U.K. Considers Tough Regs on ‘Tax Avoidance Enablers’

Tax evasion is a serious crime that can result in hefty fines and even prison time for the taxpayer if convicted. In an effort to curb the incidence of tax evasion in the U.K., Treasury officials are considering new regulations that would penalize accountants, financial advisors and other promoters and consultants who help their clients to circumvent the tax code.

A consultation document put forth by HM Revenue & Customs (HMRC) outlines the proposed penalties, most significant of which is a fine. The fine would equal the higher of 100% of the amount of tax avoided or £3,000, a stiff penalty for advisors or accountants who violate the rules. Under the current tax guidelines, taxpayers who determined to have committed tax evasion and are defeated in court are subject to harsh financial penalties. There’s very little liability, however, for the person who advised them.

At stake is approximately £2.7 billion that the U.K. government estimates that tax avoidance costs the country. The consultation, which remains open until October, 12, 2016, proposes assessing a penalty against financial professionals who design avoidance schemes, as well as anyone who helps to facilitate them, including financial advisors, attorneys and banking institutions that enable their implementation.

Taxpayers who are suspected of engaging in a tax evasion scheme would have to prove that they took reasonable care to weed out any errors on their tax returns. At present, the burden of proof rests with the HMRC when a tax avoidance scheme is called into question. The proposed rules are designed to prevent taxpayers from making it more difficult for HMRC to provide that that they’ve dodged their tax liability by placing “the burden on the taxpayer to show that they have taken reasonable care” to meet their tax obligations.

This isn’t the first move that HMRC has made in an attempt to enforce tighter tax standards. In recent years, the tax authority has been more proactive about sending taxpayers accelerated payment notices. These notices require an individual or business identified as having taken part in an avoidance scheme to pay any taxes owed up front while their case is still being settled.

Whether or not the proposed regulations will be pushed through remains to be seen. Criticism of the measures has centered around their wording and the lack of a clear-enough distinction between legal and illegal means of minimizing one’s tax bill. In the meantime, U.K. tax filers may want to be more conscientious about toeing the line to avoid incurring unwanted attention from the HMRC.