Rules of POTAS 2

The Government introduced the Promoters of Tax Avoidance Schemes (or POTAS) rules to “change the behaviour of
a small and persistent minority of promoters”. However, these rules are broad and the implications onerous for
promoters, clients and introducing advisers. An awareness of the POTAS is essential for all advisers.
Promoter breaches threshold condition
The first stage in POTAS is determining whether the
“promoter” (which can be the accountant in certain
circumstances) meets the “threshold conditions”.
Give promoter
opportunity to
comment
Yes
Is breach
significant?
No
No Action
These include: failure to meet DoTAS conditions; restrictive
contractual terms; arrangement regarded as unreasonable by
the GAAR panel; failure to comply with a Stop Notice.
Is issue of
Conduct Notice
proportionate?
No
No Action
Where only one of these is met a Conduct Notice can be
issued, putting the promoter on the path to becoming “high
risk”.
Yes
Issue Conduct
Notice
Approval given?
Yes
No
Has there been a
significant breach
of conditions?
Yes
HMRC apply to
tribunal for approval to
issue Monitoring
Notice
No
Notice can
be
withdrawn.
Expires
after no
more than
2 years
Based on the guidance provided by HMRC, there is very
limited scope in which a breach of a threshold condition will
not be considered significant.
Firstly, there are numerous thresholds that when breached
significance is automatic.
Secondly, of the thresholds for which the HMRC officer will
have some discretion, it appears that only where the failure is
considered “isolated or trivial” will this argument be available.
The only examples provided by HMRC are where deadlines,
for DoTAS or information notices, are missed “by a few days”
due to unexpected unavailability.
Is there an
appeal against
approval?
Conduct Notice
continues
Yes
Some
Monitoring
Notice
obligations
apply
Is the appeal
successful?
No
No
All Monitoring
Notice obligations
apply
Yes
Conduct Notice
continues until
withdrawn or
expires
In determining whether the issue of a Conduct Notice is
proportionate, HMRC advise that “a Conduct Notice will not
be issued if the authorised officer considers that the
promoterʼs activities will not have any significant tax impact”.
However, where tax planning is concerned, it is likely that the
tax impact will be considered to be significant
Conduct Notice
In essence, a Conduct Notice is a “yellow card” to the
Monitoring Notice’s “red card”.
A Conduct Notice lists a number of criteria which the
promoter must meet to avoid further implications under
POTAS, and a period of time in which this will be measured
(which must be no longer than 24 months).
Given the discretion that HMRC have in this matter it seems
likely that Conduct Notices will typically be issued for the
maximum 24 month periods.
Where a Conduct Notice is issued HMRC are given extended
powers to request information as may “reasonably be
required” to ensure the promoter is meeting these conditions.
There is no limit on the frequency with which this power can
be used. Penalties can be issued for non-compliance, which
can be appealed to the first tier tribunal.
Where a promoter is considered to have failed to comply with
one or more conditions in a Conduct Notice an authorised
officer of HMRC will seek approval from the First-tier Tribunal
for the issue of a
Monitoring Notice.
Conduct Notices themselves have no right to appeal.
At this stage the promoter is entitled to make representations
to the Tribunal. If the Tribunal consent a Monitoring Notice
will be issued.
How Best to Ensure You and Your Clients are
not Affected
Monitoring Notice
When a Monitoring Notice is in effect the full force of the POTAS legislation will apply, imposing significant new obligations on not only the promoter, but also
introducing advisers and their clients:
Publicity and notification: effectively a naming a shaming of the promoter, and the requirement to issue a promoter reference number to clients;
• Extended Information Powers: HMRC will have additional powers to obtain information or documents relating to avoidance schemes from the promoter or
intermediary on an ongoing basis;
• Sanctions & Penalties: clients will be prevented from relying on the advice of a monitored promoter, greatly increasing the prospect of penalties; time-frames
for assessment can be increased to up to 20 years; penalties of up to £1million can apply to the promoter, but also the introducing adviser in certain
circumstances.
Unlike the Conduct Notice, a Monitoring Notice takes effect for an indefinite period. The likely effect will be to put affected promoters out of business, leaving
introducing advisers to deal with the significant obligations of having worked with them.
The only way to be sure that advisers remain
unaffected is to undertake thorough due
diligence before referring to promoters –
although they may not be Monitored right now, if
they are in the future, advisers may still need to
deal with the implications themselves.
By ensuring that the threshold conditions are not
in point – ensuring that the promoter is meeting
the DoTAS requirements, has a defensible
position from a GAAR perspective, and is taking
the POTAS rules seriously – you can ensure that
you will not be affected by these rules.