Govt draws blank on new IFA tax avoidance penalties

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The impact of new Government rules that could class some financial advisers as tax avoidance “enablers” remains unclear after HM Revenue & Customs has been unable to provide estimates over the penalties it expects to levy.

The Government confirmed in December after consultation that it planned to push ahead with new penalties for those who “profit from enabling abusive arrangements”, including IFAs, of 100 per cent of the value of the tax avoided.

While the Government said that “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,” it has made it clear that the whole supply chain will be subject to penalties, including where IFAs market schemes designed by promoters.

The measures contained in the Finance Bill 2017 were temporarily pushed back due to the election, but are still set to be introduced shortly. They are expected to raise £50m by 2018/19 and a total of £115m by 2021/12.

However, the Government is unable to isolate what impact the measures will have on IFAs compared with lawyers, providers, accountants or others that could be hit with fines.

Fund Strategy sister publication Money Marketing asked HMRC to provide analysis on how many IFAs are likely to be subject to the new penalties and the total volume of tax avoidance enabled by them.

In response, HMRC said it could not provide this information.

It added: “To better understand the implications of the proposed enablers penalty, when developing the measure we engaged with a variety of stakeholders, including those involved in the provision of financial advice, and considered the impact across all enablers including IFAs. The impact of the proposed measure was then modelled and costed using a typical avoidance model involving the expected range of enablers, including but not limited to IFAs.”

The Government’s response to the consultation shows that it discussed plans with The Association of Professional Financial Advisers – now the Personal Investment Management and Financial Advice Association – and The Alternative Investment Management Association.