City firms with tax departments will be paying close attention to the HMRC consultation: Strengthening Tax Avoidance Sanctions and Deterrents: A discussion document.
The most contentious proposal is to introduce sanctions for advisers who design, market or facilitate the use of tax avoidance arrangements which are subsequently 'defeated' by HMRC. Arrangements are defeated either by a decision of the court or otherwise by agreement with HMRC.
The aim is to influence the behaviour of promoters and other advisers in what HMRC calls 'the supply chain'. Fines could be imposed on advisers who 'promote' schemes which are subsequently viewed as aggressive tax avoidance schemes beyond what is deemed acceptable tax planning.
Advisers are described as 'enablers' of tax avoidance, without whom the scheme could not be implemented. This embraces a wide range of advice, including legal advice.
For the first time, advisers would be subject to penalties, in addition to the end-user of the arrangements, which it is proposed could amount to 100 per cent of the financial benefit received by an enabler, or could be based on 100 per cent of the total tax that the end-user has saved through the scheme. These amounts could be very significant, so there might be a cap says HMRC.
When it comes to a defence, HMRC is proposing legislation which would place the burden on the taxpayer and the enabler to show that they have taken reasonable care, rather than HMRC having to demonstrate that they have failed to take reasonable care.
There will be obvious difficulties for legal advisers who could be prevented from demonstrating that they were not enablers if they are not permitted to waive legal professional privilege over their advice concerning a defeated scheme (and it might be difficult to see why a client would waive privilege).
The definitions in the consultation are so wide-ranging that there are implications for a citizen's or business's right to get advice on their tax liability - and it is surely in the HMRC's interest for taxpayers to be able to get professional advice.
For their part, lawyers must be free to give advice on the law as it stands at the time, without having to fear that advice subsequently being called into question - and attracting penalties - by a court decision that could arise several years later. There are reports that insurers are looking at this risk very warily.
The Law Society's Tax Law Committee has met HMRC officials to discuss these and other implications. The proposals are the subject of consultation, and affected firms may wish to respond: the closing date is 12 October.