Following the chancellor’s Autumn statement and subsequent release of the draft Finance Bill 2017, HMRC has published a consultation document on a proposed new legal requirement whereby intermediaries will be required to notify HMRC of the creation of certain offshore arrangements, and provide a list of clients using them.
The consultation comes as part of HMRC’s ongoing offshore tax evasion strategy and aims to target only those arrangements which could easily be used for tax evasion purposes.
Under HMRC’s current proposal, creators (i.e. businesses or any other person) of such arrangements, will be responsible for reporting the arrangement to HMRC, should it have any specified characteristics. The responsibility for establishing whether the arrangement possesses such characteristics would fall with the creator. The consultation document does not define a characteristic for this purpose. However, HMRC has indicated that this may include arrangements that move funds outside of common reporting standard (CRS) reporting, have the effect of obscuring or distancing legal and beneficial ownership, and those which, if defeated, would incur an increased penalty.
Once reported to HMRC, the creator would be provided with a unique reference number by which the arrangement could be identified and they would then be required to provide this to any client using the arrangement. The client would then be required to include the reference number on their self-assessment tax return.
HMRC has stated that they intend for this to apply to creators both within and outside of the UK so not to reduce the impact of the proposal, although it welcomes views as to whether this approach is appropriate. Should the creator fail to notify HMRC, responsibility for notifying HMRC would then fall to any promotor or marketer of the arrangement. They would also then be responsible for advising clients of the notification and of the notification number. Failure to comply by creators, promotors or marketers would result in a penalty and potentially a ‘name and shame’.
HMRC also believe that the policy should apply to existing arrangements so that its effectiveness is not undermined. For example, any arrangements entered into for the purpose of avoiding CRS reporting would not be caught as such arrangements would need to take place prior to 1 January 2017. If the proposal as set out by HMRC goes ahead, it would not be in force at that time.
At this stage, the consultation seeks views on the high level principles and the risks and benefits of the above requirements. The consultation closes on 27 February 2017 and can be found using the following link:
If, following consultation, HMRC decide to proceed with the above proposal, a further consultation should be expected setting out the details of the notification obligations.