The draft legislation in clause 91 follows a consultation document “Strengthening Tax Avoidance Sanctions and Deterrents: A discussion document” issued on 17 August 2016. The response document issued on 5 December 2016 referred to modifying the existing penalty regime for users of tax avoidance, “so that penalties are chargeable when complex tax avoidance arrangements are defeated”. HMRC state in the explanatory notes to the draft legislation that the aim of the clause is to act as a disincentive to entering into tax avoidance.
Clause 91 provides that, where a person receives ‘disqualified’ advice in relation to certain tax avoidance ‘arrangements’ (as defined), they will not be able to rely on that advice to demonstrate they have taken reasonable care to avoid an inaccuracy arising from their use of such arrangements. Additionally, the clause reverses the burden of proof in such circumstances so that it is to be presumed that the inaccuracy was careless unless the taxpayer satisfies HMRC (or a Tribunal on appeal) that they took reasonable care.
The legislation as drafted goes much further than the policy intention of acting as a disincentive to entering tax avoidance. In our view, left unchanged, it will apply to many cases which we do not think are within the policy intention. We suggest in our submission some wording to ensure that Clause 91 applies only to those arrangements within the policy intention.