas. HMRC is now seeking to take a
tougher approach to tackling offshore evasion by taking
advantage of new sources of data and new powers that will be
available to it.
A common reporting standard is being introduced from 2017.
This is an agreement by more than 100 countries to automatically
exchange information on taxpayers. This should enable HMRC to
better identify and investigate people with undisclosed assets and
income offshore. In advance of this, the government has opened
a new Worldwide Disclosure Facility, which will be a final
opportunity for people to bring their tax affairs into line. 280
280
HMRC’s approach to collecting tax from high net worth individuals, HC790, 1
November 2016 p44
An update on the work of the taskforce was given in answer to a PQ in

October 2017:
Asked by Kelvin Hopkins : To ask Mr Chancellor of the
Exchequer, what progress his Department has made in its inquiry
into the Panama Papers.
Answered by: Mel Stride : Since the last update to Parliament in
November 2016, HMRC has tripled the number of criminal and
civil investigations linked to the Panama papers.
To date, the work of the Panama Papers Taskforce has led to civil
and criminal investigations into 66 individuals for suspected tax
evasion, including high net worth individuals. As part of this
HMRC has made four arrests; and carried out six interviews under
caution. Taskforce partners have made three arrests in relation to
an organised crime group suspected of a £125m conspiracy to
defraud pension investors, tax evasion and associated money
laundering. They have also identified leads relevant to a major
insider trading operation, in relation to which a number of
individuals have been arrested and are on bail pending further
activity.
UK law enforcement continues to interrogate and exploit Panama
Papers related data, identifying previously unknown individuals,
companies and properties, making links between them and
providing intelligence and investigative opportunities.
The systems used to launder money and evade tax through
offshore structures are complex and highly sophisticated. The
Joint Financial Analysis Centre and HMRC’s expert analysts are
using leading-edge technology to unpick these structures and
trace them back to individuals. This work is painstaking and
forensic and there are no easy shortcuts.
HMRC is not a prosecuting authority. Its focus is on building the
strongest possible cases in order to secure convictions, and it
expects to refer cases to the prosecuting authorities from autumn
2017 onwards. 281
5.3 Spring Budget 2017

In the 2016 Budget the Government announced that it would consult
on a number of initiatives to mitigate the scale of avoidance and
evasion, and launched four consultation exercises over the summer
covering tax avoidance sanctions and deterrents; the DOTAS regime as
it applies to indirect taxes; the penalty regime dealing with offshore
evasion; and, the penalty regime dealing with VAT fraud. 282
Spring Budget 2017 confirmed that provisions would be included in the
Finance Bill 2017 in relation to each of these initiatives, as well as
amendments to the ‘POTAS’ rules (the 2014 legislation affecting
scheme promoters identified by HMRC as being especially aggressive
and uncooperative). 283
281
PQ105360, 12 October 2017; see also, PQ118090, 12 December 2017
282
Budget 2016, HC 901, March 2016, para 2.145 (VAT fraud), para 2.203
(requirement to correct), and para 2.204 (marketed tax avoidance)
283
Overview of Tax Legislation & Rates, March 2017 para 1.38-1.42 For an overview of
the issue at this time see, Chartered Institute of Taxation, The state of play on tax
evasion and avoidance, 2 March 2017.
The estimated Exchequer impact of these measures was not especially

large, 284 and there was much less debate over their introduction
compared with earlier initiatives, although the Government’s proposals
to impose penalties on those ‘enabling’ avoidance, as initially drafted,
were strongly criticised by the tax profession, leading to some important
modifications.
Strengthening tax avoidance sanctions and
deterrents
In the 2016 Budget the Government announced several further
initiatives to tackle marketed tax avoidance, stating it would “consider
the case for clarifying what constitutes reasonable care in avoidance
penalty cases”, and “consider options to address the issue of those who
“enable” tax avoidance schemes.” 285 On 17 August HMRC launched its
consultation; responses were invited by 12 October.
On the first issue, the consultation document explained HMRC has
faced considerable difficulties to establish a failure to take reasonable
care involving complex avoidance arrangements: first, because of the
nature of the advice that taxpayers will have relied upon, when deciding
to invest in an avoidance scheme that has proved faulty …
Many tax avoiders argue that they have taken reasonable care and
that their tax return was made on a reasonably arguable view of
the law as it applied to the transactions they entered into. They
contend this is based on what they were told by the person who
promoted the avoidance, by an Independent Financial Adviser,
personal tax accountant, or by any other person in the supply or
facilitation chain, i.e. by an enabler of the avoidance
arrangements they used …
To support this they often rely on marketing or other material
provided by those marketing it, or generic, plausible-sounding,
statements from an “eminent QC”, which they have also been
given by those in the supply chain, endorsing the arrangements
and their effectiveness.
In the worst examples, advice offered to users is very limited in
quality, scope and relevance. Generic marketing material is
sometimes presented as financial or tax advice, when in fact it has
not been written or considered by anyone with the requisite
knowledge or experience. 286
… and second, because the burden of proof rests with HMRC:
This means there can be little incentive for a tax avoider to co-
operate and they may frequently try to frustrate HMRC
investigations by withholding basic information about the
arrangements. They may need to seek this information from the
promoter who may also be disinclined to cooperate.
When contesting that they have taken reasonable care, they
might be slow to produce supporting evidence, or submit
incomplete information. This can make it difficult to identify
whether a penalty is appropriate. These tactics can lead to drawn
284
Spring Budget 2017, HC 1025, March 2017 (Table 2.1-item 22; Table 2.2 – item p).
285
Budget 2016, HC 901, March 2016, para 2.204
286
Strengthening tax avoidance sanctions and deterrents: discussion document, August
2016 para 3.9-11
out and more costly investigations, prolonging the resolution of

avoidance disputes for all parties. 287
In turn the consultation proposed several tests to determine whether a
taxpayer had, or had not, taken reasonable care, putting the burden of
proof on the taxpayer – while the imposition of a penalty would be
subject to certain existing safeguards regarding penalties.
Turning to ‘enablers’, the consultation document explained that the
term “encompasses more than those who design, promote and market
avoidance. It includes anyone in the supply chain who benefits from an
end user implementing tax avoidance arrangements and without whom
the arrangements as designed could not be implemented.” 288 The main
driver to enablers actively encouraging taxpayers to invest in dubious
schemes has been that they “do not feel affected by the suite of
sanctions and deterrents designed to influence avoider behaviour”:
Indeed, some judge that the business and reputational risks
associated with HMRC defeating avoidance arrangements they
have helped enable are outweighed by the financial rewards to
them. There can be few downsides to their continued involvement
with such arrangements, notwithstanding the hardship which may
be faced by their clients. 289
As a solution to this problem, the consultation proposed a new penalty
to be paid by anyone who had enabled tax avoidance that HMRC was
successful in defeating. “It should penalise everyone in the supply chair
who has enabled avoidance arrangements which are defeated.” As
noted briefly above, Budget 2016 included the introduction of new civil
penalties for those enabling offshore evasion, and the consultation
proposed drawing on the criteria employed in this case:
The 2015 consultation “Tackling offshore tax evasion: Civil
sanctions for enablers of offshore evasion” outlined a number of
ways in which an individual or business might enable someone to
evade tax through the use of offshore structures. They include:
• Acting as a “middleman”– arranging access and
providing introductions to others who may provide services
relevant to evasion
• Providing planning and bespoke advice on the
jurisdictions, investments and structures that will enable the
taxpayer to hide their money and any income, profit or
gains
• Delivery of infrastructure – including setting up
companies, trusts and other vehicles that are used to hide
beneficial ownership; opening bank accounts; providing
legal services and documentation which underpin the
structures used in the evasion such as notary services and
powers of attorney
• Maintenance of infrastructure – providing professional
trustee or company director services including nominee
services; providing virtual offices, IT structures, legal services
287
op.cit. para 3.14-5
288
op.cit. para 2.7
289
op.cit. para 2.10. The consultation document provides two case studies to illustrate
the problem (see p9).
and documentation which obscures the true nature of the

arrangements such as audit certificates
• Financial assistance – helping the evader to move their
money or assets out of the UK, and/or keep it hidden by
providing ongoing banking services and platforms;
providing client accounts and escrow services; moving
money through financial instruments, currency conversions
etc.
• Non-reporting – not fulfilling their reporting, regulatory or
legal obligations, which in itself helps to hide the activities
of the evader from HMRC
Many of these descriptions apply equally to tax avoidance.
With this in mind, we propose developing a definition of enabler
based on the broad criteria used for the offshore evasion measure
but specifically tailored to the avoidance supply chain and
ensuring that appropriate safeguards are included to exclude
those who are unwittingly party to enabling the avoidance in
question. 290
Initial responses from the tax profession expressed considerable concern
about the potential scope of the new penalties for tax enablers, though
tax justice campaigners welcomed the proposals. 291 John Cullinane, tax
policy director at the Chartered Institute of Taxation argued, “it is far
from clear that a definition drafted for ‘enabling’ a criminal offence will
be appropriate for defining an activity which, while undesirable in the
eyes of most people, is legal, provided all appropriate disclosures are
made to the tax authorities”:
“We are concerned about a scenario where a taxpayer goes to
their tax adviser for advice on risks attached to participating in a
scheme, receives appropriate advice setting out these risks and
the likelihood of the scheme being defeated, but decides to join
the scheme despite this. It would be extremely harsh to penalise a
tax adviser in this scenario where all the tax adviser has done is
advise the taxpayer on the law as it stands.
“It is important to be aware that court cases on tax matters are
not only about avoidance. Often there are simply disagreements
between HMRC and taxpayers about how the rules operate and
the courts are asked to adjudicate. Losing a case of this kind in
the courts should not be seen as tax avoidance by the taxpayer or
as enabling avoidance by their advisers.” 292
An editorial in the Financial Times argued, “taking the battle to the
supply side of the tax avoidance industry is sensible” though “the
Government should take care to ensure that it does not unreasonably
hit defensible tax planning”:
Tax rules are not ultimately set in aspic. Avoidance is generally
defined as creating a tax break that Parliament never intended.
290
op.cit. para 2.15, para 2.12-4
291
“HMRC gets ‘nasty’ in tax clampdown”, Financial Times, 18 August 2016. See also,
“The proposals targeting tax avoidance enablers”, Tax Journal, 2 September 2016.
292
CIOT press release, ‘Enabling’ tax avoidance – legislation must draw distinction
between promoting avoidance and advising on the law, 17 August 2016
Yet what legislators mean at a particular time can change as

circumstances evolve. 293
Writing in the Tax Journal, Peter Vaines, a member of Field Court Tax
Chambers, argued that “it is simply unacceptable, in a civilized society,
for a government department to penalise professional advisers for
advising on the law”:
[HMRC] has a genuine problem which deserves to be addressed,
but it is important not to get carried away. Indeed, HMRC might
usefully reflect on whether it should be subject to the same
penalties if it was unsuccessful in a challenge to a claim by a
taxpayer to a tax relief or deduction – and if not, why not. 294
Writing in Taxation, Fiona Fernie, partner at Pinsent Masons, argued
that the proposed definition of defeated tax avoidance “is incredibly
wide-ranging and could end up capturing conventionally accepted tax
planning.” 295 In their response to the consultation, the Tax Law Review
Committee argued, “the proposals, if adopted in anything
approximating their current form, carry a real risk of a wholesale
reduction in the numbers of onshore tax professionals who presently
provide responsible and accurate professional advice to taxpayers”:
The Committee does not doubt that popular sentiment has
expressed considerable objection to many of the tax avoidance
arrangements indulged in by the “persistent minority”. It recalls,
however, that a swathe of measures have been enacted in recent
years designed to identify, discourage, shame and penalise tax
avoiders and those who promote and market tax avoidance
arrangements. These measures are not all fully operational yet,
and there has been no sensible opportunity to assess their
longer-term impact on the tax avoidance industry, in particular the
type of avoidance indulged in by “the persistent minority”
supposedly targeted by these proposals.
The need for further measures is therefore untested and
unproven. The current measures in particular are unjustified by
any evidence of an on-going widespread problem necessitating
far reaching, untargeted and potentially damaging measures such
as those currently proposed.
In particular, the Consultative Document fails to consider and
identify adequately (or indeed at all) the type of behaviour and the
nature of the avoidance in which “the persistent minority”
engage, which is the supposed target of the proposal. It therefore
fails to distinguish “the persistent minority” from the vast majority
of responsible tax professionals without whom the tax system,
commercial business activity and the organisation of individual
financial affairs could not function satisfactorily. In effect, all are
inappropriately tarred with the same brush.
We do not imagine that the issues to which we draw attention in
this submission are intended by government or HMRC. In the
Committee’s view, however, they would be an inevitable outcome
of the proposal if enacted in its current form. In short, the scope
293
“Editorial: May flexes her muscles over tax avoidance”, Financial Times, 18 August
2016
294
“Comment: Deterring tax avoidance”, Tax Journal, 9 September 2016
295
“Stronger sanctions”, Taxation, 1 September 2016. See also, CIOT press notice, Tax
experts call for new penalties to target deliberate promotion of avoidance rather
than commercial advice, 12 October 2016.
of the proposal and the targeting of the issues created by “the

persistent minority” require a more considered, careful and
targeted approach than is evidenced by the Consultative
Document. 296
Writing in his blog barrister Jolyon Maugham argued that the action of
enablers represented a “very real” problem, and the consultation set
out “very real solutions” though “they may well go too far.” His
description of the incentives for the unscrupulous enabler is worth
reproducing:
The real issue is this. A tax advisor gets his fee for telling you that
you can declare 10 rather than 100. He’s in the money from the
start. And if you should happen to sue him later, he might have
wound himself up, or he might shelter behind the advice given by
a barrister, or he might point to the small print in the scheme
documentation telling you that (despite the fact he’s charging you
a fee) you must take your own tax advice.
So he gets handsome reward and very often without any personal
accountability for the consequences. This state of affairs can
encourage abysmal behaviour by highly paid professionals. 297
In December the Government confirmed it would proceed with this
reform, but with substantive modifications, publishing draft legislation
and an impact assessment – which gave a short summary of both
measures:
Legislation will be introduced in Finance Bill 2017 to provide for a
penalty on those who enable tax avoidance which is later
defeated. Key elements of the regime will:
• define who is an ‘enabler’ to draw the distinction between
those who design, market or otherwise facilitate avoidance
arrangements implemented from those who solely advise,
report or otherwise provide opinion on such arrangements
and whose advice does not result in any amendment to the
arrangements or any resulting arrangements
• ensure that those who are brought within the meaning of
enabler through unwittingly becoming involved in the
arrangements are excluded from that definition
• describe the types of arrangements which, if defeated,
bring those who enabled those arrangements within scope
for penalties
• describe how the amount of any penalty is calculated and
assessed and provide a right of appeal against that
assessment
Legislation will also be introduced in Finance Bill 2017 to clarify
what constitutes the taking of reasonable care in relation to the
application of the existing penalty regime in Schedule 24
to FA2007, in relation to inaccuracies arising in a person’s tax
return from the defeat of tax avoidance arrangements they have
entered into.
296
Strengthening Tax Avoidance Sanctions and Deterrents: a discussion document -
Response to Consultation, October 2016 pp1-2. The Committee was established by
the IFS in 1994, and, in its words, “represent a broad cross-section of informed
opinion from industry and commerce, the judiciary, academia, the professions and
political and public life.”
297
“Tax avoidance penalties”, Waiting for Godot blog, 17 August 2016
The new legislation will change the regime to presume that a

person has been careless unless they can prove they have taken
reasonable care and describe circumstances and events which are
explicitly stated not to represent taking reasonable care in cases of
defeated avoidance.
Examples of such circumstances and events include (but are not
limited to):
• advice addressed to a third party or without reference to
the taxpayer’s specific circumstances and use of the scheme
• advice commissioned or funded by a party with a direct
financial interest in selling the scheme or not provided by a
disinterested party
• material produced by parties without the relevant tax or
legal expertise/experience to advise on complicated tax
avoidance arrangements, typically this would be the sort of
material used to market the arrangements and would not
amount to advice setting out the legal options necessary
for a potential user to assess the efficacy of the scheme or
the risks involved. 298
In its summary of the responses, HMRC noted, there had been “strong
support for the [proposal for penalties on enablers] from some … but
there were also strongly expressed concerns from others that, if
inappropriately targeted, the measure could inhibit genuine commercial
arrangements and impartial advice.”299
In the light of this the Government announced that it would amend its
approach to achieve “the original aim of tackling the enablers of tax
avoidance schemes while the vast majority of professionals providing
advice to their clients on genuine commercial arrangements have
nothing to fear”:
While there was general agreement that the proposed description
of enablers and all relevant classes or groups of persons were
captured, there was some concern that there should be a clear
distinction in applying any new sanction between tax planning,
tax avoidance and tax evasion.
There was also concern that the proposed safeguards would not
go far enough. This was particularly pertinent to those who are
acting within their professional capacity (and already subject to
other professional conduct regulations) and merely giving ‘second
opinion’ advice, or those whose advice/service may unwittingly be
caught up with wider avoidance arrangements. A number of
respondents commented that the rules would not capture those
who could easily re-establish their business/services offshore and
so would not capture the “persistent minority” the measure is
targeted at ...
Government response The government noted the views of
everyone who responded. The measure will cover all those in the
avoidance supply chain. The regime will describe those who
enable avoidance and distinguish them from those who simply
provide second opinion advice to clients on arrangements
designed or enabled by others. The government also recognises
298
Strengthening sanctions and deterrents for tax avoidance; TIIN, 5 December 2016
299
Strengthening Tax Avoidance Sanctions and Deterrents - Summary of responses, 5
December 2016 para 1.7-8
that the definition of an enabler needs to be well-targeted to

ensure those who are unwittingly within the meaning of enabler,
or whose advice about arrangements included a clear
recommendation that they should not be proceeded with, are
excluded and will provide for this in the draft legislation.
The consultation suggested bringing an enabler within scope for a
penalty when the tax avoidance they had enabled had been
defeated, and not to link an enabler’s penalty with the final
penalty position of the user. Most respondents considered the
scope was appropriate in relation to aggressive avoidance, but felt
there was not enough emphasis to distinguish evasion from
avoidance.
Responses also suggested more clarity was needed in relation to
key terms, particularly “defeated arrangements”, and the type of
activities that would place a person firmly within scope as an
enabler of tax avoidance. Some respondents held strong views
that the enabler ought only to face a penalty in circumstances
when the scheme user would also do so. Many of those
responding also sought clarity regarding when the policy would
apply from.
Government response The government noted these views. The
rules will be prospective. They will apply to actions taken by the
enabler on or after Royal Assent to Finance Bill 2017, so that a
person enabling avoidance will be fully aware that they are in
scope of a penalty. The draft legislation will set out the
arrangements which, if defeated, bring an enabler within scope
for a penalty.
The government does not consider that an enabler should face a
penalty in relation to defeated avoidance only where the user
does so. The conditions for a penalty to apply to the user are,
necessarily, different from those for enablers. It may well be that a
user, having been able to show that they had taken reasonable
care in making their tax return, or being subject to one of the
other safeguards in that regime, would not face a penalty, but
where it may be appropriate for an enabler to face a penalty by
reference to their actions as an enabler of those defeated
arrangements. 300
The proposed changes to the ‘enablers’ regime were welcomed by
stakeholders. In a press notice CIOT tax policy director John Cullinane
gave his reaction:
“It is pleasing to see that after a wide ranging consultation with
the CIOT and other stakeholders, the government has taken on
board our concerns and recognises that the vast majority of tax
professionals providing advice on commercial arrangements are in
no sense ‘enabling tax avoidance’ but are simply helping their
clients to understand as well as comply with their tax obligations.
“It is crucial that they can continue to do so without being
exposed to this new penalty.
“The moves outlined in today’s draft legislation present a
measured and balanced approach towards tackling those who
enable tax avoidance while ensuring that the interests of the
overwhelming majority of agents who provide genuine
professional advice to their clients are protected.
300
op.cit. para 1.11, paras 2.3-7
“By defining ‘abusive tax arrangements’ around the principles of

the General Anti-Abuse Rule (GAAR) – which asks whether
entering into or carrying out the tax arrangements could have
been a reasonable course of action – the proposals are better
focussed on the small minority of advisers who profit from
devising, marketing and facilitating aggressive tax avoidance
schemes. 301
Writing in the Tax Journal on the draft provisions, Richard Woolich and
Geoffrey Tack, both at DLA Piper, concluded, “it is clear that the
Government has listened and advisers are now much less likely to fall
foul of these rules, giving bona fide advice”:
The government was clearly impressed by the extent of responses
and has published a lengthy list of respondents. There are some
impressive names in the list, from well-known law firms and
accountancy practices to the Law Society and the Bar Council.
One suspects that, with respondents of such calibre, the
government was really made to think about the pending penalty
regime against enablers and has listened to the comments about
its original proposals in the consultation exercise. This process may
be a lesson for future opposition to unwelcome proposed
legislation. Yet, essentially, the government will persevere with its
crackdown on the production and selling of abusive tax avoidance
schemes and target in the Finance Bill 2017 those who make
profit from giving aggressive tax advice which is shown to be
wrong. 302
In the 2017 Budget the Government confirmed it would introduce both
measures, with certain amendments to the legislation as drafted:
Following consultation, the enablers legislation has been revised
to provide further detail of when and how the General Anti Abuse
Rule (GAAR) Advisory Panel will consider enabler cases.
Further changes have been made to apply the enablers regime to
arrangements that seek to avoid NICs, to make consequential
changes to the Promoters of Tax Avoidance Scheme legislation
and to provide further detail regarding when enablers will be
named. Minor amendments have also been made to further
improve the clarity and targeting of both the legislation for
enablers and reasonable care.
The changes relating to reasonable care come into effect at Royal
Assent and apply to inaccuracies in documents relating to tax
periods which begin on or after 6 April 2017. The penalty for
enablers will apply prospectively to enabling activity after Royal
Assent. 303
It was estimated that these changes would raise £50m in 2018/19,
falling to £15-£20m a year in later years. 304
301
CIOT press release, Professional Body welcomes increased focus of government
action on ‘enablers’ of tax avoidance, 5 December 2016. See also, “Tax avoiders
remain in HMRC’s line of fire”, Financial Times, 10 December 2016.
302
“Finance Bill 2017: Enablers of defeated avoidance schemes and penalties”, Tax
Journal, 19 January 2017. See also, “Turning up the heat”, Accountancy, April 2017
303
HMT, Overview of Tax Legislation & Rates, March 2017 para 1.41. Provision to this
effect was made by ss64-5 of the Finance (No 2) Act 2017. The provision was the
subject of a brief debate at the Committee stage of the Bill: PBC, Fifth Sitting, 24
October 2017 cc140-2.
304
Spring Budget 2017, HC 1025, March 2017 (Table 2.1-item 22).
‘DOTAS’: indirect taxes – reform and extension of

scope
Budget 2016 announced it would “consult during the summer on
updating the VAT Disclosure of Schemes Regime (VADR), including by
extending coverage to other indirect taxes and by alignment with the
Disclosure of Tax Avoidance Schemes regime.” 305 HMRC launched a
consultation the following month; as this explained, it was HMRC’s view
that the disclosure regime as it applied to VAT was “no longer fulfilling
its policy intentions”:
VADR has been an important component of HMRC’s fight
against VAT avoidance, allowing HMRC to identify avoidance
patterns and risks at an early stage and plan their responses
accordingly. A large number of disclosures were made in the early
years of the regime, but, unlike DOTAS, VADR has not been
significantly updated since it was introduced. The number of
disclosures has declined, the regime has not kept pace with
changes in the VAT avoidance landscape and it is no longer
fulfilling its policy intentions. It is important that it is reviewed to
make sure it operates effectively to protect the Exchequer and to
discourage the avoidance of VAT.
VADR currently requires disclosure to be made by those who use
an avoidance scheme. This is in contrast to DOTAS where, for the
most part, it is promoters of tax avoidance schemes who are
required to disclose them to HMRC. Those promoters then have
ongoing obligations to provide information to both users of their
schemes and to HMRC. And users have to include details of
disclosed schemes in their tax returns. 306
In December HMRC published a summary of responses it had received.
In general there was support for the principle for reforming VADR:
While there was general agreement from respondents with the
proposed changes to VADR, a small number of respondents
considered that the government had not made a sufficiently
strong case for change. One was concerned that the proposed
revisions would increase administrative burdens rather than
decrease them. Only one respondent suggested an alternative
approach, to simply require earlier disclosure under the existing
structure.
Government response The government is grateful for the views
expressed but does not accept that the proposed revised structure
for VADR would result in any significant increase in burdens for
customers. In principle, the change should reduce burdens as the
focus for compliance shifts from all taxpayers to a much smaller
number of promoters. However, the government will continue to
ensure any administrative load is proportionate when drafting the
regulations. …
Respondents … agreed that the DOTAS rules on who is a
promoter and when a scheme user has to disclose an avoidance
scheme provided a suitable model to apply in VADR. One
respondent suggested that, due to the nature of VAT avoidance,
most schemes do not involve a promoter and so the relevance of
the question is moot. Some respondents stated that due to the
305
306
Strengthening the Tax Avoidance Disclosure Regimes for Indirect Taxes and
Inheritance Tax, April 2016 para 1.8-9
often very short timescales in VAT between an intermediary being

consulted about arrangements and the relevant transactions
taking place, the time allowed for promoters to notify HMRC
about notifiable proposals or arrangements should be longer than
provided for under DOTAS.
Government response The government is grateful for these
views and considers the DOTAS rules on who is a promoter and
when a scheme user has to disclose an avoidance scheme can be
appropriately applied to VADR. 307
Respondents were less convinced of the need to extend VADR to other
indirect taxes, though the Government took the view that this was an
important measure to improve HMRC’s assessment of the scale of
avoidance across the tax system:
Views were mixed about whether the scope of VADR should be
extended to include other indirect taxes. A narrow majority were
in favour or could see no reason to object to the proposal, but
others considered such a move would impose unnecessary
burdens on taxpayers for little discernible benefit to HMRC.
Government response It is currently difficult for HMRC to form
a clear view of the risks of avoidance in these taxes and the
government therefore believes it is important that they be
brought within the scope of VADR. There will be no extra burden
on those who do not use reportable tax arrangements and so the
government does not believe this extension would be
disproportionate. 308
At this time HMRC published draft legislation and an impact assessment
of reforming VADR; the latter explained how the disclosure regime
would be reformed:
This measure replaces the VAT regime for disclosure of avoidance,
which currently only covers VAT. It moves the responsibility for
disclosing VAT avoidance schemes to HM Revenue and Customs
(HMRC) from scheme users to scheme promoters.
It also widens the scope of the disclosure regime to include all
indirect taxes.
The measure will require promoters of indirect tax avoidance
schemes to provide details of schemes at the earliest of: the date
the promoter first makes a firm approach to another person about
the proposed scheme; the date the proposals are first made
available for implementation by another; or the date the promoter
first becomes aware of any transaction which forms part of the
scheme. In some circumstances where arrangements or proposed
arrangements are substantially the same as arrangements already
notified to HMRC, the promoter will not be required to make a
further disclosure.
If a person uses a tax avoidance scheme the promoter of which
does not belong in the UK, or there is no promoter of the scheme,
the user of the scheme will be required to disclose it to HMRC.
When a promoter notifies HMRC of details of a scheme, HMRC
will issue a reference number and the promoter must notify their
clients of this number. The promoter must provide HMRC with
certain details about these clients; those details will be contained
307
Strengthening the Tax Avoidance Disclosure Regimes for Indirect Taxes and
Inheritance Tax: Summary of responses, 5 December 2016 para 2.2-6
308
op.cit. para 3.2-3
in Regulations. The client will be required to notify HMRC of their

use of a scheme, and the scheme number. 309
It was not anticipated that this measure would have an Exchequer
impact. In the 2017 Budget the Government confirmed it would
proceed with these changes, to take effect from 1 September 2017. 310
Offshore evasion: requirement to correct
In the 2016 Budget the Government announced that as part of the
Finance Bill 2017 it would “introduce a new legal requirement to
correct past offshore non-compliance within a defined period of time
with new sanctions for those who fail to do so.” 311 HMRC published a
consultation document in August which set out the rationale for this
measure:
The introduction of a new requirement to correct (RTC) and
tougher penalties for a failure to correct (FTC) aims to send a
strong message that there is a step change in HMRC’s approach
to offshore tax compliance. The measure will introduce an
obligation for taxpayers to put past affairs in order and strongly
penalise those who do not meet this obligation. In doing so, the
measure will drive taxpayers with offshore interests to review their
affairs to either:
• assure themselves that their offshore interests have been
treated correctly for tax purposes, or
• to identify the incorrect tax treatment and put it right by
notifying HMRC to ensure the appropriate tax, interest and
penalties can be charged.
We believe the RTC proposal and increased sanctions for failing to
correct set out in this document will provide a strong incentive for
taxpayers to review their offshore affairs and come forward to put
them in order before HMRC receives the full Common Reporting
Standard (CRS) data. 312
Those who do not put their affairs in order will face the tougher
failure to correct sanctions for any existing non-compliance and
could also face … significantly tougher sanctions … for any
offences in subsequent years. The RTC period will end on 30
September 2018 by which point HMRC will be receiving CRS data
from all those committed, which will allow it to identify and
pursue those who have not come forward to regularise their
affairs.
HMRC has provided a number of opportunities for taxpayers to
disclose offshore issues in the past. These were appropriate for
periods when HMRC had relatively little data on UK taxpayers’
offshore interests and they were successful with over 59,000
people putting their affairs in order. These activities and other
offshore work have raised over £2.9bn. In the future HMRC will
receive significantly more data and any taxpayers who have not
taken advantage of previous opportunities to disclose and do not
309
Strengthening the Indirect Tax Avoidance Disclosure Regime: TIIN, 5 December 2016
310
Overview of Tax Legislation & Rates, March 2017 para 1.38. Provision to this effect
was made by s66 of the Finance (No 2) Act 2017. See also, HMRC, Notice 799:
disclosure of tax avoidance schemes for VAT and other indirect taxes, January 2018.
311
312
[As noted, the CRS is a multinational agreement for the automatic exchange of
taxpayer information. The consultation paper noted exchanges would start in 2017
for 54 early adopters, with all other participants exchanging by 2018.]
comply with the new RTC should face much stiffer penalties. The
RTC will introduce much tougher penalties and will also provide a
strong legal underpinning to drive taxpayers to regularise their
offshore affairs. 313
In December the Government published details of the responses it had
received; there had been broad support for this initiative, though many
stakeholders had “commented on the need for a significant
communications campaign to ensure all taxpayers are aware of the
requirement”:
Stakeholders and respondents broadly supported the initiative, its
scope and definition and many said they would like to see a single
and simplified set of sanctions for tackling offshore tax evasion.
Many stakeholders commented on the need for a significant
communications campaign to ensure all taxpayers are aware of
the requirement, particularly those where any non-compliance has
not been deliberate. This is seen as an important part of
encouraging taxpayers to come forward where they may not
associate their activities with evasion ...
Many respondents welcomed a failure to correct penalty model
that simplifies the currently complex application of offshore
penalties. However many respondents wanted to ensure sanctions
retain some flexibility with recognition of taxpayer behaviour and
co-operation. Some respondents commented on the need for any
toughened sanctions to retain sufficient incentive for taxpayers to
come forward and disclose …
Government response … The government is determined to
ensure the toughest sanctions are there for those that evade
taxes, whilst providing a period for taxpayers to review their
offshore interests and come forward to clear up any past issues
and therefore avoid the possibility of the heavier penalties.
The requirement will also include reasonable excuse provisions
that ensure that, where the taxpayer has good reason for not
having corrected, they will not face the new higher penalty. We
are aiming to provide a clear and unambiguous message that
acting early is vital and believe the proposed structure of the RTC
and associated sanctions do that. The incentives to come forward
and correct are clear.
A number of respondents also raised the issue of the incentive for
taxpayers to come forward following the requirement to correct
period, stating that the failure to correct penalty would not
provide any incentive to disclosure if a taxpayer had not corrected
during the window. However the penalty range proposed
provides this incentive.
If taxpayers come forward after the correction period, the starting
point for the penalty would be 200%, but disclosure and
cooperation mean it could be halved to a minimum penalty of
100% of the tax that has not been corrected. The government
will also ensure that the criteria for reducing the penalty from
200% will take account of whether the person comes forward
voluntarily and the seriousness of the offence. A potential
313
Tackling offshore tax evasion: a requirement to correct, August 2016 para 3.1-3. See
also, HMRC press notice, Tough new sanctions announced for offshore tax evaders,
24 August 2016
reduction in penalties from a maximum of 200% to 100% is a

significant incentive. 314
The Government published draft legislation and an impact assessment
of this new legal requirement, which explained how this provision
would work in practice:
Taxpayers within scope of the RTC will be those who have not
declared the right amount of UK tax in respect of offshore
interests on or before 5 April 2017. These will be taxpayers who
have done one of the following in respect of offshore tax:
• failed to notify chargeability
• failed to make and deliver a return
• delivered an inaccurate document (for example, a return)
to HMRC
In addition the failure must relate to Income Tax, Inheritance Tax
or Capital Gains Tax and not have been corrected on or before 5
April 2017.
Taxpayers within scope of the RTC are required to correct that
position on or before 30 September 2018 by providing the
appropriate information to HMRC. For example, a taxpayer who
delivered an inaccurate return to HMRC by omitting a source of
offshore income will be required to provide sufficient information
to HMRC to allow that inaccuracy to be corrected
by HMRC assessing the under-declared tax.
Where a taxpayer fails to correct the offshore tax non-compliance
on or before 30 September 2018 the legislation will introduce a
new sanctions for that failure. The new sanctions:
• are a tax geared penalty of between 100% and 200% of
the tax not corrected - penalties will be reduced within this
range to reflect the taxpayer’s cooperation with HMRC,
including whether they came forward unprompted to
tell HMRC of their failure
• are an asset based penalty of up to 10% of the value of the
relevant asset would apply in the most serious cases, and
involved over £25,000 in any tax year
• will have the ability for HMRC to name those who have
failed to correct in the most serious cases, and where over
£25,000 tax per investigation is involved
• will adopt the enhanced penalty for asset moves of 50% of
the amount of the standard penalty, which would apply
if HMRC could show that assets or funds had been moved
to attempt to avoid the requirement to correct
• will have no penalty where the taxpayer has a reasonable
excuse for failing to correct the position. HMRC will also
have the option of, exceptionally, charging the existing
penalties instead if that is appropriate. 315
314
Tackling offshore tax evasion: Requirement to Correct - Summary of Responses, 5
315
Tackling offshore tax evasion: requirement to correct, 5 December 2016. See also,
HMRC press notice, New Year brings in new penalties for enablers of offshore tax
evasion, 1 January 2017.
HMRC’s impact assessment also noted that taxpayers affected by the

RTC were likely to be of above average wealth, though “there is no
data to identify the size of this group.”
In the 2017 Budget the Government confirmed that it would introduce
this measure, subject to certain amendments to the legislation as
originally drafted:
This new “requirement to correct” is expected to come into force
when the Finance Bill 2017 receives Royal Assent and will apply to
all taxpayers with offshore interests who have not complied with
their UK tax obligations as at 5 April 2017 … The draft legislation
will be revised to ensure the reasonable excuse provision does not
apply where advice is received from an adviser who is not
independent. This reflects the government's response on this
point in [its response to the consultation] published on 5
December 2016. 316
At this time it was estimated this measure would raise £10m in
2017/18, rising to £70m by 2021/22. 317
VAT: penalty charges in fraud cases
In the Budget 2016 the Government announced it would consult on a
new penalty for participating in VAT fraud, and subject to this
consultation “the intention is to legislate in Finance Bill 2017.” 318
HMRC’s consultation document was published in September; as this
explained, at present, when issuing a penalty for a business’ failure to
properly account for VAT, HMRC has to decide if the business’ failure is
‘deliberate’ or ‘careless’, a factor that does not apply when charging
penalties for serious VAT fraud:
The knowledge principle and Schedule 24 penalties
It is settled case law 319 that businesses are denied the right to
reclaim VAT as input tax when they know or should have known
that their transactions are connected with VAT fraud. Such
businesses are regarded in law as participants in the fraud. This
approach is often referred to as the knowledge principle …
HMRC applies this principle successfully to tackle MTIC (Missing
Trader Intra-Community) fraud and to a lesser extent other VAT
frauds.
When applying the knowledge principle to individual cases, it is
difficult for HMRC to separate evidence of ‘knowledge’ from
evidence that the business ‘should have known’ of a connection
with VAT fraud. So in most instances we issue a decision covering
both eventualities.
However the relevant civil penalties legislation (Schedule 24 of
FA2007) operates on a different basis. This requires HMRC to
decide, when issuing the penalty, whether the business’s non-
compliance is “deliberate” or “careless”. This determines the level
316
Overview of Tax Legislation & Rates, March 2017 para 1.42
317
Autumn Statement, Cm 9362, November 2016 para 4.53, Table 2.1 – item 28.
Provision to this effect was made by s67 of the Finance (No 2) Act 2017. See also,
HMRC, Requirement to Correct tax due on offshore assets, August 2018.
318
319
see Axel Kittel v Belgian State v Recolta Recycling SPRL (cases C-439/04 and
C-440/04)
of the penalty. HMRC cannot choose a combined careless and

deliberate penalty: we must choose one or the other.
This misalignment between these regimes causes practical
difficulties. A ’deliberate’ penalty implies we think the customer
has actual knowledge, whilst a ‘careless’ penalty implies we think
the customer ‘should have known’ of the connection with fraud.
Having to make this distinction in behaviour in order to issue a
penalty affects HMRC’s ability to defend the underlying decision
on the primary fraud issue against any appeal. 320
This misalignment has created practical difficulties for HMRC in tackling
VAT fraud:
HMRC’s current approach – delay issuing the penalty
To address this, our current practice is to wait until after the VAT
case has been finalised, including any litigation, before issuing the
Schedule 24 penalty. This approach causes two problems:
• Firstly, it opens up the opportunity of a second round of
litigation, this time against the penalty. Any challenge to
the behavioural aspect of the penalty is effectively a
relitigation of the findings in the underlying VAT appeal.
This adds to the costs for HMRC, appellants and the courts.
‘Knowledge principle’ cases are already costly in time and
money due to the volume of evidence required.
• Secondly, the delay in issuing the penalty increases the risk
that, by the time the penalty is issued, it will be ineffective.
This is because the monies to pay the penalty may have
been dispersed by those involved in the fraud.
Penalty for participating in VAT fraud
To address the issue we are proposing a new penalty that aligns
with the knowledge principle. The key design features are a
penalty that:
• can be issued at the same time as the knowledge principle
decision in the underlying VAT fraud case; and
• does not rely on the distinction between whether a
business or individual knew or should have known of the
connection with VAT fraud. 321
In its summary of responses to the consultation, published in December,
HMRC stated that, “a majority of respondents were in favour of
introducing a penalty for participating in VAT fraud at a ratio of around
three to one” though “there were different views about the design
options with no clear preference.” Further to this,
Most respondents favoured applying the new penalty to company
officers whose companies participated in VAT fraud, although
some wished to restrict this application to circumstances where
the company officer could reasonably be held culpable. Others
wished to restrict the application of the penalty to company
officers to cases where they had actual knowledge of fraud. Most
respondents favoured naming businesses that knew or should
320
Penalty for participating in VAT fraud, September 2016 para 2.5-10
321
have known that their transactions were connected with VAT

fraud. 322
In the light of these responses, the Government announced it would
introduce this new penalty:
Having carefully considered the responses to this consultation, the
government has decided to proceed with the introduction of a
penalty for participating in VAT fraud. It considers that there is a
strong case for having a new penalty aligned with the knowledge
principle. This will help streamline cases and strengthen HMRC’s
ability to tackle serious VAT fraud. The government also
recognises the deterrent benefits of a strengthened penalty
regime in this area.
The government recognises the concerns about the application of
the penalty to cases where participants “should have known” that
the transactions were connected with fraud. This concept is quite
narrowly defined in case law. Some of the respondents, perhaps
understandably, were unaware of the scope of the current
knowledge principle and how this term has been defined by the
courts. HMRC will be applying the penalty in the context of the
existing case law and want to reassure respondents that the new
penalty cannot apply to cases where businesses could not have
known that their transactions were connected with fraud.
A few respondents suggested, as an alternative, that the existing
error penalty regime could be run in the alternative (i.e. deliberate
or careless) as a way of solving the misalignment with the
knowledge principle. HMRC looked into this but came to the
conclusion that it is not a practical policy solution or legally
possible. It would not solve the current problem of misalignment
between the two regimes. HMRC would still be required to state
its preferred case for the error penalty, either at the point of
issuing the penalty (in order to notify the business of the rate of
the penalty), or alternatively once the case reached court (as the
appellant would need to know the case they had to answer). 323
As with the other tax avoidance and evasion initiatives announced in
Budget 2016, draft legislation and an impact assessment of this
measure was published at the time; the latter stated that this change is
expected to have a negligible impact on the Exchequer. 324
In Spring Budget 2017 the Government confirmed it would proceed
with this measure: “following consultation on the draft legislation some
minor changes have been made to improve the clarity of the measure
and also to limit the naming of a company officer to instances where
the amount of tax due exceeds £25,000. The new penalty will take
effect once the Finance Bill receives Royal Assent.” 325
Promoters of Tax Avoidance Schemes (POTAS)
Finally, in Spring Budget 2017 the Government announced it would
introduce legislation to “ensure that promoters of tax avoidance
schemes cannot circumvent the POTAS regime by re-organising their
322
Penalty for participating in VAT fraud: summary of responses, 5 December 2016
para 2.1-3
323
op.cit. para 3.2-4
324
VAT: penalty for participating in VAT fraud, 5 December 2016
325
HMT, Overview of Tax Legislation & Rates, March 2017 para 1.39. Provision to this
effect was made by s68 of the Finance (No 2) Act 2017.
business by either sharing control of a promoting business, or putting a

person or persons between themselves and the promoting business.
This will ensure that HMRC can apply the POTAS regime as
intended.” 326 Further details are given in a tax information & impact
note, which stated this measure was not expected to have additional
Exchequer impact. 327
Finance Bill 2017
Following the Prime Minister's announcement, on 18 April, of the
Government's intention to call a General Election on 8 June, the House
completed all of the remaining stages of the Bill in the Commons on
Tuesday 25 April. With cross-party support the Government removed a
series of clauses from the Bill, with the intention of legislating for these
at the start of the new Parliament. On this occasion Treasury Minister
Jane Ellison said the following:
The Bill is progressing on the basis of consensus and therefore, at
the request of the Opposition, we are not proceeding with a
number of clauses. However, there has been no policy change.
These provisions will make a significant contribution to the public
finances, and the Government will legislate for the remaining
provisions at the earliest opportunity, at the start of the new
Parliament. 328
As part of this measure, all of the clauses in the Bill relating to the five
avoidance and evasion initiatives discussed above were removed from
the Bill, except the provision making amendments to the existing POTAS
legislation for associated and successor entities rules. 329 On 13 July the
Government confirmed, in a written statement, that a Finance Bill
would be introduced to this effect “as soon as possible after the
summer recess.”330 In turn this second Finance Bill was introduced on 6
September, including these clauses, which were agreed without
amendment. 331
In an overview of HMRC’s information powers by Nigel Barker, Annis
Lampard and Jenny Tevlin (Deloitte) in the Tax Journal in May 2017, the
authors commented on the “significant recent shift what is available to
HMRC, reflecting increasing globalisation in business and personal
finances”:
Following data leaks from territories including Liechtenstein and
Panama, emphasis on international data cooperation across tax
agencies has increased. In the corporate sphere, country by
country reporting to tax authorities under the OECD Action 13
BEPS initiative will soon be relevant to all groups with a turnover
326
Spring Budget 2017, HC 1025, March 2017 para 3.43
327
Promoters of Tax Avoidance Schemes: associated and successor entities rules: TIIN, 8
March 2017. Budget 2013 estimated the POTAS regime would raise about £35m a
year (HC 1033, March 2013 p65, Table 2.1 – item 54).
328
HC Deb 25 April 2017 c1013
329
Committee of the Whole House proceedings, 25 April 2017. See, Chartered Institute
of Taxation press notice, Tax advisers welcome sensible, pragmatic approach to
Finance Bill, 25 April 2017. This provision forms s24 of the Finance Act 2017.
330
Finance Bill: Written Statement, HCWS47, 13 July 2017
331
Public Bill Committee, Fifth Sitting, 24 October 2017 cc140-4. As noted these
provisions form ss64-68 of Finance (No.2) Act 2017. See also, CIOT press notice,
Major new tax penalties in force, 17 November 2017.
of more than €750m. In addition, more than 100 jurisdictions

have joined the common reporting standard (CRS), an important
global initiative where financial intermediaries will have to file
details of individual accounts with national tax authorities. For
early adopters, there will be an automatic exchange of financial
data from September 2017 and a year later for others.
They went on to argue that this in turn had led to a change in HMRC’s
approach:
Reflecting the new data sources available, we are seeing a change
in how HMRC is using its information powers. Previously, requests
for information may have been made on a speculative basis;
however, HMRC is now much more confident about its right to
ask for what it is requesting, and may even have an expectation
itself as to what response it will receive. In the rest of this article,
we will therefore review HMRC's informal and formal information
gathering powers, as well as some of the more unusual and
newer powers available to HMRC. 332
As noted, the ‘requirement to collect’ (RTC) provisions introduce a
statutory obligation on taxpayers to correct any undeclared UK tax
liabilities in respect of an offshore matter by 30 September 2018. In a
recent piece on the RTC in Taxation magazine, Garry Ashford (Harbottle
and Lewis) noted the significance of the 30 September deadline:
The most important feature of the RTC is its potential breadth in
terms of issues that it might affect. Any personal tax matter that
has an overseas nature will amount to offshore non-compliance if
it is found to be incorrect after 30 September …
Many advisers will think this is focused on people deliberately
evading UK tax – for example, routeing UK income through an
offshore bank account – but the RTC has the potential to capture
all sorts of tax positions, including individuals who are unaware
that a tax liability exists or might have existed.
The RTC deadline coincides with HMRC receiving huge quantities
of personal financial data under the provisions for automatic
exchange of financial account information in tax matters – the
common reporting standard (CRS). Over the past ten years or so,
HMRC has signed various agreements, the result of which is that
overseas jurisdictions will be exchanging vast quantities of
information relating to residents holding assets or receiving
income in each others’ jurisdictions. The CRS is the latest such
agreement and will involve more than 100 countries exchanging
information. The first tranche of data was exchanged last year,
with the final group of signatory countries exchanging from 30
September 2018. 333
332
“HMRC’s information powers”, Tax Journal, 19 May 2017
333
“Don’t get snarled”, Taxation, 6 September 2018
5.4 The Paradise Papers & Autumn Budget

2017
On 5 November the International Consortium of Investigative Journalists
started to publish details and commentary on material it had obtained
from two offshore service providers and 19 tax havens' company
registries, which it called the ‘Paradise Papers’. In turn details of the
financial holdings of both wealthy individuals and multinational
enterprises from this leak were reported by the BBC, the Guardian, and
other media organisations, reiterating public concerns as to the scale of
tax avoidance and evasion, particularly by high net-worth individuals,
and the actions of offshore jurisdictions to facilitate these activities.
In evidence to the Public Accounts Committee on 6 November, Jon
Thompson (HMRC’s chief executive) noted that the ‘Paradise Papers’
cache was “different from the Panama papers in 2016, which were
published on a website in an unstructured way and you could inquire
through those papers. In this particular situation, the papers have not
been made publicly available; they are only available to those within the
International Consortium of Investigative Journalists.” 334 He explained
that HMRC had requested information on the material held by the ICIJ
but without receiving a response – a point also made by the Financial
Secretary Mel Stride a few days later. 335 In answer to a written question
at this time the Minister said the following:
HMRC does not have power to acquire journalistic material held
overseas and, therefore, is unable to obtain the information held
by the ICIJ known as the Paradise Papers. However, HMRC has
requested access to the material that has been provided by the
International Consortium of Investigative Journalists to the BBC
and The Guardian. HMRC has also encouraged these
organisations to pass on any information that points to
wrongdoing and are prepared to look at every allegation in full. 336
Turning back to his evidence session with the PAC, Mr Thompson said a
little on HMRC’s response to the Paradise Papers publication:
Q17 Chair: In terms of your legal powers, how quickly could you
secure any of that data? Give us a range if you cannot give an
exact timetable.
Jon Thompson: The tax treaties and exchange of information
agreements that we have with all Crown dependencies—the
overseas treaties—allow us to inquire about specific taxpayers. At
this point, we are trying to work off what is in the public domain
and then work from that in terms of making specific inquiries.
That is not the same as saying that there is a bulk set of data that
is apparently available. Obviously we would like that, but we have
to do it by individual allegation, taxpayer by taxpayer, in order to
get that information.
Q18 Chair: And you are prepared to look at every allegation in
full.
334
Oral evidence: 2016-17 HMRC Standard Report, HC 456, 6 November 2017 Q6
335
HC Deb 14 November 2017 cc168-9
336
PQ113170, 20 November 2017
Jon Thompson: We certainly are. In the same way we did with

Panama, we will look at every case of tax evasion very seriously.
We have secured significant revenues from those trying to hide
overseas—more than £2.8 billion over the last few years ...
Q19 Chair: With the Panama papers, we were frustrated—I
suspect you were, too—about how long it took to dig through
that information. How quickly could we see results if you had all
that information on the Paradise papers?
Jon Thompson: I think it depends on whether we conclude early
on that the acts are civil or criminal. With criminal acts, it takes
quite a bit longer to prepare a case. The Panama papers were
published on 4 April 2016. There are currently 66 criminal or civil
investigations; four people have been arrested and a further six
have been interviewed under caution. Those cases continue to be
live. We would expect an additional tax yield of £100 million from
the Panama papers. That gives you some sense of how long quite
complicated tax cases take to bring to some sort of fruition.
Q20 Chair: That is quite encouraging news, because when we
have asked about the Panama papers before, we have got very
little information. Are you better prepared now for dealing with
these papers than HMRC was when the Panama papers were
leaked?
Jon Thompson: I would say that we are, in one significant
respect: over the last 18 months or so we have significantly
improved the way in which we can ingest data from other
sources. There is now a director-led speciality function within our
customer compliance group: the director of risk and intelligence
services. We have created a dedicated function that can ingest
data from as many sources as we can get them and put that data
together around individual taxpayers, so that our interventions are
risk-based. 337
Mr Thompson and his colleague Jim Harra (Director General, Customer
Strategy and Tax Design), also acknowledged that HMRC had only been
able to obtain access to the Panama Papers by making a payment for
this information:
Q47 Chair: May I just ask, with the Panama papers, did you have
to make any payment to receive any information, or was it passed
over to you freely?
Jon Thompson: It was not passed to us freely.
Q48 Chair: You had to pay a fee?
Jon Thompson: We obtained it. I need to be careful about what
the law limits me to say. We obtained it, but not from the ICIJ.
Jim Harra: It was part of an international effort to obtain that
data. 338
The publication of this material was debated, briefly, the same day, in
response to an Urgent Question tabled by the Shadow Chancellor, John
McDonnell, 339 and then a few days later, following a successful
application by Dame Margaret Hodge for an emergency debate on the
337
op.cit., Qs 17-20
338
Op.cit. Qs 47-48
339
HC Deb 6 November 2017 c1195-1208
issue. 340 On this occasion Dame Margaret highlighted three specific

areas where, in her view, the Government had failed to take effective
action: in penalising tax advisers, in requiring overseas territories to
publicise beneficial ownership, and in resourcing HMRC:
The Treasury, and other Ministers and Departments, listen only to
a very small and exclusive group of tax professionals when making
decisions on tax policy … Curtailing the influence of tax
professionals on tax policy is essential, and making the advisers
accountable for the schemes that they invent and market is
central to the campaign to destroy tax avoidance. The measures in
the Finance Act 2017 represent one small step in the right
direction of holding advisers to account, but the small print
suggests that very few, if any, will be caught by the legislation.
The definitions are too narrow, and the penalties too weak …
We should lead by example. We should demonstrate that
transparency can and does change behaviour. We should compel
our overseas territories and Crown dependencies to publish public
registers. In the past, a Conservative Government used their
powers to outlaw capital punishment in our Crown dependencies
and overseas territories, and a Labour Government used the same
powers to outlaw discrimination against gay people. Today we
should work together to outlaw the secrecy of those jurisdictions,
which leads to such massive tax injustices …
We can and should properly resource HMRC now so that it has
the capability to pursue all who seek to avoid paying tax, not just
the small businesses who form an easy target that can be
hounded with little effort. Every £1 invested in HMRC
enforcement yields £97 in additional tax revenues. It is a complete
no-brainer that we should be strengthening HMRC and reversing
some of the cuts. 341
In his response the Financial Secretary made some comments on each of
these matters:
We have brought in 75 measures since 2010 to clamp down on
these practices. A further 35 will come in from 2015, raising
£18.5 billion by 2020-21. One of the problems is that we have
been so active in bringing in so many measures that,
unfortunately, not all of them have been noticed. In last week’s
debate, the right hon. Member for Barking raised the issue of
taking action against those who promote tax avoidance schemes
… She only to look at the Finance Bill … in which she will find
measures to deal with precisely what she was urging us to take
action on last week …
We all agree that we need to look closely at what is happening in
the international sphere. On that, this Government have a record
of which we can be proud. Through the OECD, we have been in
the vanguard of the base erosion and profit shifting project. We
have worked closely with the Crown dependencies and overseas
territories.
We have brought in a diverted profits tax, which will raise £1.3
billion by 2019, and common reporting standards to ensure that
information is exchanged in relation to around 100 countries. We
have introduced a directory of beneficial ownership that is
340
HC Deb 13 November 2017 cc55-6. This procedure is established under the rules of
Standing Order No.24; details are on the Parliament site.
341
accessible by HMRC, the authority that needs to have that

information. All this has happened in the last couple of years, and
it is a game changer. Many of the issues arising from the Paradise
papers go back very many years, but these measures are in place
right now …
Some £1.8 billion of additional money has been invested in HMRC
since 2010, of which £800 million will relate to the period after
2015, bringing in £7.2 billion by 2020-21. We will also be trebling
the number of investigations of the wealthy to ensure they are
paying their appropriate level of tax, as a direct consequence of all
that additional investment. 342
In January 2018 the Public Accounts Committee published its report on
HMRC’s performance in the previous year in which raised concerns over
the ‘Paradise Papers’ leak and whether HMRC had sufficient resources
“to deal with the full scale of the recent allegations:”
The ‘Paradise Papers’ leak suggests potentially serious and
extensive allegations of tax evasion and avoidance. The
‘Paradise Papers’ leak of a large volume of financial documents
has highlighted the potentially dubious practices of many high-
profile individuals and corporations in their use of offshore tax
havens. HM Revenue and Customs (HMRC) has requested the
leaked documents but it has not yet received a response. HMRC
tells us that if the information is not forthcoming it can then use
its network of exchange of information agreements with other
countries to obtain the data. The ‘Panama Papers’ were published
in April 2016, and have to date resulted in 66 criminal or civil
investigations, and expected additional tax revenues of £100
million. HMRC now claims to be better equipped to deal promptly
with any large-scale leak of data. However, the speed with which
cases can be investigated depends on whether they are civil or
criminal, as criminal cases will take longer to prepare. We are far
from confident that HMRC has sufficient resources to deal with
the full scale of the recent allegations.
Recommendation: HMRC should obtain the information from
the ‘Paradise Papers’ as soon as possible, and report back to the
Committee by March 2018 to set out its response, including any
additional revenue likely to be at stake. 343
In its response, published in March, the Government agreed, although it
appears HMRC has been unable to obtain this material:
1.2 The Department welcomes all information that could assist in
its work on tackling tax evasion and avoidance. The Department
has therefore sought access to the International Consortium of
Investigative Journalists (ICIJ) material. However, the ICIJ (which is
based outside the UK’s jurisdiction) has refused to provide the
Department with material beyond that already publicly available.
1.3 The Department has requested access to the ICIJ material that
was used by the BBC and The Guardian. The Department has also
encouraged these media organisations to pass on any information
that points to wrongdoing and is prepared to look at every
allegation in full. Only the Guardian have responded, explaining
that they are not in possession of the data, and only have access
to it through the ICIJ and therefore cannot help our enquiries. 1:
342
HC Deb 14 November 2017 c167, c168, cc165-6
343
Public Accounts Committee, Twelfth report: HMRC’s performance in 2016-17, HC
456, 12 January 2018 p5
PAC conclusion: The ‘Paradise Papers’ leak suggests potentially

serious and extensive allegations of tax evasion and avoidance. 1:
PAC recommendation: HMRC should obtain the information from
the ‘Paradise Papers’ as soon as possible, and report back to the
Committee by March 2018 to set out its response, including any
additional revenue likely to be at stake.
1.4 The Department is looking very closely at all the information
the ICIJ and its members have disclosed in both the media and on
the ICIJ published database. The Department is also reviewing this
information in relation to existing enquiry work2016. This would
make measuring performance against an annual target
uncertain. 344
In answer to a PQ in June, Treasury Minister Mel Stride said that “HMRC
is looking very closely at the information the ICIJ has released in the
Paradise Papers to see if it reveals anything new that could add to their
existing leads and investigations” although “in a significant number of
cases that HMRC have reviewed, the practices and schemes which the
data points to were either already known to HMRC or have no UK tax
consequences.” 345
Writing on the Paradise Papers in Taxation, Fiona Fernie (Blick
Rothenberg) argued that the most recent statutory provisions
represented a change in approach by HMRC, from using ‘carrots’, to
encourage individuals to voluntarily disclose irregularities, to “new tools
and ‘sticks’ in the form of increasingly punitive measures … against
those evading (or serially avoiding) UK tax.” 346
On this theme the IFS’ Tax Law Review Committee published a review of
the recent changes made to HMRC powers, in which it raised concerns
as to the effectiveness of the safeguards provided for taxpayers. 347 The
report paid particular attention to two issues: HMRC’s practice in issuing
accelerated payment notices (APNs) …
In the case of the APNs, the position is ameliorated by the fact
that the taxpayer can recover all the money paid (plus interest) if
successful in appealing the substantive tax issue. Although no
safeguards were introduced in the APN legislation to limit the
application of the powers where bankruptcy of the taxpayer
would result, the courts have imposed such a restriction. With this
restriction in place, the APNs generally lead to a process and cash-
flow change so that taxpayers must expect to pay disputed tax at
an early stage of a tax dispute, rather than after the matter has
been litigated, but the APNs do not by themselves deter taxpayers
from disputing HMRC’s assessment of a tax liability. If the
taxpayer served with an APN is successful in disputing the
underlying tax, they get the tax paid back with interest. However,
taxpayers can be, and indeed have been, served with APNs where
HMRC has incorrectly applied the APN rules. The taxpayer must
then seek to persuade HMRC that an error has occurred or incur
344
Treasury Minutes, Government response to the Committee of Public Accounts, Cm
9596, March 2018 pp8-9
345
PQ155663, 29 June 2018
346
“Paradise lost”, Taxation, 16 November 2017
347
IFS press notice, The implications of recent additions to HMRC powers and the
shifting balance in the relationship with taxpayers, 20 November 2017. See also,
“Fears raised over expansion of powers for the taxman”, Financial Times, 13
December 2017
the cost and procedural demands of seeking judicial review

because there is no right of appeal to the tribunal against HMRC’s
procedural error.
… and the penalties that HMRC may charge in relation to both follower
notices (FN) and the application of the General Anti-Abuse Rule:
A potentially more serious problem arises with the FN penalty and
GAAR penalty provisions (the ‘Penalty Powers’). They make the
financial risks of appeal so great that even taxpayers with strong
cases may not be prepared to risk going to court. Those powers,
which have been introduced expressly to encourage taxpayers to
settle disputes with HMRC on the meaning and application of tax
law – in other words, to deter taxpayers from seeking an
independent review by the tribunals and courts as to the meaning
and application of tax law – have significantly increased the
financial risks to taxpayers of continuing to dispute with HMRC
the tax due in their cases.
The taxpayer does not just pay over the disputed tax but faces the
imposition of a 50 per cent or 60 per cent penalty if they continue
to dispute the matter and lose in the courts. Concern has been
expressed by others, and is shared by this paper, that the Penalty
Powers have effectively given HMRC quasi-judicial powers to
determine what tax law means and how it applies in particular
cases. The financial risks to taxpayers of seeking independent
adjudication of their cases through the tribunals and courts are so
high when some of the Penalty Powers are exercised that few
taxpayers will wish to dispute the tax claimed by HMRC, even
when they have a strong case deserving judicial consideration. In
that situation, taxpayers are effectively denied access to justice. 348
The Chancellor presented the Government’s first Autumn Budget on 22
November 2017. 349 Tax avoidance was not a major theme to the
speech, nor in press coverage, though the Budget report set out a list of
individual measures to mitigate both avoidance and evasion, noting
“since 2010 the government has secured almost £160 billion in
additional tax revenue and alongside the Budget publishes details of
over 100 measures it has introduced. These actions have also helped the
UK achieve one of the lowest tax gaps in the world … Further steps
taken in the Budget are forecast to raise £4.8 billion between now and
2022-23.” 350 The Government published a policy paper alongside the
Budget report which included two annexes listing measures introduced
since 2010, and those announced in the Budget. 351 (As discussed below,
an updated version of this policy paper was published in March 2019.)
The ‘Red Book’ also gave details of an increase in HMRC’s budget:
348
Tracey Bowler, The implications of recent additions to HMRC powers and the
shifting balance in the relationship with taxpayers, TLRC Discussion Paper No.13,
November 2017 pp7-8. See also, Stephen Daly, “TLRC discussion paper”,
taxatlinconox blog, 14 December 2017
349
The move to having an Autumn Budget has changed the normal timetable for
introducing new tax legislation: see, HMT, The new Budget timetable and the tax
policy making process, December 2017
350
Autumn Budget 2017, HC 57, November 2017 para 3.65-77. See also, HM Treasury,
Overview of Tax Legislation & Rates, November 2017 para 1.43
351
HMT, Tackling tax avoidance, evasion and non-compliance, November 2017. see
also, PQ117106, 7 December 2017 & PQ135367, 18 April 2018.
3.88 The government is investing a further £155 million in

additional resources and new technology for HMRC.
This investment is forecast to help bring in £2.3 billion of
additional tax revenues by allowing HMRC to:
• transform their approach to tackling the hidden economy
through new technology
• further tackle those who are engaging in marketed tax
avoidance schemes
• enhance efforts to tackle the enablers of tax fraud and hold
intermediaries accountable for the services they provide
using the Corporate Criminal Offence
• increase their ability to tackle non-compliance among mid-
size businesses and wealthy individuals
• recover greater amounts of tax debt including through a
new taskforce to specifically tackle tax debts more than 9
months old. 352
In its discussion of the policy costings for the Budget, the Office for
Budget Responsibility highlighted the difficulty of estimating the
Exchequer impact of this package of measures:
HMRC operational measures
A.8 The Government has announced a package of measures
designed to generate additional revenue from HMRC compliance
activity. The various components were combined into the single
line of the scorecard: ‘Avoidance and Evasion: additional
compliance resource’ (Table 2.1 – item 39).
As we have previously set out, the costing of these type of
measures is often subject to a high degree of uncertainty. While
we only certify measures that we judge to be reasonable and
central, efforts to tackle avoidance and evasion have not always
brought in the expected yield. 353
The measures often target a subset of individuals or companies
that are already actively changing their behaviour to avoid or
evade tax. As a result there is typically a high degree of
behavioural uncertainty. Similarly, since the measures are directed
at uncollected tax, there is usually less reliable data available to
inform the costing. And there are often uncertainties relating to
the timely delivery of operational changes, especially when they
rely on new IT systems …
A.9 Scrutinising this package of measures brought about some
further challenges. The approach HMRC takes to measuring
compliance yield does not map directly onto the National
Accounts receipts definitions used in the Government’s fiscal
targets and that we therefore forecast. This makes it difficult to
distinguish what is relevant to our forecast with any precision.
Another challenge was determining whether the yield from this
package would be additional to that already captured in
previously announced measures. In particular the large July 2015
package of HMRC measures has yet to become fully effective, so
we needed to assure ourselves that the yield in our baseline
352
Autumn Budget 2017, HC 57, November 2017 para 3.88, p29 (Table 2.1 – item 39)
353
See for example Chapter 5 in our 2017 Fiscal risks report and Johal, Evaluation of
HMRC anti-avoidance and operational measures, OBR Working Paper No.11.
forecast in respect of previous measures was not being factored

into these new measures too.
A.10 To overcome some of these challenges we looked at
HMRC’s past compliance performance. For example, we
considered the progression of HMRC’s estimates of the tax gaps
for the different taxes, groups of taxpayers and activities targeted
by this package. This allowed us to consider top-down whether
the expected yield from different elements of the package was
reasonable relative to the types of activity the Government each
seeks to tackle. We also looked at the returns to investment for
the July 2015 package of measures and how they compared to
the current package. For most, we expected to see diminishing
returns from additional investment and challenged those costings
where that had not been assumed. We required each costing to
show that appropriate contingencies were in place for delays in
recruitment and for training lags. Where staff were being
redeployed from elsewhere within HMRC we asked for an
appropriate opportunity cost to be incorporated.
A.11 We assign this package of measures a ‘very high’ uncertainty
rating, with each of data, behaviour and modelling also classed as
‘high’ or ‘very high’. For some elements, such as those targeting
the hidden economy or criminals, the level of uncertainty is very
high. We will continue to evaluate the performance of these and
previous anti-avoidance and evasion measures on a regular basis.
This Budget has continued the recent pattern whereby the yield
from revenue-raising measures is concentrated in these more
uncertain areas while the cost of the tax giveaways is far more
certain. 354
As part of its inquiry on the Autumn Budget the Treasury Committee
took evidence from the main professional bodies on 5 December, and
on this occasion Alister Jack asked about the impact that the debate on
avoidance and evasion had had on the profession:
Q249 Mr Jack: … I want to go on to the Panama Papers and
Paradise Papers and all that … Do you think the public perception
is that those structures are tax avoidance or even tax evasion? …
Has that made practitioners more cautious about the way they
offer advice?
Ray McCann: [Deputy President, Chartered Institute of
Taxation] It is undoubtedly the case that practitioners today are
warier of falling foul of both new tax rules and HMRC … Allied to
that, the professional bodies have, in the past two years, taken
quite considerable steps in ramping up our professional
standards…
Specifically on the Paradise Papers, we have to recognise that
many of those structures have been around for decades, certainly
years, and they will quite often predate a lot of the upsurge in
public disapproval of offshore tax planning structures. Whether
they can be changed, altered or some of them are even impacted
by some of the changes that Government are bringing forward
remains to be seen, because many of them will no doubt say that
they have put in place a compliant structure that complies with
every rule in every jurisdiction that is going …
Frank Haskew [Head of Tax Faculty, Institute of Chartered
Accountants in England and Wales] Amplifying what Ray said,
354
Economic & Fiscal Outlook, Cm 9530, November 2017 pp230-1
our professional conduct in relation to taxation [PCRT] that Ray

mentioned is signed up to by seven professional bodies …
The Government, in the Finance Act that was passed last month—
the Finance (No.2) Act—included some provisions to have
penalties on what is described as enablers of tax avoidance. We
now have measures there on the statute book whereby, if advice
to a client is outside the parameters of the general anti-abuse
rule, the advisers can also be subject to a penalty. This pincer
movement is coming in on advisers from a number of directions…
We also need to remember the tax advice market in the UK.
HMRC estimates that about 30% of tax advisers are not affiliated
to a professional body. There are overseas advisers as well. The UK
tax market is quite fragmented. With our PCRT and the enablers,
we have stepped up to the plate, and HMRC has introduced rules
that should have an impact on the way advisers go about giving
their business to clients.
Subsequently Rushanara Ali asked about HMRC’s estimates for
compliance yields and the extent to which these figures were driven by
government action or a change in public attitudes.
Q264 Rushanara Ali: … The Chancellor said that the
Government had collected £160 billion in additional tax revenue
through the crackdown on evasion. To what extent would you
assign that to government policy ... To what extent is it public
pressure, media pressure or the moral imperative? Could it be a
bit of both?
Frank Haskew: That is a difficult question. It probably is a bit of
all of that … I would mention here that HMRC published only last
month its most recent tax gap figures. However much some
commentators question the basis of some of the calculations, we
have to accept that up to an extent this is evolving. The UK’s
methodology is, at the moment, as good as it gets. Clearly, more
can be done … but it shows that the UK’s trajectory in terms of
the tax gap has been coming down. …
We have had a huge amount of anti-avoidance and anti-evasion
legislation over the past five years ... We have had more resources
invested into HMRC. We saw that in the latest Red Book … We
have seen public pressure and public concerns. We have seen
reputation concerns. We have had our own PCRT, which we have
revised. Coming to it from a lot of different directions, the climate
has changed remarkably. 355
5.5 Budget 2018

The Chancellor presented the Budget on 29 October and although tax
avoidance was not a major theme to either the Budget or the responses
to it, Mr Hammond mentioned the issue briefly in his speech:
Today we continue the work of the past eight years, where we
have secured £185 billion since 2010 that would otherwise have
gone unpaid, with a package of measures today to further clamp
down on tax avoidance, evasion and unfair outcomes, raising
another £2 billion over the next five years.
We will make HMRC a preferred creditor in business insolvencies,
to ensure that tax that has been collected on behalf of HMRC is
actually paid to HMRC. We will end the practice of purchasing
355
Budget Autumn 2017: Oral Evidence, HC 600, 5 December 2017 Qs249, 264
services through overseas branches to avoid UK VAT, and we will

crack down on insurance companies routing services through
offshore territories. And we will stop our generous R&D tax credits
system being abused by reintroducing a PAYE restriction for the
small and medium-sized companies scheme. 356
Further details were published in the Budget report: 357
Protecting your taxes in insolvency – From 6 April 2020, when
a business enters insolvency, more of the taxes paid in good faith
by its employees and customers, and temporarily held in trust by
the business, will go to fund public services rather than being
distributed to other creditors. This reform will only apply to taxes
collected and held by businesses on behalf of other taxpayers
(VAT, PAYE Income Tax, employee NICs, and Construction
Industry Scheme deductions). The rules will remain unchanged for
taxes owed by businesses themselves, such as Corporation Tax
and employer NICs. (69) …
*
Preventing abuse of R&D tax relief for small and medium-
sized enterprises (SMEs) – To help prevent abuse of the payable
credit, from 1 April 2020, the amount of payable R&D tax credit
that a qualifying loss-making company can receive in any tax year
will be restricted to three times the company’s total PAYE and
NICs liability for that year. This will ensure the relief is robust
against identified abuse, including fraud, following the prevention
by HMRC of fraudulent claims worth £300 million. 358 The
government will consult on this change. (70) …
*
Unfulfilled supplies – The government will amend rules from 1
March 2019 to bring consistency to the VAT treatment of
prepayments. This change will bring all prepayments for goods
and services into the scope of VAT where customers have been
charged VAT but have failed to collect what they have paid for
and have not received a refund. (71)
Regulation 38 – The government will introduce stricter rules for
how and when adjustments to VAT should be made following a
reduction in price. Secondary legislation will tighten definitions for
Regulation 38 and ensure a credit note is issued to customers.
This will guarantee businesses are transparent and do not benefit
from VAT that is due to the consumer or the Exchequer. (71)
*
Profit fragmentation – As announced at Autumn Budget 2017,
the government will legislate in Finance Bill 2018-19 to introduce
targeted legislation that aims to prevent UK businesses from
avoiding UK tax by arranging for their UK-taxable business profits
to accrue to entities resident in territories where significantly
lower tax is paid than in the UK. The taxable UK profits will be
increased to the actual, commercial level. (72) …
VAT grouping – The government will legislate in Finance Bill
2018-19 to extend the eligibility to join a VAT group to certain
356
HC Deb 29 October 2018 c662
357
Budget 2018, HC 1629, October 2018 pp51-2
358
HMRC press release, HMRC arrest three during investigation into suspected £300m
corporation tax scam, 29 June 2016
non-corporate entities. In addition, revised VAT grouping

guidance will be issued to:
• amend the definition of ‘bought in services’ to ensure that
such services are subject to UK VAT
• provide clarity to businesses on HMRC’s protection of
revenue powers and treatment of UK fixed establishments
These guidance changes will be published in draft and come into
effect from 1 April 2019. (72)
VAT Specified Supplies Order – As announced in July 2018, the
government will legislate to prevent a version of VAT avoidance
(known as ‘looping’) that involves UK insurers setting up
associates in non-VAT territories and using these associates to
supply their UK customers. This allows them to reclaim VAT on
costs that UK based competitors are unable to reclaim. (72) …
*
Capital gains tax: tackling misuse of Entrepreneurs’ Relief –
In addition to the current requirements on share capital and
voting rights, from 29 October 2018 shareholders must also be
entitled to at least 5% of the distributable profits and net assets
of a company to claim the relief. This is to address an identified
abuse of the current rules. (73)
The anticipated Exchequer impact of each of these changes is set out in
the Budget report; the number given at the end of paragraph for each
measure correlates to its place in the Budget report’s table, listing the
cost/yield of all the measures announced in the Budget: 359
Notes:
* Negligible.
1
Costings reflect the OBR’s latest economic and fiscal determinants.
2
At Spending Review 2015, the government set departmental spending plans for resource DEL (RDEL) for
the years up to and including 2019-20, and capital DEL (CDEL) for the years up to and including 2020-21.
Where specific commitments have been made beyond those periods, these have been set out on the
scorecard. Where a specific commitment has not been made, adjustments have been made to the overall
spending assumption beyond the period.
359
Budget 2018, HC 1629, October 2018 p38 (Table 2.1)
These figures also appear in the OBT’s Economic and Fiscal Outlook; the
report underlines that, as is often the case, there are considerable
uncertainties with the projected yield from most of these initiatives to
tackle avoidance and evasion:
‘VAT: ensuring proper adjustments’: this measure has two

components. The first – relating to VAT on unfulfilled supplies –
applies VAT to cases where a customer makes a full or part pre-
payment for a service or good but then does not use or collect it.
An example would be the booking and subsequent cancellation of
a hotel room. The second part closes a loophole that allows
businesses to adjust their VAT return to reclaim VAT from HMRC
in respect of past periods with no time limit.
Data for both elements are highly uncertain, particularly the
second which assumes the number of businesses currently
exploiting the loophole by extrapolating from the limited number
of known cases. The low quality of data means the modelling
relies on several assumptions to derive the tax base and, as with
many anti-avoidance measures, there is also considerable
uncertainty over the potential size of the behavioural response.
We assign this costing a ‘very high’ uncertainty rating, with data,
behaviour and modelling all deemed to be sources of ‘very high’
uncertainty.
‘Offshore: prevent profit fragmentation, extend VAT
grouping rules and prevent looping avoidance schemes’:
this package of anti-avoidance measures has three components.
Profit fragmentation targets UK residents who avoid UK tax by
diverting their business profits via an external entity. The second
component relates to VAT exempt businesses that use overseas
branches and UK VAT grouping rules to circumvent non-
recoverability of acquisitions subject to VAT. The third element
tackles a VAT avoidance scheme known as ‘offshore looping’ that
is used within the insurance sector. As is often the case with
offshore measures the behavioural response is highly uncertain
and we have given this package a ‘very high’ uncertainty rating
overall
‘Capital gains tax: tackling misuse in entrepreneurs' relief’:
this measure adds two new tests designed to limit the eligibility
for entrepreneur’s relief and prevent misuse. The key uncertainty
in this costing relates to the low quality of relevant data, and we
assign this costing a ‘high’ uncertainty rating overall. 360
360
Cm 9713, October 2018 p235, p239-40
Statutory provision for most of these measures is to be made either in

the Finance Bill 2019 or in secondary legislation, 361 although legislation
regarding profit fragmentation, VAT grouping and the misuse of
entrepreneurs’ relief was included in the Finance Bill published after the
Budget. 362
The Committee of the Whole House considered a selection of provisions
from the Bill on 19-20 November; as part of this, on the second day, the
House considered one grouping of anti-avoidance clauses. 363 Although
no changes were made to these provisions, the House agreed two new
clauses tabled by the Opposition:
• NC5, to require a review of the impact of the tax avoidance
provisions in the Bill, with regards to child poverty, households on
different levels of income, people with protected characteristics
and on a regional basis - tabled by the Labour Party.
• NC14, to require a review of the effectiveness of the tax
avoidance provisions in the Bill – tabled by the SNP.
During the debate, Anneliese Dodds put the case for NC5 as follows:
Our new clause 5 is directed at another Government blank spot:
the distributional impact of their tax measures. It would require an
equality impact assessment of the Government’s tax avoidance
measures in relation to child poverty, household income levels,
people with protected characteristics, and our nations and
regions. That assessment is necessary because of the continuing
leakage from our tax system owing to avoidance as well as
evasion. Failure to deal with avoidance has put pressure on the
rest of the tax system, which … has been exacerbated by
unnecessary tax cuts to the very best-off people and to profitable
corporations. 364
In turn, Alison Thewliss put the case for the SNP’s new clause as follows:
On the provisions on tax avoidance, we must gauge our progress
by continually measuring the value and effectiveness of those
policies. … Our proposal is in the spirit of achieving better, more
robust policies in the future … There are many reasons why
HMRC does not always collect the tax that it ought to be paid,
whether through criminal activity, through evasion or avoidance
or just through human error, and there is much more that can be
done to address that … The SNP has long argued that the tax
system is unnecessarily cumbersome and complicated. There are
layers and layers of regulations and exemptions, which lead to
loopholes appearing. The system seems to get more complex
every year when we look at the Finance Bill, and there also appear
to be armies of tax avoidance specialists seeking to exploit
whatever gaps they can find. 365
361
HMT, Overview of tax legislation & Rates, October 2018 para 2.17, 2.27-8, 2.49
362
Specifically, clause 16 (profit fragmentation), clause 53 (VAT grouping) and clause
38 (entrepreneurs’ relief) of Finance (No.3) Bill 2017-19. In the latter case, the clause
made a number of other changes to the rules for the relief, and, following concerns
about its impact, was amended at the Report stage of the Bill (HC Deb 8 January
2019 cc310-11).
363
364
op.cit. c794
365
op.cit. cc808-9
When he opened the debate, Treasury Minister Mel Stride had opposed
both new clauses, as well as a third new clause (NC6), tabled by the
Labour Party, similar to the SNP’s new clause:
New clause 5 would require the Government to carry out a review
of the equality impact of some of the Bill’s anti-avoidance
provisions. The tax information and impact notes published
alongside the measures already set out the impact of anti-
avoidance measures in the Bill on those sharing protected
characteristics. In general, they show that HMRC does not expect
the measures to have notably different impacts on people
according to their protected characteristics.
New clauses 6 and 14 would require the Government to publish a
review of the effectiveness of the Bill’s provisions to tackle tax
avoidance and tax evasion, and to reduce the tax gap. Such a
review is unnecessary. The Government keep all taxes under
review and will continue to measure and publish annual statistics
on the tax gap. I have little doubt that those statistics will
continue to show that the tax gap is lower than at any time under
the previous Labour Government. 366
However, at the conclusion of the debate Mr Stride announced that the
Government would accept both NC5 and NC14:
New clause 5 calls for a review of the impact of the clauses in this
group on child poverty, on households at different levels of
income, on those with protected characteristics and on the
different parts of the United Kingdom. As I have stated, the
Government already provide impact and distribution assessments
and analysis in the Budget, as well as tax impact information and
notes on individual tax measures …
New clause 14, proposed by the Scottish National party, calls for a
review of the effect of the clauses in this group on reducing tax
avoidance and evasion and on “inducing new tax avoidance
measures unanticipated by the Act”, and for estimates of the
impact of the clauses on the tax gap.
In the light of the Government’s desire to reinforce what we are
doing already or what we will naturally provide in a timely manner
as events unfold, the Government will not oppose new clause 5
… or new clause 14. That is subject to the information that is
being sought being available, in which case we will of course
provide it. 367
In March 2019 the Treasury and HMRC published a report giving an
overview of government policy regarding tax avoidance and evasion,
including a long, updated list of measures that have been introduced
since 2010. 368 It notes that when taken with HMRC’s compliance work,
it is estimated that these measures “have secured and protected an
additional £200 billion in tax revenue which would otherwise have gone
unpaid.” 369 The report also provides two reports to meet the statutory
requirements of the Finance Act 2019. Two short extracts from these
366
op.cit. c789
367
op.cit. c831. They now form sections 92 & 93 of the Finance Act 2019.
368
HM Treasury/HMRC, Tackling tax avoidance, evasion, and other forms of non-
compliance, March 2019 (see Annex A)
369
op.cit. p2. The report cites HMRC’s estimates of the compliance yield: see, HMRC
Annual Report 2017/18, HC 1222, July 2018 p21
are reproduced below: first, on the effectiveness of the tax avoidance

measures included in the Act …
The government routinely assesses the impacts of all tax reforms,
including measures to prevent or tackle avoidance and evasion,
using available evidence to estimate the number of taxpayers
affected and the extent of the impact. Indeed, the government
publishes tax information and impact notes (TIINs) for tax policy
changes. TIINs provide a clear explanation of the policy objective
together with details of the tax impact on the Exchequer, the
economy, individuals, businesses, civil society organisations, as
well as any equality or other specific area of impact.
In many cases, the ultimate measure of success of anti-avoidance
measures will be the extent to which non-compliant behaviour is
prevented or reduced, and more of the tax due is collected
(raising revenue and reducing the tax gap) or tax potentially at risk
is protected (thereby mitigating the risk of the tax gap becoming
larger). Where measures have a fiscal impact, this is certified by
the independent Office for Budget Responsibility, who review the
available evidence and challenge the underlying assumptions to
reach a central estimate of the effects of measures and their
anticipated revenue or cost.
Many of the provisions in question in Finance Act 2019 have not
yet come into effect, and for those that have, the time lag before
tax returns for the relevant period are filed means there is as yet
no new data available to assess the effectiveness of the provisions.
However, the government remains confident that the rationale for
introducing the measures is sound and that they will be effective
in fulfilling their purpose. 370
And second, to provide an assessment of the impact of those measures
regionally, as well as on child poverty, households across the income
spectrum, and individuals with protected characteristics:
While some of the measures covered in this report are important
in tackling avoidance or improving the functioning of the tax
system, they tend to solely impact companies or a small number
of typically high-income individuals. Their direct impact on broad
indicators of living standards and different types of households is
thus difficult to determine, and will often be nil by definition, as
set out below.
This review does not make assumptions on how any additional
revenue to the Exchequer raised or protected by these measures
would be used. In general, the distribution of taxation and
government spending in the UK remains highly redistributive. In
2019-20, the lowest income households will receive over £4 in
public spending for every £1 they pay in tax on average. While the
highest income 60 households will contribute over £5 in tax for
every £1 they receive in public spending on average. Those
sharing protected characteristics concentrated in lower income
households are thus likely to benefit disproportionately from
public spending. When considered on a regional basis, public
spending is higher in Wales, Scotland and Northern Ireland
compared to England, and highest in London, the North East and
the North West within England. 371
370
op.cit. p55
371
op.cit. pp59-60. With respect to this last point the authors cite, Public spending by
country and region, Commons Briefing paper CBP4033, 28 November 2018
There was not very much discussion or debate over the Treasury’s report
when published, although writing in the Sunday Times, economics
editor Philip Aldrick argued that this survey of the government’s strategy
over the last decade illustrated a major change in the purpose of this
aspect of tax policy:
Social norms are reshaping business norms at a time when HMRC
enforcement is reducing the financial incentives to avoid tax. As
the trade-off is changing, anti-avoidance work increasingly
resembles a legitimate revenue-raising policy … Anti-avoidance
measures are no longer a flaky fig leaf for Chancellors who need
revenues but dare not raise general taxes. They are a legitimate
means of taxation. 372
5.6 Recent developments: the 2019 Loan

Charge & Budget 2020
Over the last decade one important development in the avoidance
market has been the marketing of ‘loan schemes’: schemes seeking to
‘disguise’ income paid to employees or contractors in the form of a non-
redeemable loan. Although the detailed arrangements for individual
schemes are highly complex their basic design can be illustrated as
follows: 373
In 2011 the Government introduced legislation to counter an expanding

market for loan schemes, driven in part the rise in the number of
individuals providing their services through an ‘umbrella company’ (a
structure which provides employment to a number of individuals,
signing contracts to provide individuals’ labour to third parties). 374 This
proved only partially successful in discouraging either scheme promoters
in devising new schemes or taxpayers from entering these
arrangements. In the 2016 Budget the Government confirmed new
372
“Comment: The war on tax avoidance has been a remarkable and lucrative
success”, Sunday Times, 19 March 2019
373
HM Treasury, Section 95 of the Finance Act 2019: report on time limits and the
charge on disguised remuneration loans, March 2019 p16
374
For details on the growth of these schemes see, HMT, Independent Loan Charge
Review: report on the policy and its implementation, December 2019 pp14-26.
schemes “had emerged which attempt to sidestep the 2011 legislation”

often involving “individuals being paid in loans through structures such
as offshore Employee Benefit Trusts”, and that it would introduce
legislation to counter their use, including “a new charge on loans paid
through disguised remuneration schemes which have not been taxed
and are still outstanding on 5 April 2019.” 375 Provision for the Loan
Charge was included in the Finance (No.2) Act 2017, and the Finance
Act 2018.
In brief, the Charge applies to the outstanding balance of disguised
remuneration loans on 5 April 2019 that were made over the previous
20 years – that is, after 5 April 1999. 376 As an alternative course of
action taxpayers potentially liable to pay the Loan Charge have had the
option of settling their tax affairs before the Charge came into effect on
6 April 2019. 377
HMRC has estimated that 50,000 individuals and an additional 10,000
employers are affected by the Loan Charge. 378 When introduced, the
Government estimated that these provisions would raise £3.2 billion
over five years. 379
The Loan Charge “stacks” loans that the taxpayer has received through
these avoidance schemes, so that they are liable to pay a single charge
based on the value of all outstanding loans. HMRC have estimated that
of individuals who used a scheme from 2011/12 onwards, 70% did so
for two or fewer years and only 16% used a scheme for four or more
years. That said, the length of the look-back period creates potential for
many years’ usage of schemes to be taxed in a single year, and many
scheme users’ circumstances are likely to have changed over this time,
from reduced earning potential or retirement. As has been noted, the
intention behind this element of the design was to encourage taxpayers
to settle rather than pay the Loan Charge. 380
In contrast to many other initiatives to tackle tax avoidance and evasion
over the last twenty years, the Loan Charge has proved highly
controversial. Over the 2017-19 Session 155 Members signed an EDM,
tabled by Stephen Lloyd MP in May 2018, criticising the 2019 Loan
Charge, arguing that “retrospectively taxing something that was
technically allowed at the time, is unfair” and proposing that “the
Charge to apply only to disguised remuneration loans entered into after
the Finance Act 2017 received Royal Assent.” 381
375
Budget 2016, HC901, March 2016 p60
376
HMRC, Tackling disguised remuneration – update, 5 December 2016
377
HMRC, Disguised remuneration: settling your tax affairs, updated July 2019 &
Disguised remuneration: detailed settlement terms, updated July 2019.
378
HMT, Independent Loan Charge Review: report on the policy and its
implementation, December 2019 p42
379
Budget 2016, HC 901, March 2016 p85 (Table 2.1 – item 39) & Autumn Statement,
Cm 9362, November 2016 p23 (Table 2.1 – item 24); PQ 274514, 11 July 2019.
380
implementation, December 2019 para 7.9, para 3.10
381
EDM 1239 of 2017/19, 8 May 2018. see also, “HMRC tax crackdown victimises easy
targets”, Financial Times, 25 September 2018 & “Living in the shadow of a tax
scandal”, Financial Times, 26 January 2018.
Over this period Ministers strongly rebutted these criticisms but with
limited success. 382 In December 2019 Sir Amyas Morse, former
Comptroller and Auditor General, published a detailed independent
review of the Loan Charge commissioned by Ministers, which was
highly critical of some aspects of its design and the serious financial
difficulties the Charge created for many taxpayers.
One of the major concerns that has been raised is that many scheme
users genuinely believed the claims made by promoters, and so made
no provision for the possibility of having to pay tax on the income
channelled through their scheme. In his report Sir Amyas acknowledged
these concerns, although he argued that it would be unwise to simply
absolve taxpayers of their personal responsibilities in these
circumstances:
There is a case for the Loan Charge applying from December
2010 [when the 2011 legislation was first announced], but given
its abnormal nature there is also a strong case for moderating its
impact for those who can afford to pay less. This is particularly
relevant as those affected by the Loan Charge are not the ‘usual
suspects’, by which I mean large corporates with an army of
advisers, or – for the most part – very rich individuals. Large
corporates settled and ceased using schemes when they saw that
they were unmistakably not viable after late 2010.
Such companies and their employees are therefore not a material
element of those subject to the Loan Charge. The residual group
are frequently on mid-range or lower incomes, coming from
industries like construction, IT and oil and gas, as well as financial
or business services. It is clear to me that many of those affected
may not have been fully aware what they were doing when using
loan schemes or failed to distinguish between genuine
professional advisers and those acting more as salespeople.
Certain of them felt that they had little option but to use the
schemes
I have a great deal of sympathy for those people. There is,
however, an important principle that the taxpayer is ultimately
responsible for ensuring that they have paid the right amount of
tax in accordance with the tax laws in force for the relevant
period. After careful consideration I agree with the expert
testimony given to the Review that any movement away from this
principle would be unwise.
The enhanced terms that I recommend to ensure that the Loan
Charge is affordable for individuals on lower incomes are,
however, justified by the fact that such people typically relied
upon professional advisers who did not meet expected
standards. 383
At the time it was published the Government accepted all but one of
the review’s recommendations about the Charge, 384 and in Budget
382
eg, PQs152724-157732, 20 June 2018. Ministers reiterated the Government’s
position on numerous occasions, whether in debate or PQs, since then: for example,
in a debate on the Loan Charge on 11 April 2019 (HC Deb cc565-8).
383
implementation, December 2019 p5
384
HM Treasury press notice, Government to take new actions on loan schemes
following Morse review, 20 December 2019.
2020 confirmed that the necessary statutory provisions to amend its

application would be included in the forthcoming Finance Bill. 385
These developments are examined in much greater detail in a second
Commons Briefing paper. 386 The following paragraphs focus on the
wider implications of the review for the Government’s approach to
tackling the promotion of tax avoidance, and to improving the
standards of tax advice.
In the course of its work the review received a lot of information about
the role played by some scheme promoters, minimising the risks for
taxpayers from this type of aggressive avoidance:
The tactics [promoters] used included misrepresenting the DOTAS
system to claim that schemes had been approved by HMRC, or
providing opinions from Queen’s Counsel (QCs) suggesting that
HMRC would not be successful if they tried to claim the tax.
The Review also received extensive evidence that some advisers
minimised the importance of HMRC opening enquiries by
suggesting that this was normal. Scheme users therefore felt
confident in continuing to use the schemes though they might
otherwise have chosen to stop doing so if they had realised the
real implications.
As a result of these kinds of tactics, many individuals and
employers who used schemes placed significant reliance on advice
of this type in determining whether schemes were legitimate.
Taxpayers often placed significant trust in their promoter or
advisers because the tax system was not their area of expertise
but should have been the professional’s …
The Review found numerous examples of contemporaneous
promotional material from scheme promoters into the 2010s
minimising the risks of using schemes and continuing to present
such behaviour as legitimate tax planning despite the clear
risks. 387
It also noted that despite the introduction of the Loan Charge
promoters were continuing to market schemes, and developments in
the market posed serious obstacles to HMRC:
The Review found there were more first-time users in 2017-18
(over 6,000) than in any year dating back to 1999-2000. Scheme
usage continues to be extensive in the 2019-20 tax year to date,
with over 8,000 individuals having entered into loan schemes
between April and October 2019.
A key driver of ongoing scheme usage is a limited number of
promoters and professional advisers who are selling schemes in
spite of knowing that they will not deliver the tax benefits being
promised …
Whilst the Review has set out its position that responsibility for tax
affairs must ultimately rest with the individual, it is to be expected
that people will want expert advice on their tax affairs, and will
turn to professionals for that advice. The Review considers that
the continuing marketing of loan schemes on the basis of tax
385
386
The 2019 Loan Charge, Commons Briefing paper CBP8811, 16 March 2020.
387
implementation, December 2019 para 8.3-5, para 8.7
benefits associated with them, given the clear legal position, is

reprehensible.
It is also deeply regrettable that the state of the market in tax
advice is such that a large number of people were seemingly
misled, and many continued to use schemes after 2010 even
though the legal position had been made clear …
HMRC reported that their activity is now concentrated on the
remaining promoters who are likely responsible for the majority of
loan schemes presently being sold. In 2019-20, HMRC expect to
double the resources involved in tackling promoters.
In spite of this increased resource, it remains challenging for
HMRC to combat promoters of tax avoidance schemes. The
evidence from HMRC is that the typical profile of a scheme user
has changed towards a higher volume of less affluent users. The
marketing of loan schemes has changed to reflect this, and
increasingly now imitates legitimate price comparison tools.
Promoters now increasingly claim to be offshore, and so are more
challenging for HMRC and other UK authorities to enforce
against. 388
The review recommended that, “the government must improve the
market in tax advice and tackle the people who continue to promote
the use of loan schemes” and, “publish a new strategy within 6
months, addressing how the government will establish a more effective
system of oversight, which may include formal regulation, for tax
advisers.” 389
In its response the Government stated it would set out a series of
measures in the next Budget “to tackle promoters of avoidance
schemes that will reduce the scope for promoters to market tax
avoidance schemes” as well as launching a review of how to improve
standards in the market for tax advice. 390
The review also made the recommendations that HMRC should improve
its support for external sources of taxpayer advice, report to Parliament
on its implementation of the Loan Charge and review its Charter in the
light of this experience, all of which the Government accepted. 391 In the
case of HMRC’s Charter, 392 the Department launched a consultation
exercise in February 2020 on a revised draft text:
The revised draft charter aims to take account of views we have
received so far for example that the revised charter:
• is short and direct with simple, accessible language
• embodies or represents HMRC’s values: we are
professional, we act with integrity, we show respect and
we are innovative
388
implementation, December 2019 p56, para 8.10-11, para 8.15-6
389
op.cit. para 8.17
390
HMT, Independent Loan Charge Review: Government response to the Review,
391
op.cit. para 2.33, paras 2.40-1
392
HMRC’s Charter is a legal requirement under s92 of Finance Act 2009; this states
that the Charter ‘must include standards of behaviour and values to which HMRC
will aspire when dealing with people in the exercise of their functions’.
• is more focussed on HMRC’s commitments to customers,

while not losing sight of customers’ obligations to
HMRC. 393
During the period of the review the Autumn Budget was postponed,
due to the timing of the General Election on 12 December. In this
context it is worth noting that the Conservative Party’s Election
Manifesto set out a number of measures for “building a fairer taxation
system”, to reduce the size of the tax gap:
The gap between the amount of tax that should be paid and is
actually collected stands at £35 billion – still too high … So we
will set out a new anti-tax avoidance and evasion law.
This will:
• Double the maximum prison term to 14 years for
individuals convicted of the most egregious examples of tax
fraud.
• Create a single, beefed-up Anti-Tax Evasion unit in HMRC
that covers all duties and taxes, from individual errors to
deliberate noncompliance – which is put on a legislative
footing.
• Consolidate existing anti-evasion and avoidance measures
and powers.
• Introduce a new package of anti-evasion measures,
including measures to end tax abuse in the construction
sector, crack down on illicit tobacco packaging and further
measures to avoid profit-shifting by multinational
companies to avoid paying taxes. 394
Following the Conservative Party’s election victory, the Government
announced that the Budget would be presented on 11 March 2020. 395
The Chancellor Rishi Sunak did not mention the Loan Charge in his
Budget statement to the House, although, as noted, the Budget report
confirmed that the changes to be made to the Charge would be
legislated for in the Finance Bill and that HMRC would be given
“additional operational funding” to implement them. (These provisions
form clauses 14-20 of the Finance Bill 2019-21, published after the
Budget). In addition, a call for evidence would be issued “on further
action to stamp out these schemes.” 396
The Treasury has estimated that these additional monies for “additional
compliance officers and new technology for HMRC” will “bring in £4.4
billion of additional tax revenue up to 2024/25 by enabling HMRC to
further reduce the tax gap through additional compliance activity and
expanding debt collection capabilities.”397 In its assessment of the
393
HMRC, Consultation: HMRC Charter, 24 February 2020. Responses are invited by 20
May 2020.
394
Conservative Party, The Conservative and Unionist Party Manifesto 2019, December
2019 p35
395
HMT press notice, Chancellor launches Budget process to usher in ‘decade of
renewal’, 7 January 2020
396
Budget 2020, HC 121, March 2020 para 2.255. This is to be at an estimated
Exchequer cost of £745m over the next five years (op.cit. Table 2.1 – item 63).
397
op.cit. para 2.254; Table 2.1 – item 59. The forecast is “HM Treasury internal
estimate using HMRC data.” (op.cit. p97, fn30).
Treasury’s Budget costings, the Office for Budget Responsibility gave

this particular costing a ‘high uncertainty rating’ “on the grounds that it
largely relates to the collection of tax and tax credits debt rather than
compliance activity. The element of the measure that does relate to tax
compliance, affecting around a third of the yield, is highly uncertain, but
costings relating to debt collection are less so.” 398
As anticipated in the Government’s response to Sir Amyas’ review, the
Budget report also set out a number of provisions to tackle promoters
to be included in Finance Bill 2020-21:
The legislation, which will take effect following Royal Assent, will:
• allow HMRC to obtain information about the enabling of
abusive schemes as soon as they are identified by
strengthening information powers for HMRC’s existing
regime to tackle enablers of tax avoidance schemes
• ensure enabler penalties are felt without delay for multi-
user schemes, meaning anyone enabling tax avoidance
arrangements that are later defeated will face a penalty of
100% of the fees they earn
• enable HMRC to act promptly where promoters fail to
provide information on their avoidance schemes. In
particular, these changes will help HMRC obtain the
information needed to bring a scheme into the Disclosure
of Tax Avoidance Schemes regime and empower HMRC to
act faster where avoidance schemes are being promoted
• equip HMRC to more effectively stop promoters from
marketing and selling avoidance schemes as early as
possible
• ensure promoters fulfil their obligations under the
Promoters of Tax Avoidance Scheme (POTAS) regime,
including where they have tried to abuse corporate
structures to get around the rules
• make further technical amendments to the POTAS regime,
including preventing spurious legal challenges from
disrupting the process of scrutinising promoters, so the
regime can continue to operate effectively
• make additional changes to the General Anti-Abuse Rule
(GAAR) so it can be used as intended to tackle avoidance
using partnership structures. 399
As is normal practice in the tax policy making process, it is anticipated
that draft provisions will be published in July 2020. 400
Some days after the Budget HMRC published its ‘promoter strategy’, to
“outline the range of policy, operational and communications
interventions both underway and in development to drive those who
promote tax avoidance schemes out of the market, disrupt the supply
398
OBR, Economic & Fiscal Outlook, CP 230, March 2020 p96 (para A26)
399
Budget 2020, HC 121, March 2020 para 2.256. The Budget report does not give
any estimated Exchequer impact of these changes, which is not surprising given that
the draft legislation has yet to be published.
400
HMT, Overview of tax legislation & rates, March 2020 para 2.46. As noted above,
this process is set out in: HMT, The new Budget timetable and the tax policy making
process, December 2017.
chain to stop the spread of marketed tax avoidance, and deter taxpayers
from taking up the schemes.” 401 The document sets out four broad
areas for HMRC’s actions – collaboration with partner bodies;
supporting taxpayers; tackling the actions of promoters; and, the series
of future policy measures announced in Budget 2020. In a foreword to
the strategy the Financial Secretary Jesse Norman notes, “to maintain
public trust and consent, we all need to be confident that those who
pay tax will not be disadvantaged by those who do not”:
This new strategy is designed not merely to collect tax due, but to
generate that vital wider public confidence.
We know that promoters will continue to devise new schemes to
try to get around the tax rules, and that no strategy can be the
final word. The government will continue to welcome new and
ambitious ideas for tackling promoters of tax avoidance, including
through the forthcoming Call for Evidence on Tackling Disguised
Remuneration. 402
At this time HMRC also published a call for evidence on raising
standards for tax advice. In its introduction HMRC note that the diverse
nature of the market poses significant difficulties for crafting the correct
approach:
The majority of good advisers add value, both for their clients and
for compliance … However, there are a minority of tax advisers
who do not provide a good value service to their clients. Some do
not have the required expertise, and some do not adhere to the
high standards their professional bodies expect of them. Some of
this small group have a significant negative impact on their clients.
A partial regulatory regime operates in this market. Tax advisers
who belong to a professional body are required to maintain
professional competency and sign up to codes of conduct, most
notably the Professional Conduct in Relation to Taxation (PCRT),
although not all professional bodies incorporate the PCRT in their
standards. Similarly, HMRC expects agents to adhere to the
standards set out in its Standard for Agents and is taking steps to
ensure compliance.
However, anyone can set up as a tax adviser. And while they must
be supervised for anti-money laundering purposes, there is no
market-wide competence requirement or code of ethics except
the HMRC Standard for Agents. HMRC has been discussing ways
to raise standards with the profession for some time, but the
issues that arise from not meeting those standards have been
highlighted recently by the findings of the independent review
into the loan charge. 403
It goes on to set out a range of potential approaches, while underlining
that this is “illustrative only and does not represent the full range of
approaches: these could be implemented singly or in conjunction”:
Given that the market is diverse and any action has the potential
to impact customers and the wider economy, this call for evidence
401
Budget 2020, HC 121, March 2020 para 2.257. For full details see, HMRC, Tackling
promoters of mass-marketed tax avoidance schemes, March 2020.
402
“Foreword”, HMRC, Tackling promoters of mass-marketed tax avoidance schemes,
March 2020. To date this Call for Evidence has not been published.
403
HMRC, Call for evidence: raising standards in the tax advice market, 19 March 2020
para 2-5
seeks evidence on the case for intervention and on potential steps

that could be taken to raise standards in both the tax advice and
wider tax services market 404 and give taxpayers confidence in the
quality of the advice they receive.
The government is asking for views on a range of potential
approaches to tackling issues of poor performance in the
tax advice and wider tax services market. These approaches
vary from improving HMRC interventions to full regulation of the
market as shown in figure 1 …
This call for evidence asks a series of questions but the
government is also interested in general responses on the
themes explored in this document. HMRC will be contacting a
range of stakeholders who are likely be affected by any reform in
this area.
Figure 1: the spectrum of potential approaches 405
Responses are invited by 28 May 2020.

In the weeks after the 2020 Budget the global outbreak of coronavirus
has dominated political debate, and there has been relatively little
discussion of this issue.
That said, one striking illustration of the sheer resilience of the market
for tax avoidance market came on 30 March when HMRC published a
‘Spotlight’ article. This warned one-time NHS employees, re-joining the
Service to help with the coronavirus outbreak, that some promoters
were actively targeting them as potential clients for new avoidance
schemes. An extract is reproduced below:
What these tax avoidance schemes look like
The schemes being offered all have some common features
(including using an umbrella company) although they may be
described differently. Usually, the wages will consist of 2
payments to you:
• the first payment is declared as earnings and will go
through the umbrella company payroll, often at around
404
All references to the tax advice market include tax advice and tax services
405
HMRC, Call for evidence: raising standards in the tax advice mar2-5ket, 19 March
2020 para 8-9, para 11
National Minimum Wage levels or a flat rate payment for

example, £100 per week
• the second payment, that the umbrella company will claim
is not taxable - this payment may be described as a loan,
annuity, shares, a capital advance involving mutual, joint or
co-ownership, or a payment derived from a revolving line
of credit facility, or some other non-taxable form
All of these schemes have one thing in common and that is to
attempt to disguise the true level of your earnings, which would
ordinarily be subject to Income Tax and National Insurance
contributions.
Some umbrella companies may offer vague explanations of how
the schemes work, for example, using your personal allowance
more efficiently, and often claiming that you can take home 80%
to 85% of your pay.
The pay slips provided by the umbrella company may also be
misleading, they may show one or both of the following:
• the first payment only
• inaccurate deductions
If you are asked to sign documents other than your contract of
employment, you should think very carefully before signing up.
You should challenge the position if you are asked to sign
separate agreements to receive loans, advances, shares, annuities
or anything else not relevant to your work. Even if you don’t
realise it, these schemes are very likely to involve tax avoidance
and you could end up owing tax and interest, as well as incurring
the fees paid to the umbrella company …
HMRC has already published warnings about similar schemes.
Spotlight 53 and other earlier Spotlights give more detail how
some of these schemes claim to work. Spotlight 45 also describes
what to look out for in umbrella companies offering schemes that
are tax avoidance. …
What to do if you think you’re already using this type of
scheme
If you’re using one of these schemes, HMRC strongly advises you
to leave it as early as possible and settle your tax affairs. 406
406
HMRC, Tax avoidance promoters targeting returning NHS workers (Spotlight 54),
updated 9 April 2020
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BRIEFING PAPER

Number 7948, 18 April 2020

Tax avoidance and tax By Antony Seely

www.parliament.uk/commons-library | intranet.parliament.uk/commons-library | papers@parliament.uk | @commonslibrary

1. Introduction - what is tax

The concept of “parliamentary intention” is not a simple or obvious one

owe. It includes the hidden economy, where people conceal their

2. The tax gap

The UK tax gap in 2017-18 is estimated to be £35 billion. This is

avoidance tax gap has reduced from £4.9 billion in 2005-06 to

The report’s description of each of these categories is given overleaf.

Description of different behaviours that generate the tax gap

This report underlines that, “the tax gap breakdown by customer

2.2 HMRC’s approach in assessing the tax gap

Dave Hartnett: …On legal interpretation and other things in

be improved, and on whether it serves any useful purpose in

completely incompatible with all of our customer research and

felt companies, like Starbucks, Amazon and Google, should be paying. 51

2.3 The tax gap and ‘tax dodging’

Writing on this question some years ago, Judith Freedman, Professor of

acknowledged that the kinds of international tax planning by

2.4 Recent debate on the size of the tax gap

significantly lower than ours, which means we are already pushing

important that we investigate small businesses, because they

3. The Coalition Government’s

according to HMRC, is “the use of schemes or arrangements that

• dedicated tax experts to extend HMRC’s coverage of large

In the 2010 Spending Review, HM Treasury allocated £917 million

We inherited a tax system with a ‘tax gap’ of around £40 billion.

typically designed to strike down those otherwise lawful practices

approach to tackling avoidance is sensible and in many ways

the beginning of the spending review period. Despite an error in

3.2 Assessing the impact of HMRC’s strategy

in this direction, as well as tackling artificial and abusive attempts

HMRC’s reported headline performance measures relate to each

If we calculate future revenue benefit using the old methodology

individuals and corporates, with the aim of increasing

ground investigating a lot of small businesses, although that will

and cannot reflect the impact of the Department’s compliance

4. Follower notices & accelerated

often are, HMRC is presented with a large number of returns all

another party’s litigation through the Courts, with penalties

2009-10 or earlier … reflecting a market for avoidance products

with the tax authority is unjustifiable. If these provisions are to

4.2 Budget 2014: accelerated payment

The department’s Policy Costings document underlines the significant

• an adjustment is also made for individuals that already

measures over the 2012-2016 period, including the introduction of

• have a mean gross income of £262,000, compared to

4.3 Finance Bill 2014

Once an accelerated payment notice is issued the tax payer will

provision for ‘financial extremity’ is necessary. HMRC will use its

Speaking for the Opposition Shabana Mahmood raised concerns over

and scope of any challenges … HMRC is in discussion with the

related to accelerated payments, and only 22 specifically related

4.4 Impact of the new APN regime

the Bill on 21 October, Members asked witnesses about the state of

When the Committee debated that part of the Bill relating to

Figures on the numbers of APNs issued and payments received were

Answered by: Mel Stride : HM Revenue and Customs (HMRC)

In December 2017 the Court of Appeal handed down judgement in two

• the product is low risk

4.5 Subsequent proposals regarding ‘serial