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  • Background to POTAS

    This should not be confused with Donald Trump, who is often referred to as POTUS or President of the United States.

    That said, questions have been asked about ‘The Donald’s’ tax affairs. However, bearing in mind his litigious nature, they are clearly scurrilous… or should that be ‘fake’?

    Of course, one is hardly allowed to forget POTUS on a daily basis. However, POTAS is perhaps one of the less well-known measures that HMRC has at its disposal for disrupting tax avoidance. Perhaps, because the DOTAS / APN tag team has been so effective, POTAS has, very un-Trump like, been left on the side-lines.

    However, it is still worth considering what POTAS is and does…

    What is POTAS?

    For the statutory minded, the POTAS rules can be found in Part 5 of Finance Act 2014

    At the time they were introduced, HMRC stated that the objective was to change the behaviour of a small and persistent minority of promoters of avoidance schemes who exhibit certain behaviours.

    The rules are very much to deter both the development and use of avoidance schemes. This was achieved by influencing the behaviour of promoters, their intermediaries and clients.

    The rules seek to achieve this in three ways:

    1. requiring ‘monitored promoters’ to disclose details of their products and clients to HMRC;
    2. setting out disclosure requirements whereby ‘monitored promoters’ must tell clients, potential clients and intermediaries that they are a ‘monitored promoter’; and
    3. ensuring that all clients and intermediaries are fully aware of the risks of engaging in avoidance schemes.

    The POTAS regime piggy backs on the Disclosure of Tax Avoidance Schemes “(DOTAS”) regime and shares many of the same definitions.

    POTAS regime involves a series of sanctions which escalate in their impact.  There are two key steps:

    1. a conduct notice: this may be issued by HMRC where a promoter meets a ‘threshold condition’ (see below). It will include various requirements; and
    2. a monitoring notice: issued by HMRC, where a promoter:
      1. breaches a requirement in a conduct notice; and
      2. approval is obtained from the First-tier Tribunal

    POTAS Conduct notices


    Only an authorised officer of HMRC may take the decision to issue a conduct notice.  As one might glean from the name, such a notice will impose conditions about how a promoter must behave.

    As with an increasing amount of anti-avoidance measures, there is no right of appeal against a decision to give a promoter a conduct notice. A conduct notice has a life of up to two years.

    The threshold conditions are set out in Schedule 34 of Finance Act 2014and HMRC have published detailed guidance on those conditions at Appendix 1 of the POTAS Guidance.

    The threshold conditions 

    The threshold conditions are as follows:

    • Deliberate tax defaulters: A person meets this condition if HMRC publishes information about the person as a deliberate tax defaulter in accordance with Finance Act 2009, s94. There is guidance on deliberate tax defaulters at CH190000 onwards;
    • Breach of the Banking Code of Practice:Only a person carrying on business as a promoter is capable of meeting this condition. This condition is met if a promoter is named in a report published by HMRC as a person breaching the Code of Practice on Taxation for Banks by promoting arrangements that the promoter cannot reasonably have believed achieved a tax result intended by Parliament.
    • Dishonest tax agents:A person meets this condition if it has been given a conduct notice as a dishonest tax agent. There is guidance on dishonest tax agents at CH180000.  The condition is only met if there is no open appeal against the conduct notice, either because the time limit for an appeal has expired, or because an appeal has been made and the Tribunal has confirmed the conduct notice.
    • Non-compliance with DOTAS obligations:A person may meet this condition if it fails to comply with any of the obligations under DOTAS.
    • Criminal offences:A person meets this condition if it has been charged with a relevant criminal offence. The relevant offences include:
      • an offence at common law of cheating in relation to the public revenue
      • false accounting (section 17(1) Theft Act 1968 or section 17 Theft Act (Northern Ireland) 1969)
      • fraudulent evasion of income tax (section 106A Taxes Management Act 1970)
    • Opinion notice of GAAR Advisory Panel: Where the GAAR Advisory Panel considers that arrangements in relation to which the person is a promoter are not reasonable then this condition is satisfied.
    • Disciplinary action by a professional body:A person meets this condition if:
      • They carry on a trade or profession regulated by one of the specified professional bodies: and
      • are subject to certain disciplinary action.  The disciplinary action may be taken by the professional body itself or by an independent body.

    This condition is subject to a number of safeguards.  For instance, the relevant misconduct must relate to the provision of tax advice or tax related services. It cannot be the failure to pay your annual subs! The misconduct must also result in some form of sanction over and above a threshold.

    The professional bodies to which this condition relates are:

    1. the Institute of Chartered Accountants in England and Wales
    2. the Institute of Chartered Accountants of Scotland
    3. the General Council of the Bar
    4. the Faculty of Advocates
    5. the General Council of the Bar of Northern Ireland
    6. the Law Society
    7. the Law Society of Scotland
    8. the Law Society of Northern Ireland
    9. the Association of Accounting Technicians
    10. the Association of Chartered Certified Accountants
    11. the Association of Taxation Technicians
    12. the Chartered Institute of Taxation
    13. Chartered Accountants Ireland
    • Disciplinary action by a regulatory authority: This will be satisfied where the Financial Conduct Authority (FCA) publishes a statement of misconduct by a person and imposes certain sanctions. Again, the disciplinary action taken must be in relation to tax avoidance.
    • Failure to comply with information powers: A person meets this condition if it fails to comply with a relevant information notice.The relevant notices include:
      • requests for information or documents from a taxpayer
      • requests for information or documents from a third party
      • requests for information or documents from a third party about persons whose identity is not known to the HMRC officer
      • requests for information or documents from a third party about persons whose identity is not known, but where it can be ascertained from information held by the officer

    It is important to note that these notices do not have to be in relation to a person’s activities as a promoter.  As such, this threshold condition is satisfied if the notices in question relate to the person’s own tax affairs.

    • Confidential / restrictive contractual terms: Only a person carrying on a business as a promoter can meet this condition.It was a relatively common trait that scheme providers would tie up their introducers and clients with NDAs and contractual terms preventing disclosure of their planning.

    This condition attempts to drive a stake through the heart of this.

    If a promoter it imposes certain restrictive contractual terms (relating to an avoidance scheme) on their client or, say, an introducer then this condition may be germane.

    This would include and terms in a contract that prevents, or restricts, a person from disclosing to HMRC information relating to the avoidance scheme.

    • Stop notices: A promoter meets will satisfy this condition if they continue to promote a tax avoidance scheme that is the same, or is substantially the same, as a scheme in relation to which HMRC has issued a stop notice. Generally speaking, HMRC may issue a promoter with a stop notice where a person has been given a follower notice in relation to an avoidance scheme.

    The effect of a POTAS conduct notice

    The conduct notice will set out conditions to remedy the behaviours that have resulted in the threshold condition being breached. The recipient must comply with the conditions set out in it.

    A conduct notice lasts for two years unless HMRC:

    • sets an earlier termination date;
    • withdraws the notice early; or
    • issues a monitoring notice

    There is no right of appeal against the imposition of a conduct notice or its terms but a promoter may subsequently challenge the imposition of unreasonable conditions if HMRC seeks approval from the tribunal to issue a monitoring notice.

    POTAS Monitoring Notices

    So, what happens if a promoter breaches one or more conditions in the conduct notice

    Well, the next step may be that an authorised officer of HMRC asks the First-tier Tribunal for approval to issue a monitoring notice to our errant promoter.

    There is a right of appeal against a decision of the First-tier Tribunal to approve the issue of a monitoring notice.

    If a monitoring notice is issued the monitored promoter is subject to a more stringent regime that includes:

    1. publication by HMRC of information about the promoter;
    2. publication by the promoter of its status on the internet and in publications and correspondence;
    3. a duty on the promoter to tell clients that it is a monitored promoter and to provide them with a promoter reference number (PRN);
    4. a duty on clients to put the PRN on their returns or otherwise to report the PRN to HMRC;
    5. enhanced information powers for HMRC, backed by new penalties;
    6. preventing any attempt by a promoter to impose confidentiality on clients in relation to disclosure to HMRC;
    7. limitations to the defences of reasonable care and reasonable excuse against the imposition of penalties;
    8. extended time limits for assessment on clients who fail to report a PRN to HMRC when required to do so; and
    9. a criminal offence of concealing, destroying or disposing of documents

    HMRC have said that it expects that few promoters will meet threshold conditions and subsequently be issued with conduct notices and hopes the great majority of those will comply with the conditions in the notices.

    So, the much more significant sanctions consequent on a monitoring notice will only be imposed in very few cases and subject to prior approval by the First-tier Tribunal that the issue of the notice is justified.

    Further, the provisions that would publicly identify a monitored promoter do not apply until the promoter’s appeal rights have been exhausted.

    If your business has received a POTAS conduct or monitoring notice then please get in touch

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