Guidance

Disclosure of tax avoidance schemes: guidance

Updated 16 June 2022

1. Introduction

This guide will help you work out if you need to tell HMRC that you use or promote a tax avoidance scheme.

1.1 What this guidance is about

This guidance is about what to do if you promote, are involved in the supply of or use arrangements (including any scheme, transaction or series of transactions) that will or are intended to provide the user with a tax or National Insurance contribution advantage when compared to adopting a different course of action.

The legislation uses the terms proposals, notifiable proposals, proposed arrangements and arrangements and notifiable arrangements. For convenience, instead of using these terms, the manual often uses the term ‘scheme’ and ‘notifiable scheme’ to cover both respectively.

It includes advice on:

• deciding if a scheme should be disclosed to HMRC

• how to make a disclosure

• the systems users of a tax scheme are expected to have in place to monitor for a scheme that they, rather than the promoter, may need to disclose to HMRC

• how to notify HMRC that you are using a disclosed scheme

HMRC’s power to allocate a scheme reference number (SRN) to a scheme that it suspects should have been disclosed but has not been. This version of the guidance deals with the disclosure of tax avoidance schemes (DOTAS) legislation that was in force at the date it was published. It does not include advice on revoked, repealed or superseded legislation.

Guidance on the rules for disclosing arrangements relating to VAT and other indirect tax avoidance schemes can be found at VAT Notice 799.

1.2 The status of this guidance

The parts of this guidance that specify the form and manner for providing specified information have the force of law.

This guidance is not a substitute for the relevant legislation. Whilst you can rely on this guidance as an accurate explanation of how HMRC will apply the legislation, it does not cover every possible issue that may arise.

1.3 Laws that cover this guidance

1.3.1 Primary legislation

The main legislation covered by this guidance is:

Part 7 of the Finance Act 2004, sections 306 to 319

The Social Security Administration Act 1992, section 132A

The Taxes Management Act 1970, section 98C s100 and s100C Schedule 31 to the Finance Act 2021, paragraphs 44 and 45

1.3.2 Secondary legislation

Other legislation covered by this guidance is the:

• Tax Avoidance Schemes (Information) Regulations 2012 (statutory instrument (SI) 2012/1836 as subsequently amended)

• Tax Avoidance Schemes (Promoters and Prescribed Circumstances) Regulations 2004 (SI 2004/1865, as subsequently amended)

• Stamp Duty Land Tax (SDLT) Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2005 (SI 2005/1868, as subsequently amended)

• SDLT (Avoidance Schemes) (Specified Proposals or Arrangements) Regulations 2012 (SI2012/2396)

• Annual Tax on Enveloped Dwellings (ATED) Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2013 (SI 2013/2571 as subsequently amended)

• Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2006 (SI 2006/1543 as subsequently amended)

• Inheritance Tax (IHT) Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2017 (SI 2017/1172)

• National Insurance contributions (Application of Part 7 of the Finance Act 2004) Regulations 2012 (SI 2012/1868)

• Tax Avoidance Schemes (Penalty) Regulations 2007 (SI 2007/3104)

1.3.3 Tertiary legislation (section 316 of the Finance Act 2004 and SI 2012/1868, regulation 21)

The Commissioners for Her Majesty’s Revenue and Customs hereby specify that the information required under the provisions described (including, for National Insurance purposes, the appropriate corresponding provision (see section 1.4 use of legal references) must be provided in the following form and manner:

• sections 308(1) and (3) of the Finance Act 2004 — use forms AAG1 and AAG5

• section 309(1) of the Finance Act 2004 — use forms AAG2 and AAG5

• section 310 of the Finance Act 2004 — use forms AAG3 and AAG5

• section 312(2) of the Finance Act 2004 — use form AAG6

• section 312A(2) of the Finance Act 2004 — use form AAG6

• section 312A(2) of the Finance Act 2004 — information to be provided by employer to its employees on form AAG7

• section 313(1) and (3)(a) of the Finance Act 2004 — use the boxes provided for this purpose on the return

• section 313(1) and (3)(b) of the Finance Act 2004 — use forms AAG4, AAG4 (SDLT), AAG4 (IHT) or AAG4 (ATED)

When sending the following forms to HMRC by post, send to the address in the help and advice section:

• AAG1

• AAG2

• AAG3

• AAG4, AAG4 (SDLT), AAG4 (IHT) AAG4 (ATED)

• AAG8

The process for submitting forms related to National Insurance contributions electronically (in accordance with section 316 Finance Act 2004 (and the corresponding regulation 21 (SI 2012/1868)) in relation to National Insurance contributions) is as follows:

• use the following links to the forms to complete and submit them: AAG1, AAG2, AAG3, AAG4, AAG4 (SDLT), AAG4 (ATED) and AAG4 (IHT), AAG6

• form AAG5 is not needed for forms submitted electronically

• employers are required to send information to employees on form AAG7

• employers, which have used a notifiable scheme relating to employees during a tax year, are required to provide HMRC with information about the relevant employees. Employers must provide this information by sending HMRC a completed AAG8 form by 19 April after the end of the tax year it relates to

Because client lists and forms AAG8 include sensitive personal information, it is not appropriate to send them to HMRC using insecure methods of electronic communication like email. Promoters and employers who wish to report the information electronically should therefore contact HMRC before submitting it to find out which digital method or methods the Counter-Avoidance Directorate is making available for the transfer of information in a secure way.

The Counter-Avoidance Directorate will tell the promoter, supplier or employer what they need to do in order to comply with their reporting obligations when sending the required information electronically and provide appropriate access to the online tools.

For more information, see section 19 (client lists).

The specified form and manner for providing required information has the force of law and there are penalties for not complying with this (see section 21 Penalties).

1.4 Use of legal references

Selected legal references and extracts from the legislation are provided in the headings to, and reproduced in the text of, this guidance to act as a quick reference and to aid understanding.

The National Insurance-related provisions are, in the main, not referred to or reproduced as they are intended to mirror (with some minor differences explained at the relevant sections of this guidance) those found in the Finance Act 2004 and other legislation.

1.5 Help and advice

If you are concerned about any arrangement being marketed to you, or you would like to discuss any aspect of these guidance notes, you can contact us by post at the following address:

HM Revenue and Customs
Counter-Avoidance DOTAS Enforcement S0483
Newcastle
NE98 1ZZ

2. An overview of the disclosure rules

2.1 Objectives

The objectives of the disclosure rules are to obtain:

• early information about tax arrangements and how they work

• information about who has used them

2.2 The effect of disclosure

On its own the disclosure of a tax arrangement has no effect on the final tax position of any person who uses it. However, a disclosed tax arrangement may be rendered ineffective by Parliament, possibly with retrospective effect.

2.3 Scope and summary of the disclosure rules

2.3.1 Scope

Currently, disclosure covers certain tax arrangements relating to:

• Income Tax, Corporation Tax and Capital Gains Tax — the detailed rules are in sections 4 and section 5

  • Corporation Tax is defined in section 318 of the Finance Act 2004 as including any amount which, by virtue of any of the provisions mentioned in paragraph 1 of schedule 18 to the Finance Act 1998 (c. 36) (company tax returns, assessments and related matters) is assessable and chargeable as if it were Corporation Tax

  • Bank Levy was added to paragraph 1 of schedule 18 of the Finance Act 1998 by virtue of paragraph 61 of schedule 19 to the Finance Act 2011 and so is within the scope of these rules

• National Insurance contributions (see the detailed rules in section 4 and section 5)

• detailed rules about SDLT can be found in section 6 and section 15

• ATED — the detailed rules are in section 7 and section 17

• IHT — the detailed rules are in section 8 and section 16

• the Apprenticeship Levy — the detailed rules are in section 9 and section 18

2.3.2 Summary: Income Tax, Corporation Tax and Capital Gains Tax

A scheme may need to be disclosed even if HMRC is already aware of it or it is not considered to be avoidance.

A tax arrangement should be disclosed where:

• it will, or might be expected to, enable any person to obtain a tax advantage see section 4.3

• that tax advantage is, or might be expected to be, the main benefit or one of the main benefits of the scheme see section 4.4

• it falls within any description (the ‘hallmarks’) prescribed in the relevant regulations — see section 5

In most situations where disclosure is required it must be made by the scheme ‘promoter’ within 5 days of one of 3 trigger events (see section 10.3 for more detail on the events that trigger a disclosure).

However, the scheme user may need to make the disclosure where:

• the promoter is based outside the UK — see section 10.4

• the promoter is a lawyer and legal professional privilege prevents them from providing all or part of the prescribed information to HMRC — see section 10.5

• there is no promoter, such as when a person designs and implements their own scheme (also called ‘in-house schemes) (in such cases disclosure must be made within 30 days of the scheme being implemented — see section 10.6

There is more guidance on who discloses in section 3 and the time limits for doing so in section 10.

Once a scheme has been disclosed, HMRC will normally issue the person who has made the disclosure and any co-promoters with a scheme reference number. It will also give the number to any co-promoters it is aware of. This number must then be sent on to clients and, if appropriate, on again to further clients until the final user of the scheme has received it.

Employers may also need to pass the number on to their employees.

The scheme user must report their use of the scheme to HMRC. They must do this by including the number on their tax return, if they submit one. Where there is not a suitable return or the user is late submitting the return, they must send HMRC the number on a form AAG4 section 14. However, if a scheme user has already settled with HMRC their liability in relation to every use of a particular scheme for a particular period of advantage, HMRC will not seek a penalty if the scheme user does not report their use of that scheme for that period of advantage.

A promoter of notifiable arrangements must also provide HMRC with periodic lists of persons to whom they become liable to issue a scheme reference number (see section 19) .

An employer who has implemented a notifiable scheme which relates to the employments of employees is required to make an annual report to HMRC giving details of the relevant employees.

2.3.3 Summary: National Insurance contributions

The rules for disclosing hallmarked National Insurance contributions schemes mirror those that apply to Income Tax hallmarked schemes with some minor differences explained at the relevant sections of this guidance.

Section 132A of the Social Security Administration Act 1992 includes powers to make regulations requiring, or relating to, the disclosure of information in relation to any notifiable contribution arrangement or proposal. It also includes powers to make regulations requiring, or relating to, the disclosure of information in relation to any arrangements or proposal where HMRC reasonably suspect to be notifiable contributions arrangements or proposals.

Section 132A(3) of the Social Security Administration Act 1992 defines ‘notifiable contribution arrangements’ as any arrangements which:

• enable, or might be expected to enable, any person to obtain an advantage in relation to a contribution
• are such that the main benefit, or one of the main benefits, that might be expected to arise from the arrangements is the obtaining of that advantage

Section 132A(3) of the Social Security Administration Act 1992 also defines a ‘notifiable contribution proposal’ as a proposal for arrangements which, if entered into, would be notifiable contribution arrangements (whether the proposal relates to a particular person or to any person who may seek to take advantage of it).

Where there is both a National Insurance contributions advantage and a tax advantage, only one disclosure needs be made but it must identify both advantages.

2.3.4 Summary: SDLT

Arrangements should be disclosed where:

• they will, or might be expected to, enable any person to obtain an SDLT advantage see section 6
• the tax advantage is, or might be expected to be, the main benefit or one of the main benefits of the arrangements and the scheme falls within certain descriptions

Where an SDLT scheme was disclosed before 1 April 2010 but the promoter continues to make it available, that promoter must disclose it again. The purpose of this change is to make sure that where such schemes continue to be promoted, the promoter must provide HMRC with details of clients using the scheme in section 10.2.4.

2.3.5 Summary: ATED

Arrangements should be disclosed where:

• they will, or might be expected to, enable any person to obtain an ATED advantage (see section 7)
• the tax advantage is, or might be expected to be, the main benefit or one of the main benefits of the arrangements and the scheme falls within certain descriptions

2.3.6 Summary: IHT

Arrangements should be disclosed where:

• they will, or might be expected to, enable any person to obtain an IHT advantage see section 8

• the tax advantage is, or might be expected to be, the main benefit or one of the main benefits of the arrangement see section 4.3

• it would be reasonable to expect an informed observer to conclude that:

  • the main purpose, or one of the main purposes, of the arrangements is to enable a person to obtain one or more of the specified IHT advantages section 8.3.1 and
  • the arrangements involve one or more contrived or abnormal steps without which the tax advantage could not be obtained section 8.3.2

A scheme should also be disclosed where:

• the arrangements will or might be expected to enable any person to obtain an advantage in relation to IHT (see section 8.2) and

• that advantage in relation to IHT might be expected to be the main benefit, or one of the main benefits, of the arrangements see section 8.3 and

• the arrangements fall within either:

  • the confidentiality where a promoter is involved (see section 5.2) hallmark, or

  • the premium fee hallmark (see section 5.4)

2.3.7 Summary: Apprenticeship Levy

Arrangements should be disclosed where:

• the arrangements will or might be expected to enable any person to obtain an advantage in relation to the Apprenticeship Levy see section 6.2

• that advantage might be expected to be the main benefit or one of the main benefits of the arrangements (see section 9.6)

• the arrangements fall within:

  • one of the confidentiality hallmarks (see section 5.2 and 5.3)

  • the premium fee hallmark (see section 5.4) or

  • the standardised tax product hallmark (see section 5.5)

3. Who discloses

3.1 General

The duty to disclose normally falls on the scheme promoter, however special rules apply when:

• a non-UK based promoter does not disclose a scheme — here the client of the promoter is required to disclose the scheme (see section 3.10)

• the promoter is a lawyer and legal professional privilege prevents them from providing all or part of the prescribed information to HMRC — here the lawyer’s client must disclose the scheme (see section 3.11)

• there is no promoter (for example, the scheme is devised ‘in-house’ for use within that entity or a corporate group to which it belongs) — here the scheme is disclosed by the scheme user (see section 3.12).

Penalties can apply if a scheme is not disclosed accurately and at the right time (see section 21).

The Counter-Avoidance Directorate in HMRC works closely with compliance teams to make sure schemes have been disclosed properly. Anyone likely to have a liability to disclose a scheme should make sure that effective identification and reporting arrangements exist.

The legislation requires that information shall be provided by a promoter (or others) in respect of notifiable proposals or notifiable arrangements, as defined in the legislation. There is no provision in the legislation for a scheme to be disclosed on a ‘precautionary’ basis.

3.2 Who is a promoter

Section 307 of the Finance Act 2004 says that a person is a promoter if, in the course of a relevant business they:

• are to any extent responsible for the design of a scheme

• make a firm approach to another person with a view to making a scheme available for implementation by that person or others

• make a scheme available for implementation by others

• organise or manage the implementation of a scheme

A relevant business is:

• a business involving provision of services relating to tax (or where applicable National Insurance contributions)

• a business carried on by a bank or a securities house

What constitutes a relevant business is widely drawn. Deciding if a relevant business is being carried on requires an assessment of the nature of the overall trade, profession or business through which the relevant services were or are being provided.

A company that gives tax advice is providing services relating to tax.

The tribunal in Revenue and Customs v Curzon Capital Ltd (2019 UKFTT 63) said that:

the phrase ‘services relating to taxation’ is in my view sufficiently broad in meaning to cover the activity of administering a tax avoidance scheme.

The tribunal in Revenue and Customs v Hyrax Resourcing Ltd (2019 UKFTT 175) said that:

The services Hyrax provided to the scheme user were undoubtedly related to taxation as (I have found) the purpose of the arrangements was a tax advantage (and tax avoidance).

It follows that any person with a business providing services in connection with the design, marketing or administration of a scheme, which meets the conditions to be notifiable under DOTAS, or giving tax advice to any person in relation to such a scheme, is highly likely to be providing services relating to taxation and so to be carrying on a relevant business.

Employees of a promoter are not generally treated as if they are personally promoters of schemes promoted by their employer.

However, where there are no other promoters of a particular scheme resident in the UK, and a UK resident employee of any of the promoters carries on any of the activities described, that employee is not excluded from being regarded as a promoter in relation to that scheme.

As a result, any employee or employees who are acting as a promoter in relation to a scheme are responsible for complying with the obligations that Part 7 imposes on promoters and are personally liable for penalties if they do not comply with those obligations.

3.3 Who is an introducer

An ‘introducer’ is a person who advertise notifiable schemes on behalf of a promoter but whose role does not extend to that of a promoter.

‘Introducer’ is defined in section 307(1A) of the Finance Act 2004 as a person who ‘makes a marketing contact’ in relation to a notifiable scheme (see section 3.7.1) 313C.

A person who is only an introducer will not have:

• been involved in the design of the scheme
• made the scheme available for implementation by any person
• organised or managed any of the arrangements users have entered into

Their role is simply to market the scheme to potential users and put them in touch with a promoter.

The disclosure rules do not impose any automatic reporting obligations on an introducer. However, an introducer can be required to provide HMRC with information in response to an information notice from HMRC under section 313C of the Finance Act 2004 (see section 20.4.3).

Introducers will often (but not always) be independent financial advisors. However, if an introducer is responsible to any extent for organising or managing the arrangements implementing a particular scheme, this might mean they become a promoter in relation to that scheme and so become subject to the duties of a promoter (see section 3.8).

3.4 Who is a person involved in the supply of a scheme

There are many different ways in which a person may be involved in the supply of a scheme (short of being a promoter) and it is not possible to list them all. However, examples of activities that would have the effect that a person is involved in the supply of arrangements or proposed arrangements include:

• persons introducing the arrangements or the proposed arrangements (section 307(1A) of the Finance Act 2004) — section 3.3
• the provision of finance which facilitates the operation of the arrangements
• acting as a counterparty to one or more agreements forming part of the arrangements
• the provision of other services in relation to any element of the scheme

As can be seen, the actions which result in a person being involved with the supply of a scheme generally take place before it is implemented or by the a person taking part in the arrangements that a taxpayer enters into. When a professional firm or other business provides services to a taxpayer with some connection to that scheme after the taxpayer has implemented arrangements (and not as a party to those arrangements), those services will not mean they are involved in supplying them. So, for example, for an accountancy firm, advising a taxpayer about how to complete their returns, to respond to HMRC enquiries or end their participation in the scheme would not make them into a person which is involved in the supply of that scheme.

The disclosure rules do not impose any automatic reporting obligations on a person involved in the supply of the proposal or arrangements.

However, when HMRC has allocated a SRN to a scheme without it first being disclosed by a promoter, HMRC may notify that SRN to any person they reasonably suspect of being involved in the supply of a scheme.

Any person (including those involved in the supply of a scheme) to whom HMRC has notified a SRN is required to give the SRN to their clients (under section 312ZA of the Finance Act 2004, see section 14.2) and to report details of all such clients to HMRC (under section 313ZA, chapter 19).

3.5 Scheme designers

A person who is only involved in the design of a scheme, and who does not make the scheme available for implementation by others or organise or manage it, is not a promoter if any one of 3 tests is passed.

These are the:

• benign test (see section 3.5.1)

• non-advisor test (see section 3.5.2)

• ignorance test (see section 3.5.3)

These tests or exemptions do not apply for the purpose of determining whether or not a person is involved in the supply of a proposal or arrangements.

3.5.1 Promoters — the benign test

The benign test (as set out in SI 2004/1865, regulation 4(1) and (2)) applies where, in the course of providing tax, (or National Insurance contributions) advice, the person is not responsible for the design of any element of the arrangement or proposal (including the way in which it is structured). For example, a promoter marketing or designing a scheme may consult a second firm to provide advice in relation to a particular element of it.

This second firm will not be a promoter, despite being involved in the design of the overall scheme, so long as any tax (or National Insurance contributions) advice does not contribute to the tax (or National Insurance contributions) advantage element of it.

For example, a promoter may seek advice from an accounting or law firm on whether 2 companies are ‘connected’ for any purpose of the Taxes Acts. Provided the advice goes no further than explaining the interpretation of words used in tax legislation, it would be benign, as would advice on general compliance requirements, and so on.

On the other hand, if the advice given seeks to highlight opportunities to exploit the relevant provisions then it is not benign advice.

Where the advice recommends some alteration to ‘a taxpayer’s affairs’, then whether the advice is benign will depend on the expected tax outcomes of any transactions entered into as a result of the advice.

3.5.2 Promoters — the non-adviser test

The non-adviser test (as set out in SI 2004/1865, regulation 4(1) and (3)) applies where a person who, although involved in the design of a scheme, does not contribute any tax advice. This test does not apply to a bank or securities house.

This might typically happen where a promoter consults:

• a law firm (which has a business that includes giving tax advice) in relation to company law — the law firm will not become a promoter as long as it provides no tax advice (other than benign advice) in the course of carrying out its responsibilities

• an accounting firm in relation to accounting aspects of a scheme — the firm is not a promoter so long as it provides no tax advice in the course of carrying out its responsibilities

3.5.3 Promoters — the ignorance test

The ignorance test (as set out in SI 2004/1865, reg. 4(1) and (4)) applies when a person could not reasonably be expected to have either:

• sufficient information to enable them to know whether or not the arrangements are disclosable schemes

• sufficient information so as to enable that person to comply

This test might apply where, for example, a person has insufficient knowledge of the overall arrangements to know whether the ‘benign’ or ‘non-adviser’ tests are failed, or has only a partial understanding of the scheme so that they would be unable to comply with the disclosure requirements.

Where having the relevant ‘information’ depends not merely upon factual knowledge, but upon the application of some particular expertise, persons will not normally be expected to have such an expertise if it falls outside their own area of professional expertise (unless the matters in question can reasonably be said to be common knowledge amongst business and professional persons generally).

3.6 Who makes a scheme available for implementation by others

A proposal for a scheme can be made available for implementation once the scheme is fully designed and capable of implementation in practice.

The design of a scheme will typically consist of a number of elements (for example, a partnership, a loan, partner’s contributions, the purchase of assets) structured to deliver the expected tax advantage

The scheme will be capable of implementation in practice only when the elements of the design have been put into place ‘on the ground’. So, for example, if the design includes a loan, it will be capable of implementation only if and when an actual loan provider is in place and funds made available.

A scheme can be made available by more than one person such as by the scheme designer or those who provide the scheme under a licensing agreement with the designer. Each such person may be a promoter for disclosure purposes and have obligations as described in this guidance.

Section 10.2.2 describes when a co-promoter is exempt from making disclosure. However, co-promoters are not exempt from other obligations, such as providing their client with the relevant scheme reference number (see section 14.1) or providing client lists (see section 19.

A person who acts solely as an intermediary between a scheme provider and a potential scheme user (that is, they seek clients for the provider, not themselves) is not a promoter. section 12.2.3 provides information on when a scheme is ‘made available for implementation by others’.

There are many different indicators that a proposal for arrangements has been made available for implementation, including where a person:

• has been sent an application form on which to apply for the right to participate in certain arrangements
• has completed and submitted an application for permission to participate in arrangements and their application has been accepted
• has been supplied with draft contracts and agreements for them to sign and complete, which enable that person to enter into the arrangements — the contracts may for example be agreements for the person to receive loans, advances or other payments, from a company with which they also have an employment contract or under arrangements made with their employer or a related person
• has signed a letter of engagement with another person for the provision of services which are required for the former person to implement arrangements
• is not able to participate in arrangements unless they pay a fee and they have paid that fee

In practice there will not normally be any doubt about whether a proposal has been made available if there is evidence consistent with one or more of the examples listed.

The tribunal in Revenue and Customs v Opus Bestpay (2020 UKFTT 408) decided that Opus Bestpay was making the proposal available for implementation because it:

allowed or enabled participants to avail themselves of the arrangements by providing information on the arrangements and the required documentation to implement them.

The tribunal in Revenue and Customs v Hyrax Resourcing Ltd (2019 UKFTT 175) decided that Hyrax Resourcing Ltd was making the proposal available for implementation because:

it agreed to be the counter-party to all the necessary contracts.

It is likely that any person which carries out at least some of the following activities will be making the proposal available for implementation by other persons:

• playing a role in the processing or acceptance of applications — either directly or indirectly because without that person’s involvement in the arrangements the user would not be able to implement the scheme
• being counter-party to key contracts or transactions that are required in order to enable a prospective user to enter into a scheme that is expected to give rise to a tax advantage

3.7 Who makes a firm approach to another person with a view to making a scheme available for implementation by that person or others

This leg of the definition of ‘promoter’ is intended to create the obligation to disclose as soon as a person takes steps to market the schemes. It is intended to make sure HMRC gets early information about marketed schemes.

The legislation contains 3 key tests to determine whether or not a person (P) is a promoter under this leg of the ‘promoter’ definition. The 3 tests are:

1. P ‘makes a marketing contact’ with another person (C) in relation to the scheme.
2. At the time of the marketing contact, the scheme is ‘substantially designed’.
3. P makes the marketing contact with a view to P making the scheme available for implementation by C or any other person.

3.7.1 The first test: P makes a marketing contact with C

P makes a marketing contact with C if P:

• communicates information about the scheme to another person, C

• the communication is made with a view to C (or any other person) entering into transactions forming part of the arrangements

• the information communicated includes an explanation of any tax advantage that a person might be expected to obtain from using the arrangements

For a marketing contact to be made it is sufficient for the information communicated about the scheme to indicate the nature of the tax advantages persons using the scheme might expect to obtain. In order for there to be a marketing contact, it is not necessary for the information communicated to explain how the scheme works.

A person who makes a marketing contact may be either a promoter of the scheme or merely an introducer. C may be the potential user, an introducer, or a co-promoter. A person who makes a marketing contact will be a promoter if all of the 3 of the tests described in section 3.7 are met.

A person who makes a marketing contact with a view to introducing clients to another person (the promoter) who will make the scheme available to them is a scheme introducer only. That person will not be a promoter because they will not meet the third test described at section 3.7.3.

An introducer may be required to provide information to HMRC leading to the identification of the promoter (see section 3.3 and section 20.4.3 or of a potential user of the scheme).

3.7.2 The second test: the scheme is substantially designed

The statutory test is that a scheme is substantially designed at any time if, at that time, the nature of the transactions to form part of the scheme has been sufficiently developed that it would be reasonable to believe that a person who wishes to obtain the tax advantage communicated might enter into either:

• transactions of the nature developed at the time

• transactions not substantially different from those developed at the time

This test must be read in conjunction with the first test. If the first test is met a person will have communicated information to third parties about a scheme, including information about an expected tax advantage, with a view to persons entering into the scheme.

This second test asks whether the design is worked up to the point that it would be reasonable to conclude that the combination of transactions envisaged in the design would be used to deliver the advantage to anyone wishing to secure the advantage communicated, without the design requiring further, substantial, amendment.

In practice, this point will normally coincide with the point where a promoter has sufficient confidence in the tax analysis of the scheme to market it.

It does not matter whether the:

• detailed design is communicated to potential clients (the test is that the design is in place at the time information is communicated to third parties)

• scheme is eventually implemented in that form (the test is that it is reasonable to believe that it might be implemented in that form or substantially the same form)

• potential clients choose not to enter the scheme for reasons unconnected with the design — the test focuses on design of the scheme not the mind of potential clients — it asks a promoter to assume that a person will want to obtain the tax advantage offered, and then whether it is reasonable to believe the design the client would use would be this one (or would the design have to change substantially before the scheme could be implemented)

• scheme is capable of being implemented in practice (see section 3.6) at this time, for example, the design of the scheme may include a loan — it does not matter whether or not an actual loan provider is in place at this point

3.7.3 The third test: does P intend to make the scheme available for implementation by clients

The test is that a person makes a marketing contact with a view to making the scheme available (that is, they are making a marketing contact with a view to obtaining clients who will buy the scheme from them).

A person who is simply an introducer will not meet this test and will not be a promoter because an introducer solicits clients for another person (the promoter) not themselves.

The term ‘making the notifiable proposal available for implementation’ has the same meaning for both s307(1)(a)(ii) and s307(1)(a)(iii). The term should not be read as having a wider concept under either of these provisions.

The First-tier Tribunal in Revenue and Customs v Curzon Capital Limited (2019) UKFTT 63) said:

It should be remembered that (as reflected in HMRC’s own guidance) the ‘firm approach’ provisions considered were added in 2011 to take account of concerns at HMRC that they were not getting sufficiently early notification about schemes, the wording is clearly aimed at obtaining information upon the making of a ‘firm approach’ as a potentially earlier trigger point before the ‘making available for implementation’ which already featured in the legislation. I see no rational basis therefore why the phrase ‘making the notifiable proposal available for implementation by C or any other person’ in section 307(1)(a)(ii) should be read as referring to a wider concept of ‘making available’ than is connoted in the phrase ‘P makes the notifiable proposal available for implementation by other persons’ in section 307(1)(a)(iii).

3.8 Scheme organisers and managers

A person who organises or manages a scheme in the course of a relevant business (see section 3.2) is regarded as a promoter whether or not they designed or made the scheme available for implementation.

They will often be co-promoters of the scheme with the person or persons who designed, marketed or made the scheme available. As a result, the person organising or managing the scheme is responsible for complying with the obligations that Part 7 imposes on promoters, including co-promoters, and so may be liable for penalties if those obligations are not complied with.

The tribunal in Revenue and Customs v EDF Tax Limited (2019 UKFTT 598), 176, said that:

it seems a reasonable inference from the evidence that EDF was entirely responsible for the organisation of the Delta arrangements. In particular, they wrote the letters, provided all the draft documents and were paid an extremely large fee.

The tribunal in Revenue and Customs v Opus Bestpay Limited (2020 UKFTT 408) found that they were organising or managing the scheme, because they:

• were responsible for making contracts with arm’s length end-users of the services provided by contractors

• issued invoices to end clients or agencies

• they played a central role in administering scheme transactions, informing contractors about the different types of payments being made to them

It is likely that a person will be organising and managing a scheme where they are involved in the on-going administration of:

• invoices
• timesheets
• contracts
• receipts
• payments

3.9 Corporate groups

As set out in SI 2004/1865, regulation 2, a group company that provides tax services to other companies within the same group is not a promoter. This makes sure disclosable schemes devised within a group for its own use are disclosed in the same way as those devised by a single company ‘in-house’ for its own use, see section 3.12.

For the purpose of these rules a company is a group company where it is a member of a group under any of the existing provisions of the Taxes Acts, for example group relief or capital gains, but as modified by SI 2004/1865, regulation 2.

3.10 Schemes marketed by offshore promoters

As set out in section 309 of the Finance Act 2004, obligations on promoters to disclose schemes they market or design apply to both UK and non-UK based promoters.

Where the promoter is not resident in the UK and does not disclose the scheme, clients of the promoter who are using the scheme may be required to disclose the details of the scheme.

If you are a client of an offshore promoter and you are a user of a scheme, for which the promoter has not let you know the reference number allocated to it by HMRC, you will be required to disclose the scheme yourself unless there:

• is an offshore promoter which has one or more employees who are resident in the UK and are personally performing any of the activities of a promoter (see section 3.2)

• are one or more other persons in the UK who come within the meaning of a promoter, such as a financial adviser who is responsible to any extent for the organisation or management of the scheme (see section 3.8)

Who are required to disclose the scheme marketed or designed or made available by the offshore promoter.

A non-UK based promoter who has disclosed a scheme must provide their clients with the 8-digit reference number issued by the Counter-Avoidance Directorate in HMRC. This obligation falls onto any person in the UK who is a promoter in relation to that scheme.

If you are a user of such a scheme and unsure if the rules apply, you can write to the Counter-Avoidance Directorate for advice.

3.11 Schemes promoted by lawyers

As set out in section 310 of the Finance Act 2004 and SI 2004/1865, regulation 6, schemes promoted by lawyers are within the scope of the disclosure rules in the same way as for other promoters.

However, where an adviser who would ordinarily be a promoter is prevented by reason of legal professional privilege from providing any of the information needed to make a full disclosure, that adviser has no obligation to make a disclosure.

Unless there is another promoter who has an obligation to disclose the scheme, it must be disclosed by any person in the UK who enters into any transaction forming part of it. But the client of the lawyer has the option of waiving any right to legal privilege. If legal privilege is waived the lawyer is required to disclose.

The following important points should be noted in relation to waiver of legal privilege:

• any waiver must be made within sufficient time to enable the lawyer to disclose within 5 days of the scheme being made available (see section 10.2.1), otherwise the client must make the disclosure within 5 or 30 days, as applicable, of the first transaction (see section 10.8)

• any waiver can be limited by the client so as to apply only to the extent necessary to enable the lawyer to comply with the disclosure obligation and to have no relevance for any other purpose

Your lawyer or tax adviser will be able to help you but you can also write to HMRC at the address in section 1.5 if you are in doubt.

Where a lawyer is ‘marketing’ a scheme, as described at section 11.3, the lawyer cannot assert legal privilege. This means that such marketing is subject to the disclosure obligation and the lawyer should disclose the scheme (providing the other conditions are met) to the Counter-Avoidance Directorate in the normal way.

3.12 Schemes with no promoter, including ‘in-house’ schemes

As set out in section 310 of the Finance Act 2004, where there is no person who is a ‘promoter’ in respect of a scheme with a duty to disclose it, it must be disclosed by any person in the UK who enters into any transaction forming part of it.

Hallmarked schemes and hallmarked National Insurance contribution schemes with no promoter are generally only required to be disclosed where the advantage is intended to be obtained by a business that is not a small or medium enterprise (see section 4.7).

For SDLT schemes and IHT schemes, any in-house user has to disclose (see sections 6, 7, 8 and 9).

In both cases, disclosure only applies to schemes that have been implemented — there is no requirement to disclose mere plans and ideas.

3.13 Overriding any duty of confidentiality

Promoters may try to place restrictions or a duty of confidentiality on the information their clients give to HMRC.

However, any person who has reasonable grounds for suspecting they have information or documents that will help HMRC enforce the DOTAS requirements on other persons, may disclose them voluntarily to HMRC. Under section 316B of the Finance Act 2015 they cannot legally be prevented from communicating with HMRC in this way to help HMRC determine whether or not a person has complied with their DOTAS obligations.

4. Is the scheme notifiable

4.1 Application of this section to National Insurance contributions arrangements

For the purposes of determining a National Insurance contribution scheme is notifiable, any references in this section to tax should be construed as a reference to National Insurance contributions.

4.2 General

For a scheme to be notifiable under the DOTAS legislation each of the 4 tests described must be met.

Despite the DOTAS legislation being titled ‘Part 7 — Disclosure of Tax Avoidance Schemes’, there is no additional requirement to show that a scheme is tax avoidance.

It is the words in the body of the legislation itself that are important as confirmed by Judge Mosedale in the case of Revenue and Customs v Hyrax Resourcing Limited (2019 UKFTT 175), when referring to the Judge’s comments in Roao Carlton v HMRC (2018) EWHC 130 (Admin) said:

at the start of her decision, the Judge used ‘tax avoidance’ in the colloquial sense, as it was used in the title to Part 7. But when dealing with the DOTAS legislation, she recognised that the courts must apply the words used in the legislation itself. Her comment in (69) is apt to the statute and not just the regulations. My conclusion is that there was no requirement for HMRC to prove that the arrangements did involve tax avoidance, nor even a requirement to prove that they might involve tax avoidance.

4.3 Test 1: are there arrangements that enable an Income Tax, Corporation Tax or Capital Gains Tax advantage be obtained (Finance Act 2004, section 306(1)(a) and (b))

4.3.1 Meaning of ‘arrangements’

The meaning of ‘arrangements’ is not exhaustively defined in the primary legislation but includes any scheme, transaction or series of transactions (see section 318 of the Finance Act 2004).

Judge Mosedale in Revenue and Customs v Hyrax (2019 UKFTT 175) concluded from the definition that the term “arrangements” clearly had “a broad meaning” (140) and should include all steps that were “part of the scheme user’s expectations” (141).

4.3.2 Meaning of ‘tax advantage’

‘Tax advantage’ is a defined term. The definition is based on the definition of tax advantage in section 709 of the Income and Corporation Taxes Act 1988 (repealed). It includes the avoidance or reduction of a charge to tax, a relief from tax, repayment of tax. In addition, the deferral of tax and the avoidance of an obligation to deduct tax, for example under PAYE, are both expressly treated as ‘tax advantages’ when applying the DOTAS rules.

The Courts have considered the meaning of ‘tax advantage’ on a number of occasions. We expect the existing body of case law to apply equally for disclosure purposes. From these cases some general points can be made:

• the definition of tax advantage in section 709 was very widely drawn and consequently we expect that section 318 of the Finance Act 2004 will also be construed widely
• the existence of a tax advantage is tested on a comparative basis in line with the long-standing judgment of Lord Wilberforce in CIR v Parker (1966 AC 141)

For some schemes, the most appropriate comparison of the intended tax outcome may be that between 2 ‘economically similar contrast situations’ as with the scheme that the tribunal was considering in Revenue and Customs Hyrax Resourcing Ltd (2019 UKFTT 175). The judge decided that the scheme was expected to give rise to a tax advantage because:

it was intended to avoid or reduce the charge to tax on salary which would otherwise have been received by scheme users, had they not adopted the scheme and received equivalent sums in an economically similar, but legally distinct form, of small salary and large loans which were not expected to be repaid (at least not in their lifetime).

• in Sema Group Pension Fund (2003 STC 95) Lord Justice Parker said that “what the draftsman was manifestly trying to do when defining ‘tax advantage’ in section 709(1) was to cover every situation in which the position of the taxpayer vis-à-vis the Revenue is improved in consequence of the particular transaction or transactions”.

• The judge in Revenue and Customs v Premiere Picture (2021 UKFTT 58) did not read the Sema decision as “limiting the comparison which is required to be made to one involving a transaction with a similar legal form or even one giving rise to similar economic effects. Instead as is made clear (in Sema) it is perfectly possible for a taxpayer to obtain a tax advantage from entering into a transaction where the taxpayer’s tax position as a result of so doing is more favourable than that in which it would have been had the taxpayer done nothing”.

• The very wide range of possible ways in which tax arrangements might be structured makes it impossible to outline in regulations the range of schemes likely to come within the disclosure rules Such schemes may involve for example rewards for remuneration being structured to fall outside the provisions of ITEPA or

• an imbalance between the economic cost of the tax advantage and the value of that advantage to the taxpayer

• an imbalance between the economic benefit to the taxpayer and the amount of income, profit or gains that is subject to tax.

For National Insurance contributions purposes, the definition potentially applies to all classes of National Insurance.

 4.4 Test 2: is the advantage a main benefit of the arrangements (Finance Act 2004, S306(1)(c))

The advantage is one of the main benefits of the arrangements if it is a significant or important element of the benefits and not incidental or insubstantial.

The following general points can be made as to when a tax advantage will be regarded as one of the main benefits.

In our experience those who plan tax arrangements fully understand the tax advantage such schemes are intended to achieve.

Therefore we expect it will be obvious (with or without detailed explanation) to any potential client what the relationship is between the tax advantage and any other financial benefits of the product they are buying.

The test is objective and considers the value of the expected tax advantage compared to the value of any other benefits likely to be enjoyed.

4.5 Test 3: is there a promoter of the arrangements

The purpose of this test is to distinguish between arrangements that are promoted and those that are designed ‘in-house’ for use by the business that devised it (see section 307, section 309, and section 310 of the Finance Act 2004.

A scheme is a promoted scheme (one that is not an in-house scheme) even where the user is required to disclose the details of it to HMRC as a result of the promoter being either:

• offshore and failing to disclose the scheme to HMRC (see section 3.10)
• a lawyer who is prevented by legal and professional privilege from providing all of the prescribed information to HMRC (see section 3.11)

4.6 Test 4: the hallmarks for arrangements where there is a promoter

When there is a promoter of the arrangement, it is a hallmarked scheme when any one of the following hallmarks applies:

• hallmark 1(a): confidentiality from other promoters (see section 5.2.2)
• hallmark 1(b): confidentiality from HMRC (see section 5.2.3 to section 5.2.6)
• hallmark 3: premium fee (see section 5.4)
• hallmark 5: standardised tax products (see section 5.5)
• hallmark 6: loss schemes (see section 5.6)
• hallmark 7: leasing arrangements (see section 5.7)
• hallmark 8: employment income (see section 5.8)
• hallmark 9: financial products (see section 5.9)

Hallmarks 5 and 6 do not apply when the only promoter is a lawyer which is not required to fully disclose the scheme because doing so would breach legal professional privilege.

4.7 Test 5: the hallmarks for ‘in-house’ arrangements

When the arrangement is designed ‘in-house’, it is a hallmarked scheme when any one of the following hallmarks applies. The first 3 hallmarks only apply when the person receiving the tax advantage is not a small or medium enterprise:

• hallmark 3: premium fee (see section 5.4)
• hallmark 7: leasing arrangements (see section 5.7)
• hallmark 8: employment income (see section 5.8)
• hallmark 9: financial products (see section 5.9)

Hallmark 7 does not apply when determining a hallmarked National Insurance contribution scheme.

4.8 Test 6: is the person intended to obtain the advantage a large business

If you devise a tax arrangement for use ‘in-house’, you need only consider if it is a hallmarked scheme (and disclose it to HMRC) if the person intended to obtain the tax advantage is a business that is not a small or medium enterprise (SI 2006/1543, regulations 3 and 4).

‘Businesses’ are:

• companies
• partnerships
• any other person whose profits are charged to Income Tax as trading or property income

Guidance on whether a business is a small or medium enterprise for the purposes of the 2003 EC recommendation tests is at CIRD91400. See in particular the flow chart at CIRD92850.

5. The hallmarks

This part of the guidance applies where the advantage arises in relation to Income Tax, National Insurance contributions, Capital Gains Tax and Corporation Tax. It does not apply where the advantage arises in relation to IHT or the Apprenticeship Levy, unless otherwise stated. There is further guidance about IHT in section 8 and section 16. This guidance also does not apply to SDLT or ATED (see sections 6, 7, 15 and 17).

5.1 About the hallmarks

The legislation sets out a number of descriptions of arrangements that are referred to as ‘hallmarks’ in this guidance.

The hallmarks are intended to be descriptions capable of being identified by a promoter at the time the product is being development or begins to be sold.

The hallmarks are not mutually exclusive — an arrangement may be a hallmarked scheme, or hallmarked National Insurance contribution scheme, by virtue of one or more of the hallmarks.

It is expected that the range of hallmarks will change over time, such as to test perceived changes in the avoidance market place or the effectiveness of a counter-avoidance measure.

The absence of a hallmark should not be regarded as an indicator that arrangements not caught constitute practices that are acceptable to HMRC.

Similarly, we do not regard all arrangements that include or meet a hallmark description as practices that are unacceptable to us — whilst we have tried to keep burdens to a minimum, you may have to tell us about schemes that may not be considered to be avoidance.

When describing the hallmarks in this section, any reference to tax should be regarded as including a reference to National Insurance contributions.

5.2 Hallmarks 1(a) and (b): confidentiality where promoter involved Income Tax, Capital Gains Tax or Corporation Tax

Hallmark 1 also applies where the tax advantage relates to IHT and the Apprenticeship Levy.

This is the relevant hallmark, rather than Hallmark 2 (confidentiality where no promoter involved) when the only promoter is a lawyer who is not required to make a full disclosure because doing so would breach legal professional privilege section 3.11.

5.2.1 The legislation

Hallmarks 1(a) (see paragraph 5.2.2) and 1(b) (see paragraph 5.2.3) are prescribed by regulation 6 to the Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2006 (SI 2006/1543).

5.2.2 Hallmark 1(a): confidentiality from competitors

This hallmark only applies where there is a promoter of the arrangements (see section 4.5).

The test requires the person who may have a duty to disclose the arrangements to ask themselves the hypothetical question:

‘Might it reasonably be expected that any promoter of the arrangements would wish the way, in which any element of those arrangements (including the way in which they are structured) is expected to give rise to a tax advantage or might do so, to be kept confidential from any other promoter.’

The test would be satisfied if at any time following the material date (see section 5.2.5 an element of the scheme were sufficiently new and innovative that a promoter would want the details to remain secret in order to maintain their competitive advantage and ability to earn fees.

It makes no difference to how the hallmark applies whether the hypothetical promoter:

• is resident in the UK
• is not resident in the UK
• is not required to disclose the scheme because the required information contains details that are covered by legal and professional privilege (LPP)

The hallmark does not apply in relation to ‘in-house’ schemes.

When applying the test the promoter should first consider its own position and if it concludes that it would want to keep the arrangement confidential from another promoter then the arrangement is within the hallmark.

If the promoter concludes that it does not want to keep the arrangement confidential from another promoter then it needs to consider if it might reasonably be expected that another promoter would wish to keep the arrangement confidential.

If the promoter concludes that it does not want to keep the arrangement confidential from another promoter then it needs to consider if it might reasonably be expected that another promoter would wish to keep the arrangement confidential.

When considering this the promoter should assume that the hypothetical promoter has the same knowledge and information that the promoter itself. It should not attribute to the hypothetical promoter any other knowledge or information.

In addition, the promoter should assume that the hypothetical promoter takes a reasonable view of its obligations to disclose proposals and arrangements under DOTAS and does not take an extreme view.

The test is unrelated to:

• any general rule or agreement by a client, not being specific to the particular arrangements that they keep advice confidential
• whether any fees charged would be at a premium level

The use of an explicit confidentiality agreement before revealing full details of the scheme to a client by advisers who do not normally use such agreements may indicate that the test is met.

If the promoter requires actual or potential clients to enter into a confidentiality agreement relating to the details of a particular scheme this would also often indicate that the test is met. For example, clients may be required to get the promoter’s permission before revealing full details of the scheme to their usual tax advisers.

If certain firms routinely insist on an explicit confidentiality agreement from their clients for their full range of products, HMRC would accept the test is not met if all elements of the scheme which give rise to the tax advantage are reasonably well known in the tax community. This can be evidenced from, for example, articles in the tax press, textbooks or case law.

5.2.3 Hallmark 1(b): confidentiality from HMRC

This hallmark only applies where there is a promoter of the arrangements (see section 4.5).

The test requires a person who may have a duty to disclose the arrangements to ask themselves the hypothetical question:

• might it reasonably be expected that any promoter of the arrangements would, at any time after the material date (see section 5.2.5) wish the way, in which any element of those arrangements (including the way in which they are structured) is expected to give rise to an expected tax advantage or might do so, to be kept confidential from HMRC
• if so, is one of the reasons a promoter would wish to keep that information confidential from HMRC to facilitate the repeated or continued use of that element, or substantially the same element, in the future (see section 5.2.6)

When applying the test the promoter should assume that the hypothetical promoter has the same knowledge and information as the promoter itself. It should not attribute to the hypothetical promoter any other knowledge or information.

The promoter should assume that the hypothetical promoter takes a reasonable view of their obligations to disclose proposals and arrangements under DOTAS and does not take an extreme view.

The fact that a promoter might be subject to penalties for failing to disclose a scheme when required to do so should not be a factor the promoter takes into account when considering whether it would prefer HMRC did not learn all of the details of the scheme.

The hallmark would apply if an element of the scheme was new and innovative enough for a promoter (including the promoter applying the test) HMRC to remain unaware of the details in order to facilitate repeated or continued use of any element of the arrangement.

The test applies to any scheme that HMRC would be likely to take action to counter (legislatively or operationally) if it knew about it.

There does not need to be an explicit confidentiality agreement between the promoter and user about the arrangement before the test is met.

The hallmark will cover a scheme if the promoter:

• does not provide to, or
• otherwise prevents or discourages the user from retaining any promotional materials, data or written professional advice for those arrangements and
• it might reasonably be expected that the reason for doing so is to keep the arrangements confidential from HMRC so to facilitate repeated or continued use of the any element of the arrangements

There may be circumstances where a promoter does not routinely provide to a client some information for reasons other than keeping the arrangement confidential from HMRC, for example detailed legal advice which the promoter does not share with the user in order to protect its legal privilege.

The regulation is not limited to these circumstances and will apply if it might reasonably be expected that other means would be used to keep the arrangement confidential from HMRC in order to facilitate the repeated or continued use of an element.

HMRC will not:

• assume that because a scheme was not disclosed that the promoter wanted to keep it confidential from HMRC (likewise, a promoter is not required to disclose everything just to prove there was nothing to disclose)
• carry out ‘fishing expeditions’ to determine what schemes have not been disclosed under this hallmark

If HMRC discover a scheme that has not been disclosed we will, when considering whether the test has been applied correctly, examine all the evidence and form a balanced view as to why it was not disclosed. Indicative factors include:

• how new, innovative and aggressive the scheme is — schemes that promoters know to be known to HMRC are not caught by the hallmark — these can be evidenced from, for example, technical guidance notes, case law, or past correspondence with a case officer in HMRC or between HMRC and a professional body where the detail of how the scheme works has been made clear
• whether a promoter imposes an obligation upon potential clients, whether in writing or verbally, to keep the details of the scheme confidential from third parties including HMRC — this factor would not be considered if the agreement is a general agreement
• whether a promoter does not provide to, or otherwise prevents or discourages the user from, retaining promotional materials, data or written professional advice so that such information cannot be provided by the user to HMRC
• whether confidentiality agreements, general or specific, between a promoter and client allow the client to disclose information to HMRC without referral to the promoter
• the use of explicit warnings in marketing material or other communications to a client to the effect that the scheme may have a limited ‘shelf life’ because Parliament may act to close it once it became known
• the degree of co-operation to requests for information from HMRC concerning a specific scheme and the reasons for not providing information

5.2.4 Hallmark 1(b): ‘any element’ of the arrangements

The hallmark asks whether the promoter or scheme user (as applicable) wants to keep any element of the arrangements confidential from HMRC. This could include part of a bespoke arrangement where the totality of the scheme will not be repeated.

5.2.5 Hallmark 1(b): confidential ‘at any time’

The hallmark asks whether the promoter or scheme user (as applicable) wants to keep an element of the scheme (including the way it is structured) confidential from HMRC at any time after the material date.

The material date is defined as the date by which the proposal or arrangements are required to be notified on the assumption that the proposal or arrangements are notifiable. Circumstances prior to the material date are not relevant to this hallmark.

5.2.6 Hallmark 1(b): repeated and continued use of the element

The hallmark asks, where applicable, whether the promoter wants to keep an element of the scheme (including the way it is structured) confidential from HMRC in order to facilitate repeated or continued use of the same element, or substantially the same element, in the future.

‘Repeated use’ — the test examines whether it might be reasonably expected that a promoter might wish to keep confidential the key element that achieves or might achieve the tax advantage in order to insert it into further schemes used by either other clients or the same client. It could apply, for example, where the totality of the scheme is expected to be repeatable in its generic form time and again, or where the key element was conceived as part of a bespoke scheme and then recorded on a register for use in other schemes in the future.

‘Continued use’ — the test examines whether it might be reasonably expected that a promoter might wish to keep confidential a key element that achieves or might achieve the tax advantage in order to allow new clients to implement the scheme making use of that element to seek the tax advantage or to enable the scheme to run its course for both new and existing users.

5.3 Hallmark 2: confidentiality where no promoter involved Income Tax, Capital Gains Tax or Corporation Tax

5.3.1 The legislation

Hallmark 2 is prescribed by regulation 7 to the Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2006 (SI 2006/1543).

This hallmark only applies to schemes devised for use ‘in-house’ with no promoter involved. It does not apply where the person intended to obtain the tax advantage is a small or medium enterprise.

Guidance on whether a business is a small or medium enterprise for the purposes of the 2003 EC recommendation tests is at CIRD91400. See in particular the flow chart at CIRD92850.

Hallmark 2 is also relevant where the tax advantage relates to the Apprenticeship Levy.

The hallmark does not apply when there is a promoter but the promoter is a person who is not required to disclose the scheme fully because doing so would breach legal professional privilege.

5.3.2 Confidentiality from HMRC

If an ‘in-house’ scheme is notifiable, it must be disclosed by any person in the UK who enters into any transaction forming part of the scheme. The question such a person has to consider is whether or not a user would reasonably be expected to wish to keep the arrangements confidential from HMRC.

If the in-house user would wish to keep any element of the arrangements confidential from HMRC then that is sufficient to meet the test. If not, then the in-house user has to consider if any other user would wish to keep the arrangements confidential from HMRC.

When applying the test, the in-house user should only attribute to the hypothetical user the knowledge and information that the in-house user itself holds and should not attribute to the hypothetical user any other knowledge or information.

In addition, the in-house user should assume that the hypothetical user takes a reasonable view of their obligations to disclose proposals and arrangements under DOTAS and does not take an extreme view.

So the test under 7(1) first requires a person using an in-house scheme which has entered into a transaction forming part of the arrangements to ask themselves whether or not they are a small or medium-sized enterprise.

If the answer to this question is that the person entering into the arrangements is not a small or medium-sized enterprise, this person must then ask themselves the following hypothetical question:

• might it reasonably be expected that any user of the scheme, at any time after the material date (see section 5.2.5), wish the way, in which any element of those arrangements (including the way in which they are structured) is expected to give rise to an expected tax advantage or might do so, to be kept confidential from HMRC

If so, would the reasons for a user wishing to keep that information confidential from HMRC include any of the following to:

• facilitate the repeated or continued use of the same or very similar element, in the future (the guidance on ‘repeated and continued use’ at section 5.2.6, when read in the context of a scheme user, applies to this hallmark in the same way as it applies to hallmark 1(b))
• reduce the risk that HMRC might use that information to open an enquiry into any return or account that they are required to make
• reduce the risk that HMRC might use that information to withhold some or all of a repayment sought in a claim outside a return in respect of relief for losses under section 261B Taxation of Chargeable Gains Act 1992 (trade loss treated as capital loss) or Part 4 Income Tax Act 2007 (loss relief)

Again, the test is not circular in that it does not mean that all undisclosed schemes are, by default, schemes that a taxpayer wishes to keep confidential and so should have been disclosed. The guidance on this at section 5.2.3 applies equally here.

As for hallmark 1(b), if HMRC discover a scheme that has not been disclosed we will, when considering whether the test has been applied correctly, examine all the evidence and form a balanced view as to why it was not disclosed. Indicative factors include:

• how innovative or aggressive the scheme is — schemes that taxpayers are aware to be known to HMRC are not caught by the hallmark
• the degree of co-operation with requests for information from HMRC concerning a specific scheme and the reasons for not providing that information
• whether a taxpayer imposes an obligation upon other parties to the scheme, whether in writing or verbally, to keep the details of the scheme confidential from HMRC

5.3.3 Confidentiality from promoters

If an ‘in-house’ scheme is notifiable, it must be disclosed by any person in the UK who enters into any transaction forming part of the scheme.

The test under paragraph 7(2) requires the user of the in-house scheme to consider, hypothetically, whether or not a promoter would disclose the arrangements in question. They must consider:

• if there were a promoter for these arrangements, would it reasonably be expected that any promoter of the arrangements would wish the way in which any element of those arrangements (including the way in which they are structured) that secures the tax advantage to be kept confidential from HMRC, and a reason for doing so would be to facilitate repeated or continued use of the same element, or substantially the same element, in the future
• at any time following the material date (see section 5.2.5)

The test requires the in-house user to put themselves in the position of a promoter who would want to exploit the arrangement commercially. At the time of applying the test the in-house user may not have any intention of making the arrangement available to anyone else but they must apply the test nevertheless.

The test, if satisfied, is intended to provide HMRC with early information on in-house arrangements that could be made available to other users. To apply the test, the in-house user needs to ask themselves:

• if I were a promoter would I want to keep this arrangement confidential from HMRC so that I can re-use or continue to use any element of the arrangement

The relevant questions must be consciously answered at the time the relevant trigger for disclosure arises. Under s310, this is 30 days after the date on which the user first enters into a transaction forming part of the scheme.

HMRC will expect users to answer the test fairly and act in accordance with the decision they make.

5.3.4 The timing rule

The timing rule is by reference to the date on which the arrangements are implemented. The issue is whether there is a wish to keep the details confidential at any point after this time. It is also irrelevant whether or not the details would be disclosed on a return.

5.4 Hallmark 3: premium fee Income Tax, Capital Gains Tax or Corporation Tax

This hallmark also covers IHT and the Apprenticeship Levy.

5.4.1 The legislation

Hallmark 3 is prescribed by regulation 8 to the Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2006 (SI 2006/1543)

5.4.2 Applying the hallmark

This hallmark applies to both promoted and ‘in-house’ arrangements. For ‘in-house’ arrangements, however, it does not apply where the person intended to obtain the tax advantage is an individual or a small or medium enterprise.

The definition of a small or medium-sized enterprise is based on the Recommendation of the European Commission published on 6 May 2003. There is further guidance in paragraphs CIRD91400 and CIRD92850 in the HMRC Corporate Intangibles Research and Development manual.

The hallmark contains a hypothetical test. The question the legislation asks is whether it might reasonably be expected that a promoter could charge a premium fee if they wished to do so. The test is applied from the perspective of a client who is experienced in receiving tax advice or other services of the type being provided.

When considering what fee could have been obtained for the services needed to provide and operate this scheme, it is relevant to take into account:

• any fees that were charged directly or indirectly to clients, whatever they are called in the scheme documentation

• any costs which the client directly or indirectly incurs in relation to rewards received by promoters and associates, which are accordingly economically equivalent to a fee

Judge Mosedale said in Revenue and Customs v Hyrax Resourcing Ltd (2019 UKFTT 175):

It seems to me to be obvious that Hyrax was able to take a cut from the gross fee paid for the scheme user’s services, its ability to take a percentage of the gross payment is evidence that, instead of a cut, it would have been able to take a fee. Whether paid the same amount as a % of the gross earnings or as a fee, the cut or fee are economically the same to a middleman, as Hyrax was, the fact it was actually able to earn an amount economically the same as a fee is good evidence that it might be reasonably be expected that a promoter of substantially similar arrangements would be able to obtain a fee from the arrangements.

In the rest of this section of the guidance any reference to a fee also includes any amount economically equivalent to a fee. For example an amount retained by a promoter or an associate from the gross contract value earned by the scheme user for work undertaken for an an agency or end user.

5.4.3 Does a fee include an element of ‘premium’

A fee which is referable in any way to the value of one or more transactions forming part of the arrangements will be obtained at a premium rate if it would amount to more than a promoter would ordinarily expect to be able to charge on a ‘time basis’ for one or more of a promoter’s clients.

A fee which is determined on a ‘time basis’ will also be obtained at a premium rate if the say hourly rate is higher than a promoter would ordinarily expect to be able to charge on a ‘time basis’ for one or more of a promoter’s clients.

If the fee is calculated by reference to the value of transactions forming part of the arrangements, clients implementing higher value schemes will obviously pay a higher fee. However the promoter may be carrying out essentially the same amount of work for each client. This may affect how the hallmark applies if it shows that a significant portion of the fee is calculated by reference to something other than how much work the promoter has to do on providing services to its clients.

The hallmark does not require a promoter to obtain a premium fee from all customers, it is enough for the hallmark to apply if a promoter could obtain a premium fee from even just one customer who was experienced in receiving services of the type being provided (see section 5.4.7).

The hallmark will apply if a premium fee is obtained from one or more clients which enter into higher value schemes but not from clients whose transactions have a lower value. It is almost certain that the hallmark would be met if a promoter charges a premium fee. However, the hallmark does not require every promoter to receive a premium fee and, if a premium fee is not actually obtained, it does not follow that the hallmark does not apply.

As the tribunal said in Revenue and Customs v Curzon Capital Ltd (2019 UKFTT 63 56):

Regulation 8 posits a hypothetical situation involving a notional promoter of arrangements the same as (or substantially similar to) the Arrangements.

The question then to be asked is whether it might reasonably be expected that that notional promoter (or a person connected with him) would be able to obtain a premium fee from that notional person for making the arrangements available. Thus the fact that Curzon Capital Limited itself did not obtain a premium fee is not relevant.

5.4.4 Is the fee significantly attributable to the advantage

To answer this question you must take into account not only the tax advantage but also any commercial benefits the client may obtain in return for engaging a promoter in relation to the particular scheme or to particular elements of the scheme.

If there are genuine commercial benefits, it may be necessary to compare the tax and other economic benefits resulting from the scheme in order to determine whether or not the fees are attributable mainly to the commercial non-tax benefits or are to a significant extent attributable to the tax advantage.

It’s the difference between achieving a genuine commercial benefit in a tax-efficient way and entering into transactions that have no commercial purpose or benefit other than to obtain a tax advantage or include elements that have no purpose other than to avoid tax.

If the scheme or commercially-linked elements of the scheme would generate no economic benefits apart from tax and National Insurance contributions advantages or the non-tax benefits would be insignificant compared to the tax benefits, it is reasonable to conclude that the premium fee will be attributable to a significant extent to the tax advantage. For example, in Revenue and Custom v EDF Tax Ltd (2019 UKFTT 598 120), Judge Mosedale said:

the only reasonable explanation for the payment of fees which normally amounted to 12-13% of the amount paid to the directors and about (very approximately) of about quarter of the expected tax advantage was that the users’ directors perceived the payment of the fees as being significantly cheaper than payment of the tax on their earnings. In other words, the fee was paid because the directors and scheme users expected to obtain the tax advantage. It would make no sense whatsoever for the directors and scheme users to have paid such large fees unless there was such an expectation, as to pay the fees and remain liable for the tax on the award paid to the directors would leave them in a much worse economic position than if a cash award had been made to the directors.

The fee in question may be calculated as a percentage of the value of a transaction forming part of a scheme where the value of the transaction determines the value of the expected tax advantage. This is another indicator that there is a premium fee which is attributable to a significant extent to the tax advantage (and not to the work involved in providing services).

In Revenue and Customs v Hyrax (2019 UKFTT 175) the promoter’s ‘cut’ was calculated as a percentage of the gross contract value of the contract for the scheme user’s services. Judge Mosedale’s conclusion in relation to the premium fee hallmark was:

The greater the contract value, the greater the expected tax saving (as tax is a % of earnings), and therefore Hyrax’s cut increased in line with the expected tax saving. It was clearly charged as a % of the contract value (and therefore the expected tax saving) and did not reflect the amount of work involved: the evidence indicated that the work carried out by Hyrax would be roughly equivalent for all scheme users. But the charges would depend on the contract value.

5.4.5 Is the fee contingent on the tax advantage

The hallmark applies where the fee is contingent upon the scheme delivering the expected tax advantage in the sense that the tax analysis underpinning the scheme is correct.

This test is therefore not met where the fee is contingent wholly on factors other than the tax analysis being correct, for example, where the fee in connection with an employment-related scheme is contingent upon the number of employees taking up an employer’s offer to enter into the scheme.

This hallmark is met if some or all of the ‘fees’ funded directly or indirectly by a client are refundable to the client if the scheme fails to obtain the expected tax advantage. This hallmark is also met if some or all of the fees are payable by a client if they succeed in obtaining the expected tax advantage.

5.4.6 Factors that are not attributable to the expected tax advantage

We know that the size of fee charged is not the only reason why a client may choose a particular accounting or law firm.

When applying the hallmark you need to consider whether a fee could be charged in respect of any element of the tax arrangement such that it would to a significant extent be attributable to, or contingent upon, the expected tax advantage. So a fee is not a premium fee solely on account of factors such as the:

• adviser’s location — for example, fees could be expected to be higher in London
• urgency of the advice — a fee that is higher due to the adviser having to give the advice urgently is not a premium fee for that reason alone
• size of the transaction — if a large amount is at stake on a deal, the tax adviser may wish to increase their fee to reflect the greater level of exposure
• skill or reputation of the adviser — some advisers normally charge more for advice than others to reflect the perceived higher quality of advice they offer
• scarcity of appropriately skilled staff — some areas of tax advice are more complex and fees may be higher to reflect this
• number of users who sign up for a scheme — in some schemes, for example certain salary sacrifice schemes, the size of the fee depends upon the number of employees who take up the scheme

5.4.7 Person experienced in receiving services of the type being provided

Having identified that there is a premium fee the legal test is that the fee could be obtained from a person experienced in receiving services of the type being provided. This is an objective test.

The services in question are the services which enable the scheme to be made available for implementation and to operate in such a way that it might be expected to give rise to tax advantages.

The First-tier Tribunal has identified several different factors that are or may be relevant to this condition.

In Revenue and Customs v EDF Tax Ltd (2019 UKFTT 598 122) the tribunal concluded that ‘the level of sophistication of the letters and deeds and the references to counsel’ demonstrated that suitably experienced clients would have paid the fees that the promoter charged them.

In Revenue and Customs v Curzon Capital Ltd (2019 UKFTT 63) the Judge concluded that ‘the general presentation of the Arrangements, including the level of detail provided and their fulsome endorsement by specialist leading counsel’ indicated that those arrangements were clearly directed to the serious potential scheme user.

In Revenue and Customs v Hyrax Resourcing Ltd (2019 UKFTT 175) the tribunal held there was evidence that the users of the scheme had previously entered into very similar schemes and so were in any case experienced in receiving services of a similar nature and paying a premium fee in relation to those services.

5.5 Hallmark 5: standardised tax products Income Tax, Capital Gains Tax or Corporation Tax

5.5.1 The legislation

Hallmark 5 is prescribed by regulations 10 and 11 to the Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2006 (SI 2006/1543).

5.5.2 About the hallmark

The hallmark also applies where the tax advantage arises in relation to the Apprenticeship Levy.

This hallmark only applies where there is a promoter of the arrangements (see section 4.5 and, other than some exceptions, is intended to capture what are often referred to as ‘mass marketed schemes’.

The fundamental characteristic of such schemes covered by this hallmark is how easily the same or very similar arrangements can be made available to multiple users. It is this that the hallmark targets rather than how many users or potential users implement the scheme or how it is made available. The number of clients, or potential clients, can vary enormously, as can the way in which they are ‘marketed’. Essentially, all the client purchases is a prepared tax product that requires little, if any, modification to suit their circumstances. To adopt it would not require them to receive significant additional professional advice or services.

The hallmark is met when the tests are met and the product does not fall within one of the exceptions.

5.5.3 Test 1: are the arrangements made available generally

The manner in which schemes caught by this hallmark are promoted can vary enormously. At one end of the spectrum the scheme promoter could enter into a proactive campaign or aggressive marketing strategy.

At the other (especially for established schemes) the promoter could simply react to a casual enquiry for ‘ideas’ from a potential client or offer them a product having identified a potential need, such as whilst carrying out consultancy work.

Consequently, this test is not based on how or why a scheme is promoted but how available it is to potential users, for example whether or not it is bespoke.

Subject to the other tests and exceptions, the hallmark will apply to any ‘tax product’ that a promoter makes available for 2 or more persons to implement.

5.5.4 Informed observer

Tests 2 and 3 are considered by reference to how they might be applied by a hypothetical informed observer. It requires the promoter or other person with a potential duty to notify HMRC about the scheme to consider whether an informed observer, who has studied the arrangements and taken all relevant circumstances into account, could reasonably be expected to conclude that all of the tests are met. If this condition is met, then the hallmark covers the arrangements.

An informed observer is to be contrasted with an ‘uninformed observer’ but is not an ‘expert’ or necessarily a tax practitioner.

The informed observer is independent, has all relevant information about the scheme and has sufficient knowledge to understand both the scheme and the relevant statutory context.

To sum up, the informed observer is assumed to have the appropriate knowledge and skill set to reach the conclusions that the hallmark requires.

While the promoter is not an informed observer for this purpose, the informed observer should be presumed to have access to all of the information that is available to the promoter of the scheme.

The scope of ‘all relevant circumstances’ will vary according to the nature of the standardised tax product, but circumstances that it may be relevant for the informed observer to take into account include:

• commercial factors such as what commercial benefits distinct from the tax advantages are expected to arise from the arrangements
• the terms of the documentation and the substance of the product, and
• HMRC guidance

5.5.5 Test 2: are the arrangements standardised

This test is intended to limit disclosure under this hallmark to those arrangements that are offered by the promoter as a finished ‘product’, rather than a package of proposed arrangements and additional services.

In order for the hallmark to apply:

• the arrangements will have standardised, or substantially standardised, documentation which enables a person to implement the arrangements
• the form of the documentation will have been determined by the promoter, and the substance of the documentation will not require tailoring to any material extent to reflect the personal circumstances of different users

As a minimum this will mean that standardised contracts, agreements or other written understandings between the parties to the arrangements are provided by the promoter to the person or persons implementing the arrangements. Instructions on how to implement the scheme might, typically, also be included, as may a copy of Counsel’s Opinion.

The tribunal in Revenue and Customs v Premiere Picture Ltd (2021 UKFTT 58 62(2)), decided that the documents enabling users of the scheme to enter into the scheme were substantially standardised because:

the only differences between the version of one of those documents which was used for one participant and the persion of the same document which was used for another participant were those that were required to take into account the unique personal details of each participant and were not material.

In order for this hallmark to apply, the transactions each user must enter into in order to implement the scheme will be substantially standardised. For example, a person entering into the scheme may be required to join a specific partnership, take out a specific loan from a specific provider, buy a specific financial instrument and so on.

Judge Mosedale concluded in Revenue and Customs v Hyrax Resourcing Ltd (2019 UKFTT 175 252) that:

What Parliament meant by the use of ‘must’ in regulation 10, because it is the only reading which makes sense, is that it needs to be shown that the implementation of the scheme was only possible by the scheme user entering into a specific transaction or series of transactions.

This test applies by reference to the way the informed observer would regard the substance of the documentation used and the transactions entered into. If a number of persons are entering into transactions that are substantially the same incidental or immaterial differences in the wording of each user’s documentation effecting those transactions would not prevent the informed observer from being reasonably expected to conclude that the documentation is substantially standardised.

The standardised or substantially standardised documents do not need to have been written or created by a promoter. They may have been commissioned by the promoter to be authored by another person. If promoter chooses the form of the documents which enable 2 or more persons to implement the arrangements, and the form of the documents is standardised or substantially standardised, the condition that the promoter has determined the form of the documentation will be satisfied, even if those documents are taken ‘off the shelf’.

5.5.6 Test 3: are the arrangements a tax product

There are 2 alternative tests. Only one test needs to be met in order for the arrangements to be a tax product covered by the hallmark.

These 2 alternative tests are intended to identify products that would be highly unlikely to exist but for the tax advantage or, if they did exist without the tax advantage arising, would not be commercially viable.

The 2 alternative tests do not cover all standardised arrangements which might enable a person to obtain a tax advantage. The tax advantage may, for example, not be the main purpose of the arrangements where tax relief is provided for in legislation in order to support ordinary business or investment decision-making.

In cases of ordinary business or investment decision making HMRC accepts that it would be reasonable to expect an informed observer to conclude that a standardised product may be likely to be marketable without the tax advantages it offers and as such is not a standardised tax product caught by this hallmark.

For instance, the simple decision to fund business activities using debt rather than equity is outside the scope of the standardised tax product hallmark as it would be reasonable to expect an informed observer to conclude that the decision as to how to raise finance will be principally a commercial decision in relation to which the aim of obtaining a tax advantage is not the main purpose.

On the other hand, the standardised tax product hallmark may apply where tax relief is given or where funds are raised through debt instead of equity if it would be reasonable to expect an informed observer to conclude that there are elements of the arrangements which seek artificially to inflate the value of the tax reliefs or interest deductions in ways that are not driven by commercial factors.

5.5.7 Test 3: are the arrangements a tax product: main purpose to obtain a tax advantage

One of the alternative tests asks whether the main purpose of the product is to enable a person to obtain a tax advantage. Note that it is not enough under this test for the obtaining of a tax advantage to be only one of the main purposes of the arrangements. Obtaining that advantage must be their single main purpose.

Judge Nugee considered what he thought was the correct approach to identifying the purposes of arrangements in paragraph 104 of his decision in the case of Seven Individuals (2017 UKUT 132). He considered that the relevant factors for an avoidance scheme are:

• not only the intentions, motives or purposes of the individual taxpayer alone
• but also the wider context of:
  • why the arrangements took the form they did
  • how those who devised the arrangements hoped they would work
  • the way in which they were promoted to potential participants

In Revenue and Customs v Premiere Picture (2021 UKFTT 58) the tribunal concluded that the main purpose of the arrangements was to obtain tax advantages because their expectation of obtaining tax advantages were the only reasons why users were persuaded to enter into the schemes.

Although participants may have hoped to make a commercial profit from the partnership’s film investments, this hope ‘was no different from the hope of profit held by a person placing a bet on a rank outsider in a horse race. In other words, it was a benefit which the relevant participant hoped, but did not expect, to obtain. What is also clear is that the expected revenue from the films was certainly insufficient, in and of itself, to persuade the participants to participate in the arrangements’.

5.5.8 Test 3: are the arrangements a tax product: unlikely to enter scheme except for the tax advantage

The other alternative test asks whether the person or persons who entered into the arrangements would be unlikely to do so if it were not for the expectation of obtaining a tax advantage.

5.5.9 Test 4: is the tax product not within an exception

There are a number of standardised tax products that are excepted from disclosure. The list of exceptions is found at regulation 11 to the relevant legislation.

The exceptions from the hallmark recognise that arrangements promoted by a bank may also be notifiable under the financial (see section 5.9) products hallmark were it not for the statutory exclusion for arrangements falling within the Code of Practice on Taxation for Banks.

The exception ensures that if standardised arrangements, which include a financial product, would be excepted from the financial products hallmark because the arrangements are compliant with the Code of Practice on Taxation for Banks, then those arrangements will not be notifiable under the standardised tax products hallmark either.

5.5.10 Packaged solutions

Accountants, suppliers and other promoters of tax arrangements often maintain a ‘solutions register’ that enables them to offer the same or similar solution to more than one client.

The ‘solution’ will often require transactions of a specific nature to be carried out, possibly in a pre-ordained sequence, such as clauses to be inserted into contracts. It will be a matter of scale and degree as to whether schemes on these registers fall within this hallmark.

In general, we would not expect such schemes to be caught where, before they can be implemented, the relevant transactions or documentation require significant tailoring to suit the client’s circumstances, or there are other circumstances where the input from a professional goes substantially beyond rudimentary oversight and checking.

5.5.11 Examples

Arrangements involving the following types of product are unlikely to be standardised tax products covered by the hallmark on the assumption they are being entered into for ordinary, genuinely commercial reasons and are not designed to obtain greater tax relief than is envisaged:

• Social Investment Tax relief (SITR)

• Seed Enterprise Investment Schemes (SEIS)

• Quoted Eurobonds

• Excluded Indexed securities

These types of product should not be notifiable unless they are used as part of wider arrangements which are structured in such a way that an informed observer could reasonably be expected to conclude that their main purpose is the generation of a tax advantage.

This might arise for example where they form part of wider and more complex arrangements which seek to obtain more relief than would otherwise be due but for the inclusion of those wider arrangements or transactions.

Social Investment Tax Relief (SITR)

The main purposes of SITR funds are to promote investment which supports social enterprise and to produce investment income for investors. The tax relief compensates to an extent for the disproportionately high cost of due diligence needed to evaluate the potential success of the social enterprise before investing.

These main purposes apply to ordinary use of investments of this sort which are not part of wider tax-driven arrangements.

HMRC does not consider that an informed observer could reasonably be expected to conclude that the main purpose of arrangements comprising an SITR fund is to enable a person to obtain a tax advantage.

It is also HMRC’s view that an informed observer could reasonably be expected to conclude that SITR investments, which do not form part of wider arrangements, would proceed to a significant degree if the tax incentives were not available.

Accordingly it is HMRC’s view that funds which qualify for SITR are not notifiable arrangements by virtue of the standardised tax product hallmark applying.

Seed Enterprise Investment Schemes (SEIS)

SEIS complements the older Enterprise Investment Scheme reliefs. SEIS is intended to recognise the particular difficulties which very early stage companies face in raising funds by offering tax relief at a higher rate.

The main purposes of SEIS are to promote investment in early stage companies and to produce investment income for investors. The tax relief compensates to an extent for the disproportionately high cost of due diligence needed to evaluate the potential success of the companies before investing.

HMRC considers that were individuals to have sufficient information about the early stage companies they would continue to make decisions to invest because of the potential for such investments to produce significant income and gains. It is therefore HMRC’s view that an informed observer could reasonably be expected to conclude that investments through SEIS would not have obtaining a tax advantage as their main purpose and would proceed to a significant degree if the tax incentives were not available. It is accordingly HMRC’s view that SEIS are not notifiable arrangements by reason of the standardised tax product hallmark applying.

Quoted Eurobonds

The issuing of securities is a commercial practice. The genuine raising of finance by way of debt, including through the use of quoted Eurobonds, rather than equity has a commercial purpose and benefit.

HMRC considers that the benefit of paying interest on a security with commercial terms, without being required to withhold Income Tax from the interest, is not important or significant compared with the main benefit of the arrangements, which is to raise or maintain working capital.

HMRC also does not consider that such finance is unlikely to have been raised without the tax advantage of being entitled to pay interest without withholding Income Tax. The tax advantage of not being required to account for withholding tax is not one of the main benefits of the arrangements therefore s306(1)(c) Finance Act 2004 is not satisfied and the standardised tax products hallmark does not need to be considered.

There is HMRC guidance on Eurobonds in the Corporation Tax Manual at CTM35218.

Excluded Indexed securities

The issuing of securities is a commercial practice. The main purpose of doing so is generally to raise capital, not to obtain a tax advantage.

It is HMRC’s view that an informed observer could not reasonably be expected to conclude that the main purpose for issuing Excluded Indexed Securities is to enable a person to obtain a tax advantage, unless the securities are issued as part of wider arrangements designed to obtain greater tax relief than envisaged.

HMRC considers that Excluded Indexed Securities are not brought within the scope of the standardised tax products hallmark as a result of the favourable tax treatment of the returns on such securities.

There is HMRC guidance on Excluded Indexed Securities in the Savings and Investment Income Manual at SAIM9070.

5.6 Hallmark 6: loss schemes Income Tax and Capital Gains Tax

5.6.2 About the hallmark

This hallmark only applies where there is a promoter of the arrangements (see section 4.5) and is intended to capture various loss creation schemes that are typically used by wealthy individuals.

The schemes vary considerably in detail but are normally designed so that they generate trading losses for wealthy individuals that can then be offset against Income Tax and Capital Gains Tax liabilities or generate a repayment.

The hallmark is met when the tests are met.

5.6.3 Test 1: is more than one individual expected to implement the tax arrangements

This test is met if the promoter expects that there will be more than one individual client for each set of arrangements having the same, or substantially the same, form.

5.6.4 Informed observer

Tests 2, 3 and 4 are considered through the eyes of a hypothetical informed observer. It requires the promoter or other person with a potential duty to notify HMRC about the scheme to consider whether it would be reasonable to expect an informed observer, who has studied the arrangements and taken all relevant circumstances into account, to conclude that all of the tests are met. If this condition is met then the hallmark covers the arrangements.

An informed observer is to be contrasted with an ‘uninformed observer’ but is not an ‘expert’ or necessarily a tax practitioner. The informed observer is independent, has all relevant information about the scheme and has sufficient knowledge to understand both the scheme and the relevant statutory context. To sum up, the informed observer is assumed to have the appropriate knowledge and skillset to reach the conclusions that the hallmark requires.

While the promoter is not an informed observer for this purpose, the informed observer should be presumed to have access to all of the information that is available to the promoter of the scheme.

The scope of ‘all relevant circumstances’ will vary according to the nature of the arrangements but circumstances that it may be relevant for the informed observer to take into account include:

• commercial factors such as what commercial benefits distinct from the tax advantages are expected to arise from the arrangements

• the terms of the documentation and the substance of the product

• HMRC guidance

5.6.5 Test 2: is the provision of losses one of the main benefits expected to accrue to one or more individuals participating in the arrangements

Arrangements are not notifiable unless the arrangements enable or might be expected to enable a person to obtain a tax advantage and obtaining that advantage is one of the main benefits expected to arise from the arrangements (see section 4.2 and section 4.3). Test 2 supplements the ‘main benefit’ condition in section 306(1)(c).

The test is objective and involves a comparison of:

• the value of the expected tax advantage resulting from the provision of losses under the arrangements, and

• the value of any other benefits expected to arise as a result of individuals participating in the arrangements

The test is passed if the hypothetical informed observer could reasonably be expected to conclude that the provision of losses is one of the main benefits expected to accrue from the arrangements. The provision of losses will be a main benefit if they are a significant or important element of the benefits and not incidental or insubstantial.

The application of the loss schemes hallmark is therefore not limited to schemes where there are no benefits other than the tax advantage or where the value of those other benefits is insignificant compared to the tax reliefs resulting from the losses.

The provision of losses will be the main benefit expected to accrue from participating in the arrangements (not merely one of the main benefits) if they are the most significant or most important element of the benefits.

Although the test is not limited to such cases, the provision of losses will always be the main benefit where, for example, it would be reasonable to expect the value of the tax relief from claiming losses expected to accrue under the arrangements to be greater than the total amount of the investment which represents real personal risk.

This could happen where the amount an individual invests in the scheme is geared up by a non-recourse loan or limited recourse loan obtained from sources connected with the scheme and the way the arrangements operate means that however little income or capital gains the scheme generates, the value of the tax relief will be greater than the amount the individual ‘investor’ has, in economic substance, contributed.

This test does not catch genuine business start-ups where any losses are an unintended, albeit possibly predictable, consequence.

5.6.6 Test 3: would it be unlikely the arrangements, or any element of the arrangements, would have been entered into were it not for the provision of the losses

Test 3 is intended to identify arrangements that it is highly unlikely would exist but for the tax advantage they are expected to enable a person to obtain or, if they did exist without giving rise to the tax advantage, would not be marketable propositions.

This test applies by reference to an informed observer. It requires the promoter or other person with a potential duty to notify HMRC about the scheme to consider whether an informed observer could reasonably be expected to conclude that the arrangements include uncommercial transactions.

Uncommercial transactions include, for example, terms or steps which it is unlikely would be entered into but for the value of the loss relief claims which the arrangements are expected to enable participants to make. The considerations that the informed observer would take into account will include the extent to which economic losses differ from the tax losses and whether losses are incurred as part of real commercial transactions or are contrived as part of an avoidance scheme.

Under this condition, genuine business start-up losses, which are an ordinary consequence of starting up a new business venture, remain outside the scope of the loss schemes hallmark.

However, the theoretical projection of a profit at some point in the distant future would not prevent the hallmark from applying and requiring the disclosure of the arrangements.

5.6.7 Test 4: would the individuals to which the losses accrue be expected to claim relief for those losses against other taxable income or gains

This test is met if an informed observer could reasonably be expected to conclude that individuals which participated in the arrangements would be expected to be able to reduce the tax payable on other income or gains by claiming relief for those losses.

5.7 Hallmark 7: leasing arrangements Income Tax Corporation Tax

5.7.1 The legislation

Hallmark 7 is prescribed by regulations 13 to 17 to the Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2006 (SI 2006/1543)

5.7.2 About the hallmark

This hallmark applies both to promoted and ‘in-house’ arrangements, but for in-house arrangements it does not apply where the person intended to obtain the tax advantage is a small or medium enterprise.

It is met when both:

• all of tests 1 to 3 described in section 5.7.3, 5.7.4 and 5.7.5 are met

• any one of the 3 additional conditions is met

5.7.3 Test 1: does the arrangement include a plant or machinery lease

The hallmark only applies if the arrangement includes a plant or machinery lease. In brief, this is:

• any agreement or arrangement under which a person grants to another person the right to use plant or machinery for a period and which in accordance with generally accepted accounting practice falls, or would fall, to be treated as a lease

• any other agreement or arrangement to the extent that, in accordance with generally accepted accounting practice falls (or would fall) to be treated as a lease, the agreement conveys (or falls or would fall to be regarded as conveying) the right to use an asset, and the asset is plant or machinery

• the finance lease where plant or machinery is the subject of a sale and finance leaseback as defined in section 221 of the Capital Allowances Act 2001

5.7.4 Test 2: is the lease of high value

The hallmark only applies to high value plant or machinery leases. It is a high value lease when, of the assets forming part of the plant and machinery leased or to be leased under it:

• the cost to the lessor of any one asset or its market value (whichever is lower) is at least £10 million

• the cost to the lessor of all the assets or their market value (whichever is lower) is at least £25 million

Facilities to lease assets with an individual value of £10 million or to the aggregate value of at least £25 million are caught by this test even if there is no guarantee that the £25 million threshold will be reached and should be disclosed when the facilities are made available.

Where a succession of leases are made to the same parties, or persons connected with them, and they are negotiated at the same time or as part of the same series of negotiations (that is, as part of the ‘arrangements’), the value of the plant or machinery to be leased under all the leases should be aggregated.

The acquisition of assets with an aggregate value of more than £25 million (and no individual asset is at least £10 million) does not have to be disclosed if the assets are to be leased to a variety of clients and no individual lease meets the £10 million or £25 million threshold, as appropriate.

5.7.5 Test 3: is the lease a long lease

The hallmark only applies where the lease is not a short-term lease. The meaning of ‘short-term lease’ is different from that of ‘short lease’ in section 70I of the Capital Allowances Act 2001.

A short-term lease is one whose term is 2 years or less but does not include leases that:

• contain an option allowing the lessee to extend the lease beyond 2 years

• at the time of inception, other arrangements have been entered into that contemplate an extension beyond 2 years

• are incepted on or after 1 August 2006 with the intention that the assets be leased under it to one or more other persons such that the aggregate term exceeds 2 years

5.7.6 Additional condition 1: does the lease involve a party outside the charge to Corporation Tax

This additional condition applies where the arrangement includes one or more plant or machinery lease entered, or to be entered, into by:

• a party who is entitled to claim capital allowances (on plant and machinery) in relation to the leased asset

• a party who is not, or would not be, within the charge to Corporation Tax

It does not matter how many parties there are to the lease.

Where there are more than 2 parties involved the arrangement is a hallmarked scheme if there are, or would be, parties to the lease meeting each of the bullets.

A manufacturer may, of course, be a lessor and so a party to the lease, but a manufacturer of leased equipment is not a party to the lease merely by virtue of being a supplier to the lessor.

A party that acts solely as a guarantor is not taken into account in considering whether this condition is met — however you need to consider whether the guarantee provided is such that the second additional condition is met.

5.7.7 Additional condition 2: does the arrangement involve the removal of risk from the lessor

This additional condition applies where the arrangement includes provision that:

• removes the whole, or the greater part, of the risk that would otherwise fall directly or indirectly upon the lessor if payments due under the lease were not made in accordance with its terms

• does so by the provision of money or a money debt

• ‘money’ includes money expressed in a currency other than sterling

• ‘money debt’ means any obligation that falls to be, or may be, settled by the payment of money, or the transfer of a right to settlement under an obligation which is itself a money debt. It covers all trade debts, as well as other money debts, such as debentures

5.7.8 Additional condition 3: does the arrangement involve a finance leaseback

This additional condition applies where the arrangements consist of, or include:

• a sale and finance leaseback arrangement

• a lease and finance leaseback

However, there are 2 exceptions to this general rule.

First, this additional condition does not apply where the arrangements consist of, or include a sale and finance leaseback arrangement and, at the time the sale and finance leaseback is entered into, the assets leased, or to be leased, are new. By this it is meant that the assets:

• at the time they are acquired or created by the seller, are unused and not second-hand

• were acquired or created by the seller not more than 4 months before the sale part of the sale and finance leaseback arrangement

Second, it is recognised that many property transactions consist of sale or lease and finance leaseback, and most property includes plant or machinery such as central heating and air conditioning. It is not intended that the simple sale and leaseback of plant or machinery within a typical building such as an office block fall within this additional condition.

The hallmark does not attempt to define the type of plant or machinery that is excluded when leased with land. Instead it takes the approach that the arrangements do not need to be disclosed where:

• the plant or machinery is, or is expected to become, a fixture that is part of the leased land

• the plant or machinery does not exceed half the value of the leased assets

• the rent payable under the lease is not directly or indirectly dependent on the availability of capital allowances

However, leases involving plant and machinery used for storage or production do not fall within this exemption.

So, for example, if a factory is sold and leased back where the production line plant in the factory has a value of over £25 million (or contains equipment with an individual value of over £10 million) it will need to be disclosed.

But the sale and leaseback of an office block costing £100 million with £35 million of plant or machinery that does not meet the definition of ‘plant used for storage or production’ will not need to be disclosed under this condition.

5.8 Hallmark 8: employment income IT, National Insurance contribution

5.8.1 The legislation

Hallmark 8 is prescribed by regulation 18 of the Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2006 (SI 2006/1543).

5.8.2 About the hallmark

The hallmark applies to arrangements which seek to avoid the provisions of Part 7A Income Tax (Earnings and Pensions) Act 2003 (Employment Income Provided Through Third parties).

The hallmark applies to all schemes in the same way whether or not there is a promoter.

Arrangements designed to circumvent Part 7A are normally intended to obtain not only a tax advantage but also a National Insurance contributions advantage. The employment income hallmark applies for the purposes of both Income Tax and National Insurance contributions.

The hallmark uses a number of terms which are defined in Part 7A ITEPA 2003. There is detailed guidance on Part 7A in the Employment Income Manual beginning at EIM45000.

The hallmark applies to both promoters and those designing notifiable arrangements for use ‘in-house’.

Unlike other hallmarks for ‘in-house’ notifiable arrangements this hallmark applies to all sizes of business.

The hallmark includes 3 principal conditions. These 3 conditions must be taken into account in relation to every scheme when considering whether or not the hallmark applies to that scheme.

5.8.3 Condition 1: the ‘step’ condition

The Hallmark uses the terminology of Part 7A ITEPA 2003. If no step within the hallmark is taken, value does not emerge to benefit ‘A’ (broadly speaking, the employee) and the arrangement does not satisfy condition 1.

Condition 1 is met when a relevant third person (that is not the employer or employee) takes a relevant step as defined in section 554B and 554C ITEPA 2003. A section 554B step involves earmarking money or another asset with a view to providing benefits to an employee or former employee. There is more detailed guidance on ‘earmarking’ within section 554B in the Employment Income Manual starting at EIM45095.

Condition 1 is also met if the arrangements involve any person taking a relevant step under section 554C or 554D ITEPA 2003. In general terms these steps require the payment of money, including in the form of a loan, or the transfer of an asset (see EIM45060 to 45080) in relation to a ‘relevant person’ as defined in section 554C(2) and (3) and by section 554D(5) and (6). The person taking this step does not need to be a relevant third person so it covers arrangements where the step is taken, for example, by the employee’s employer, even though Chapter 2 of Part 7A could not apply by reason of such a step.

There is guidance on the meaning of a ‘relevant person’ in the Employment Income Manual at EIM45090.

Condition 1 is also met if the arrangements involved ‘B’ (broadly speaking, the employer) earmarking a sum of money or asset with a view to the provision of retirement benefits or security for the provision of retirement benefits (see EIM45150 and 45155). For the purposes of Condition 1, it does not make any difference when the relevant step is to be taken.

5.8.4 Condition 2: the main benefit condition

Condition 1 is very broad. But it is a necessary condition, not a sufficient condition. Therefore, the hallmark will not apply to arrangements merely because they meet condition 1. Arrangements also need to meet condition 2, which is much narrower.

Condition 2 is the ‘main benefit’ condition. It is met if the main benefit, or one of the main benefits, of the arrangements is that an amount that would otherwise count as employment income under section 554Z2(1) is reduced or eliminated.

The elimination or reduction of the amount counting as employment income because of Chapter 2 of Part 7A will be a main benefit if the elimination or reduction is a significant or important element of the benefits resulting from the arrangements.

If arrangements have more than one main benefit, and one of the main benefits is that an amount counting as employment income under section 554Z2(1) is reduced or eliminated, condition 2 is met, no matter what the other main benefit or benefits may be.

The application of the hallmark is therefore not limited to schemes where there are no benefits other than the reduction in the tax and National Insurance contributions liabilities or where the value of those other benefits is insignificant compared to the tax reliefs resulting from the losses.

However if the benefit of reducing or eliminating Part 7A income is peripheral and the main benefit (or main benefits) of the arrangements do not include tax and National Insurance contributions advantages, the arrangements will not satisfy condition 2.

In paragraph 275 of Judge Mosedale’s decision in Revenue and Customs v Hyrax (2019 UKFTT 175) the judge found that it was essential to the Hyrax arrangements that Part 7A ITEPA was by-passed” and accordingly that if the amounts employees received in the form of loans counted as employment income under Part 7A “the whole purpose of the arrangement would be frustrated”.

On this basis, they concluded that the reduction or elimination of amounts that would otherwise be subject to Part 7A was at least one of the main benefits of the arrangements and condition 2 was met.

The hallmark has different tests which must be satisfied depending on whether or not a specific Part 7A exclusion applies. However, conditions 1 and 2 must always be met if the hallmark is to apply.

5.8.5 Condition 2: example A: relevant step taken by employer

If an employer makes a normal salary payment to an employee, this will be a relevant step under section 554C and will thus meet condition 1.

However, an employer is not (except in certain unusual circumstances) a relevant third person, and so the salary payment will not trigger Part 7A.

This is a consequence of the arrangements. But reduction or elimination of Part 7A income is not the main benefit, or one of the main benefits, of the arrangements.

Therefore condition 2 is not met.

5.8.6 Condition 2: example B: relevant step taken by employer

In the case of Revenue and Customs v EDF Tax Ltd (2019 UKFTT 589), the tribunal considered a scheme which included a tripartite deed. The parties to the agreement were the employer, a director of the employer and an EBT.

Under the deed the employer made a payment to the director while the director became liable to repay a debt that the employer owed the EBT.

The tribunal agreed with HMRC that the scheme was intended to avoid the application of Part 7A ITEPA 2003 because loans from a trustee of the EBT would have been a relevant step. The intention was that the application of Part 7A would be avoided by having the loan from the employer under the tripartite deed instead.

The tribunal therefore concluded that the elimination of amounts counting as employment income under Part 7A was at the very least least one of the main benefits of the arrangements and condition 2 was satisfied.

5.8.7 Condition 2: example — sale of shares at market value

An employee benefit trust (EBT) sells shares in the sponsoring employer to an employee for market value. Because this meets the conditions of section 554Z8, there will be no Part 7A income.

But this will not be the main benefit, or one of the main benefits, of the transaction, it will be, at most, only a peripheral benefit. The main benefit of the transaction will be obtaining an asset with the hope of gaining investment return which is not reflected in its market value.

5.8.8 Condition 2: example — ‘two-step’ employee share offers

Arrangements will not meet Condition 2 merely because they are complicated. The sponsoring employer of an EBT approaches the EBT trustees with a recommendation that the trustees sell a number of shares to employees at market value. The recommendation is made in such a way that, if the trustees agree that they will make such a sale, they do not thereby take any relevant steps under section 554B.

Sometime later, after the administrative and HR aspects of the arrangements have been completed, the employer asks the trustees to transfer specified parcels of shares to identified employees for immediate completion of the sale. The share transfers are relevant steps under section 554C.

The trustees earmark shares to be transferred, but, because the arrangements are such that they do not earmark the shares with a view to a later relevant step, they do not take any relevant steps under section 554B.

Condition 1 is met, because the trustees take relevant steps under section 554C. One of the benefits of the arrangements is that the Part 7A income arising on the section 554C step is, in each case, reduced under section 554Z8 by the consideration paid for the shares.

However, it does not follow that condition 2 is met. If one considers the benefits, the ‘two-step’ arrangements are a more complex version of the example in section 5.8.6.

The main benefit of the transaction will be obtaining an asset with the hope of gaining investment return which is not reflected in its market value, not the reduction or elimination of Part 7A income.

5.8.9 Condition 2: example — new employee share scheme set up to reduce earmarking charge

Arrangements will not meet condition 2 merely because they include a new arrangement which takes account of Part 7A.

The owner of a private company wants to sell some shares to an employee at market value. Although the employee is not able to pay for the shares now, the parties expect that the employee will be able to pay for them in the not-too-distant future.

The parties foresee the following Part 7A consequences. On earmarking shares to sell to the employee at the expected future date, the shareholder will take a relevant step under section 554B. And, on selling the shares, the shareholder will also take a relevant step, under section 554C.

Under section 554Z5, the value of the section 554B step would reduce the value of the section 554C step which would be nil anyway, as the employee would have paid market value for the shares.

Accordingly, the parties set up a new employee share scheme, under which the shareholder grants a share option to the employee, the exercise price being equal to the market value of the shares at the time of the grant of the option.

The arrangement is such that all the conditions of section 554Z7(1) are satisfied, in particular, there is no connection (direct or indirect) between the shareholder’s earmarking of the shares and a tax avoidance arrangement (cf. section 554Z).

Consequently, as provided by section 554Z7, the value of the section 554B step is reduced to nil by the exercise price. This is one of the benefits of the arrangements.

The employee exercises the option as planned and pays for the shares, being taxed on any increase in value of the shares over the exercise price by the normal share option tax rules in Chapter 5 of Part 7. See ERSM110000.

Condition 2 is not met. The main benefit of the transaction will be obtaining an asset with the hope of gaining investment return which is not reflected in its market value, not the reduction or elimination of Part 7A income.

5.8.10 Condition 2: example — unfunded employer-financed retirement benefit scheme (EFRBS)

An employer and an employee are considering the provision of retirement benefits by means of an EFRBS. They realise that a funded EFRBS, whereby defined contributions are paid to a trust and immediately earmarked for the employee’s benefit, would trigger Chapter 2 of Part 7A.

A promoter has designed a proposal for arrangements under which an employer:

• makes a contractual promise that it will, itself, pay retirement benefits to the employee based on the value of specified sums or assets whether or not actually held by employer

• never pays contributions to a third party to fund that third party to pay those benefits instead

The employer and employee agree that they will implement these arrangements by setting up an unfunded EFRBS.

Condition 1 is met because the payment of retirement benefits will be a relevant step under section 554C.

These arrangements escape Part 7A, because no relevant third person is involved. In the circumstances under review, the reduction or elimination of Part 7A income is not a peripheral benefit.

Funded EFRBS are among the arrangements which Part 7A is intended to catch. In the circumstances under review, one of the main benefits of the provision of retirement benefits by means of an unfunded EFRBS is the reduction or elimination of Part 7A income. Condition 2 is therefore met.

Because the arrangements are to pay retirement benefits, the Part 7A exclusions covering deferred remuneration and share and share option schemes cannot apply to them.

Because the arrangements are to pay retirement benefits based on the value of specified sums or assets, they are ‘money purchase’ defined contribution arrangements. They are thus different both from deferred remuneration and share and share option schemes and from defined benefit arrangements.

This example considers an EFRBS. A scheme that is restricted to providing pensions cannot be an EFRBS as defined in section 393A.

However, the Part 7A rules specific to EFRBS modify the definition where appropriate to include schemes which would be EFRBS except that they are restricted to providing pensions. Therefore, the employment income hallmark applies to such schemes in the same way that it applies to EFRBS as defined in section 393A.

HMRC continues to monitor the risks that increasing use of unfunded EFRBS presents to the Government’s objective of creating a more affordable pensions tax regime through restricting the tax reliefs for pension savings. The new employment income hallmark supports this activity.

5.8.11 Condition 3: the ‘exclusion’ condition

There are a number of statutory exclusions included in Part 7A ITEPA 2003 which would prevent amounts from counting as employment income under Part 7A in certain circumstances envisaged and defined by Parliament. The guidance explaining these statutory exclusions is in the Employment Income manual starting at EIM45200.

Condition 3 is met if the scheme in question does not give rise to amounts counting as employment income under Part 7A because they fall within one of the statutory exclusions.

For example, section 554F gives an exclusion for certain commercial transactions, and section 554G provides an exclusion for certain transactions under employee benefit packages.

Arrangements may involve taking advantage of a Part 7A exclusion in a way not intended by Parliament. Conditions 4 and 5 are included in the hallmark in order to cover such scenarios.

5.8.12 Condition 3: example — exclusion for pension income chargeable under Part 9

A UK resident individual receives employment-related pension income from a non- UK pension scheme. This income is chargeable to Income Tax under Part 9. Although the pension payment is a relevant step under section 554C, it comes within the exclusion in section 554S. Condition 3 is therefore met.

The arrangements are therefore outside the first scenario (regulation 18(1)(a)) whether or not Condition 2 is met.

5.8.13 Interaction between Conditions 1, 2 and 3

The hallmark cannot apply unless both condition 1 and 2 are met (see sections 5.8.3 to 5.8.10).

The hallmark applies where the scheme satisfies both conditions 1 and 2 but does not satisfy condition 3 (see sections 5.8.11 and 5.8.12). In these circumstances, there are no other conditions that need to be met for the hallmark to apply.

However, where the scheme satisfies condition 3 as well as conditions 1 and 2, the hallmark does not apply unless either condition 4 or condition 5 is also satisfied.

An employment-related scheme may involve taking advantage of a Part 7A exclusion in a way not intended by Parliament. Conditions 4 and 5 are included in the hallmark in order to cover such scenarios.

5.8.14 Condition 4: the ‘contrived or abnormal step’ condition

Condition 4 is met if the arrangements involve one or more contrived or abnormal steps without which the statutory exclusion from the scope of Part 7A would not have prevented part 7A from applying.

In Condition 4, ‘contrived’ and ‘abnormal’ have the same meaning as in section 207 of Finance Act 2013 (general anti-abuse rule: definition of ‘abusive’ tax arrangements).

It is often the case that perceived loopholes in tax legislation are very narrow, and that to enter into arrangements which are expected to enable a person to obtain a tax advantage requires the adoption of some step or feature that would not otherwise have been taken.

In practice the contrived or abnormal steps may take a wide variety of forms. The words ’contrived’ and ’abnormal’ are therefore not defined in the legislation and so will be applied in their normal sense.

Part D of the guidance about the General Anti Abuse Rule (GAAR) includes a number of examples to illustrate when an arrangement might be treated as abusive in the context of the GAAR. This includes consideration of whether the means of achieving the substantive tax results include any contrived or abnormal steps.

See the current guidance on the GAAR, which covers the meanings of ‘contrived’ and ‘abnormal’ in section 207 of the Finance Act 2013.

In condition 4, ‘the main benefit in paragraph (3)’ means the main benefit mentioned. It does not imply that condition 4 can only be met if there is only one main benefit.

In condition 4:

• the arrangements must include a contrived or abnormal step
• this step, on its own or in combination with other transactions forming part of the arrangements, must be necessary to the reduction or elimination of amounts counting as employment income under Part 7A as a result of a statutory exclusion applying
• this reduction or elimination of amounts counting as employment income must be at least one of the main benefits by reason of which condition 2 is satisfied

Part 7A is complex legislation, and taxpayers may therefore enter into complex arrangements in order to comply with Part 7A. In particular, the provisions of the share-related earmarking exclusions at sections 554J to 554M are very detailed and will involve careful design of plans or schemes to make sure those provisions are satisfied. In that context, the detail and complexity of particular arrangements will not, in themselves, mean that such arrangements are regarded as contrived or abnormal.

5.8.15 Condition 5: the ‘deliberate fall-back charge’ condition

Some of the exclusions in Chapter 1 of Part 7A are protected by what is commonly known as a ‘fall-back’ charge. If an arrangement at first comes within the exclusion, but later on fails to meet the statutory conditions, then Part 7A bites.

However, the relevant step which, because of the exclusion, did not give rise to Part 7A income still does not give rise to Part 7A income, the past is left undisturbed.

Instead, there is a deemed relevant step at the time when the statutory conditions are breached, giving rise to a ‘fall-back’ charge. See, for example, section 554O, especially section 554O(3) and (4).

These contingent fall-back charges are safeguards, rather than primary charging provisions. Condition 5 catches arrangements which seek to defer tax by excluding an upfront charge for the price of a later fall-back charge.

5.9 Hallmark 9: financial products Income Tax, Capital Gains Tax Corporation Tax

5.9.1 The legislation

Hallmark 9 is prescribed by regulation 19 of the Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2006 (SI 2006/1543).

5.9.2 About the hallmark

This hallmark covers arrangements which include one or more specified financial products and at least one of the main benefits of including the financial products in the arrangements is to give rise to a tax advantage.

It is intended to catch arrangements using financial products where there is a direct link between the financial product and all or part of the tax advantage the arrangements are expected to enable a person to obtain.

Where this is the case, the financial products hallmark aims to cover arrangements where either the:

• financial product includes one or more terms that are unlikely to have been entered into were it not for the tax advantage, or

• arrangements include one or more contrived or abnormal steps without which the tax advantage could not have been obtained

The hallmark includes 3 conditions. Conditions 1 and 2 are necessary but not sufficient on their own to bring arrangements within the hallmark. The hallmark will not apply merely because condition 1 or 2 or both are met. If the hallmark is to apply, both conditions 1 and 2 must be met and either condition 3 or condition 4 must also be met.

5.9.3 Condition 1

Condition 1 is a factual test. It is satisfied if the arrangements include one or more of the financial products specified in Regulation 20.

5.9.4 Informed Observer

The financial products hallmark requires the promoter or other person with a potential duty to notify HMRC about the scheme to consider whether it would be reasonable to expect an informed observer, who has studied the arrangements and taken all relevant circumstances into account, to conclude that condition 2 and either condition 3 or condition 4 are met.

An informed observer is to be contrasted with an ‘uninformed observer’ but is not an ‘expert’ or necessarily a tax practitioner. The informed observer is independent, has all relevant information about the scheme and has sufficient knowledge to understand both the scheme and the relevant statutory context.

To sum up, the informed observer is assumed to have the appropriate knowledge and skillset to reach the conclusions that the hallmark requires.

While the promoter is not an informed observer for this purpose, the informed observer should be presumed to have access to all of the information that is available to the promoter of the scheme.

The scope of ‘all relevant circumstances’ will vary according to the nature of the arrangements but circumstances that it would be relevant for the informed observer to take into account when determining whether conditions 2, 3 and 4 apply include:

• commercial factors such as what commercial benefits distinct from the tax advantages are expected to arise from the arrangements

• the terms of the documentation and the substance of the product

• HMRC guidance

5.9.5 Condition 2: main benefit

Arrangements are not notifiable unless they enable or might be expected to enable a person to obtain a tax advantage and obtaining that advantage is one of the main benefits expected to arise from the arrangements (see section 4.4).

The financial products hallmark does not apply unless it is also the case that it would be reasonable to expect an informed observer to conclude that one of the main benefits of including a financial product in the arrangements is to give rise to a tax advantage.

The term ‘tax advantage’ has the same definition in both tests see section 4.3. The test is objective and involves a comparison of the following:

• the value of the expected tax advantage resulting from the inclusion of a financial product in the arrangements

• the value of any other benefits expected to arise from the inclusion of the financial product

The test is passed if it would be reasonable to expect the hypothetical informed observer to conclude that the tax advantage resulting from the inclusion of the financial product is a significant or important element of the benefits and not incidental or insubstantial.

5.9.6 Condition 3: terms of financial product not likely to have been entered into but for the tax advantage

Condition 3 focusses on terms included in any specified financial products included in the arrangements. Terms in the wider arrangements of which those products form part are not considered as part of condition 3.

It is intended to identify financial products which include terms that it is unlikely would be acceptable to anyone considering the acquisition of that financial product were it not for the tax advantage the product offers, either on its own or in combination with other specified financial products.

As this test applies by reference to an informed observer, it requires the promoter, or other person with a potential duty to notify HMRC about the scheme, to consider whether it would be reasonable to expect the informed observer to conclude that the financial product includes one or more uncommercial terms.

In this context, a term or terms are regarded as uncommercial if the informed observer could reasonably be expected to conclude that it is unlikely that the term, or terms, would be included in the financial product were it not for the tax advantage that is a main benefit of including one or more financial products in the arrangements.

5.9.7 Condition 4: contrived or abnormal steps

Condition 4 is met when it would be reasonable to expect the hypothetical informed observer to conclude that the arrangements, in which the financial product or products are included, involve one or more contrived or abnormal steps without which the tax advantage could not be obtained.

As explained earlier, condition 2 must always be met in order for the hallmark to apply. As a result, arrangements are not notifiable arrangements by virtue of condition 4 unless the informed observer would reasonably conclude that the tax advantage arising from the inclusion of a specified financial product in the arrangements, would not be obtained without there also being one or more contrived or abnormal steps in those arrangements.

The tax advantage considered in condition 4 must be the same tax advantage, the existence or creation of which is one of the main benefits of including a financial product in the arrangements in condition 2.

As with the application of other tests underpinning different hallmarks, the test is to be applied on the basis that the informed observer would reach their conclusions after having studied the arrangements and having regard to all relevant circumstances including commercial rationale and HMRC guidance.

Steps taking place as part of transactions forming part of the arrangements under consideration are not regarded as contrived or abnormal under this hallmark if they have a justifiable commercial rationale in their own right, such that it would be reasonable to expect steps and arrangements of this sort to be entered into apart from the particular context of the arrangements in question.

It is often the case that perceived loopholes in tax legislation are very narrow, and that to enter into arrangements which are expected to enable a person to obtain a tax advantage requires the adoption of some step or feature that would not otherwise have been taken.

In practice steps that an informed observer might reasonably conclude are contrived or abnormal may take a wide variety of forms. The words ’contrived’ and ’abnormal’ are therefore not defined in the legislation and so will be applied in their normal sense.

Part D of the guidance about the GAAR includes a number of examples to illustrate when an arrangement might be treated as abusive in the context of the GAAR. This includes consideration of whether the means of achieving the substantive tax results include any contrived or abnormal steps.

When identifying steps which it considers an informed observer might reasonably conclude are contrived or abnormal, HMRC intends approaching this question in the same way in relation to the financial products hallmark as it does in relation to the GAAR.

5.9.8 Specified financial products

The financial products to which the hallmark applies are specified in regulation 20.

The category of specified financial products that includes loans is not limited to simple transactions for the direct or explicit lending of money. For example, debt instruments issued in exchange for a capital asset and other more complex arrangements that involve a person incurring liabilities to be repaid are also specified financial products by virtue of being ‘loans’.

Unlike the other categories of financial product, derivative contracts are only capable of being specified financial products if they are held by companies. Derivative contracts held by individuals are not financial products for the purposes of the hallmark.

5.9.9 Code of Practice on Taxation for Banks

Schemes are not disclosable under the financial products hallmark if the promoter is part of a banking group and the scheme would be, or has been confirmed to be, acceptable under the Code of Practice for Banks.

5.9.10 Examples illustrating the application of conditions 2, 3 and 4 in the financial products hallmark

Quoted Eurobonds

The issuing of securities is a commercial practice. The genuine raising of finance by way of debt, including through the use of quoted Eurobonds, rather than equity has a commercial purpose and benefit. HMRC considers that the benefit of paying interest on a security with commercial terms, without being required to withhold Income Tax from the interest, is not important or significant compared with the main benefit of the arrangements, which is to raise or maintain working capital.

HMRC also does not consider that such finance is unlikely to have been raised without the tax advantage of being entitled to pay interest without withholding Income Tax.

The tax advantage of not being required to account for withholding tax is not one of the main benefits of the arrangements therefore s306(1)(c) Finance Act 2004 is not satisfied and the financial products hallmark does not need to be considered.

There is HMRC guidance on Eurobonds in the Corporation Tax Manual 35218.

Self-invested personal pensions (SIPPs)

Members of SIPPs are entitled to claim Income Tax relief on the contributions they pay to the scheme. If a specified financial product is acquired or held as a scheme investment, the investment income and gains are exempt from tax in line with the rules for other types of registered pension scheme.

These are both tax advantages, but in straightforward cases where investments are being held for the purposes of increasing the value of authorised benefits payable to the member, it is HMRC’s view that it would not be reasonable for an informed observer to conclude that either condition 3 or condition 4 is met.

Excluded indexed securities

HMRC accepts that there is commercial demand for investments which include terms providing investment returns based on a specified index and that some investors prefer not to take direct ownership of the underlying assets. Excluded indexed securities are taxed under the capital gains rules. There is HMRC guidance on the tax treatment of excluded indexed securities in the Savings and Investment Income Manual 3050.

While the tax advantage is arguably a main benefit of holding excluded indexed securities, HMRC’s view is that these products, whose investment returns are determined by the value of certain assets, would be commercially viable without this favourable tax treatment.

Consequently, HMRC does not take the view that it would be reasonable for an informed observer to conclude that investors would be unlikely to choose to have their investment returns determined in this way, were it not for the tax advantages of investing in such securities nor that it involves any contrived or abnormal steps. HMRC would expect an informed observer to conclude that neither condition 3 nor condition 4 is met.

Tax advantaged employee share schemes

Setting up and operating a tax advantaged employee share scheme should not meet condition 3. In HMRC’s view, the types of shares which are stipulated in the relevant scheme rules should not contain any terms that it would be reasonable for an informed observer to conclude are unlikely to be entered into if there were no tax advantage.

Employee Ownership Trusts

The Employee Ownership Trust rules require shares to be disposed of to a qualifying vehicle and there is no need to include unusual terms in the shares for the rules to apply. Accordingly, condition 3 should not be met.

Real estate investment trusts (REIT)

Where a company meets the requirements to become a REIT it can notify HMRC that it intends to become one.

The exemption for the property rental business of a REIT arises through the company meeting the various statutory requirements for qualifying for that treatment. The tax advantage of the exemption does not arise from the inclusion of the company shares in the arrangements.

Condition 2 is therefore not met by reason of the company qualifying for treatment as a REIT. However, if the REIT shares are held as part of wider arrangements, then those arrangements must be considered against all of the hallmarks.

There is a summary of the conditions relating to REIT in HMRC’s Investment Funds Manual.

Earn-out rights

Where the consideration received for the disposal of shares consists of or includes earn-out rights, condition 1 will be met because the shares disposed of are a specified financial product.

If shares are to be received under the earn-out rights then those shares will also be a specified financial product. The earn-out right itself is not a specified financial product.

Where the consideration to be received under the earn-out rights takes the form of shares or debentures of the new company, then it will be a question of fact whether their use gives rise to a main benefit in the shape of a tax advantage, or whether all the main benefits of the arrangements are of another nature (such as the commercial advantage of the acquiring company). An informed observer may therefore conclude, depending on the facts of the case, that condition 2 is not met.

There would seem to be no reason for the specified financial products involved in earn-out arrangements to contain special terms and so an informed observer would not be expected to conclude that condition 3 is met.

Section 138A of the Taxation of Chargeable Gains Act 1992 allows the disposal of the old securities for the earn-out rights to enjoy a tax treatment similar to that afforded by section 135 on an exchange of shares.

It follows that where arrangements include steps intended to meet the conditions for section 138A to apply, those steps would not be viewed as contrived or abnormal by an informed observer provided that, if section 138A were not in point, they would have the effect of fulfilling the conditions for section 135 to apply. In such cases, condition 4 would therefore not be met.

An informed observer would be unlikely to conclude that, having decided on the use of earn-out rights in arrangements, the framing of those rights so as to meet the conditions of section 138A was a contrived or abnormal step.

So condition 4 is unlikely to be met. The terms implicit in the section 138A conditions are unremarkable and in the great majority of cases will be fully consistent with the principal commercial objective of using earn-out rights.

Discounted bonds

HMRC does not consider it would be reasonable for an informed observer to conclude that either condition 3 or 4 is met by bonds that are discounted for commercial reasons.

However the position may be different if the discounted bond forms part of a wider set of arrangements containing abnormal or contrived steps, or relying on one or more terms of the bond which are unlikely to have been entered into were it not for the expected tax advantage.

Partition demergers

Arrangements consisting of a reorganisation of share capital of a holding company into different classes of share to reflect different interests in a group before a demerger should not be caught by the hallmark.

The main benefit of the demerger is the commercial outcome. HMRC does not consider it would be reasonable for an informed observer to conclude that either condition 3 or condition 4 is met where there is a commercially-driven reorganisation.

Joint venture arrangements and Capital Gains Tax groups

Structuring joint venture arrangements so they are consistent with the Capital Gains Tax groups legislation (section 170 of the Taxation of Chargeable Gains Act 1992), would not be within the hallmark to the extent the investing companies obtain a fair stake in the joint venture by reference to the respective values of their contributions.

Where such standard commercial arrangements are entered into, it would not be reasonable for an informed observer to conclude that either condition 3 or condition 4 are met.

This is because commercial arrangements which ensure that investing companies are entitled to their fair share in the joint venture, would not include terms in a financial product a person is unlikely to enter into but for the tax advantage, or involve abnormal or contrived steps.

Short-term loans

There is no requirement to withhold tax from interest payable on loans of less than 12 months. The ordinary use of short-term loans is a commercial decision from which the tax treatment flows. HMRC does not consider it would be reasonable for an informed observer to conclude that arrangements including, in isolation, a short-term loan meet either condition 3 or condition 4.

However, if arrangements are made to ensure the loan is treated for tax purposes as ‘short’ when in reality the loan will last more than 12 months, or the short-term loan is an essential part of wider arrangements involving contrived or abnormal steps, then the arrangements may be notifiable.

There is HMRC guidance about short interest in the Savings and Investment Income Manual 3050 at SAIM9070.

5.9.11 Statutory exceptions in regulation 19

In the examples, it is HMRC’s view that disclosures would not be needed because it would not be reasonable to expect that an informed observer would conclude that either condition 3 or 4 is met. There are however certain arrangements which must include uncommercial terms or potentially contrived or abnormal steps if taxpayers are to obtain tax advantages intended by Parliament.

Therefore, in order to prevent such arrangements having to be notified under the financial products hallmark, the legislation includes a number of statutory exceptions for arrangements, without which it might otherwise be reasonable to expect an informed observer to conclude that one or both of conditions 3 and 4 were met.

Minimum holding period for securities

If a vendor accepts some or all of the sale price for a business in the form of securities, any chargeable gain on the disposal may be deferred under either section 135 or section 136 of the Taxation of Chargeable Gains Act 1992.

It is common practice to include a term in the security preventing the holder from redeeming the security for a certain period. The inclusion of such a term in the security ensures that the legislation operates as intended and indeed prevents the vendor from exploiting the provisions.

However it would be reasonable for an informed observer to conclude that the minimum holding period is a term which the holder would have been unlikely to enter into were it not for the tax advantage of ensuring the gain is deferred under section 135 or 136 TCGA.

The hallmark is therefore explicitly prevented from applying where the only reason the hallmark would apply is because the inclusion of such a term in the security would otherwise cause condition 3 to be met.

HMRC does not consider that it would be reasonable for an informed observer to conclude that including a minimum holding period in the terms of securities, which have been received as consideration for the disposal of a business, would represent a contrived or abnormal step.

However, if the wider arrangements including the securities with the minimum holding period, include contrived or abnormal steps without which the tax advantage could not be obtained, it would still be possible for the hallmark to apply to those arrangements.

Redemption of a security before the end of the ‘permitted period’

Any debt with a term exceeding 50 years is designated as a type of equity note under section 1015 of the Corporation Tax Act 2010 which means that interest payable is treated as a distribution and is not deductible. As a result it is common practice for long-term financing to ensure its term is just less than 50 years.

HMRC does not consider that it would be reasonable for an informed observer to conclude that it would be a contrived or abnormal step for a security to include such a maturity date.

However, it might be reasonable for an informed observer to conclude that the inclusion of such a term would be unlikely were it not for the tax advantage. The hallmark is therefore explicitly prevented from applying in these circumstances where the inclusion of a term of this sort is the only reason why condition 3 is met in relation to the arrangements.

There is HMRC guidance on Equity Notes in the Corporation Tax Manual at CTM15515.

Transfers subject to the Substantial Shareholdings Exemption (SSE)

The SSE rules are intended not to disadvantage groups that do not segregate different trading activities in different companies. Relief is available when a trading division, which is to be sold, is transferred to another group company prior to sale of that company in order to qualify for SSE.

The transferee company is often newly established for this purpose. It could be reasonable for an informed observer to conclude that the transfer of part of the company’s trading activities serves no commercial purpose other than facilitating access to the relief and so that it is a contrived or abnormal step without which the SSE would not be available.

The hallmark is therefore explicitly prevented from applying where the only reason it would otherwise apply is because the transfer causes condition 4 to apply.

Hedging of foreign exchange risks on loans

One way in which a company may hedge a foreign exchange risk on a loan relationship or derivative contract is by assigning the loan or contract in exchange for preference shares issued in the same currency as the loan.

Such arrangements fall within Regulations 3 and 4 of the Loan relationship and Derivative contracts (disregard and bringing into account of profits and losses) Regulations 2004 (SI 2004/3256) and as a result any foreign exchange movements are disregarded in the tax calculations.

HMRC have no objection to companies hedging their foreign exchange risks in this way. However, it would potentially be reasonable for an informed observer to conclude that the assignment of the loan in exchange for shares is a contrived or abnormal step without which the tax advantage which arises under the regulations mentioned would not be obtained.

The hallmark is therefore explicitly prevented from applying where the only reason the hallmark would otherwise apply is because the taking of such steps causes condition 4 to be met.

Arrangements of this type will not inevitably be excluded from the scope of the hallmark. If the shares contain terms which it would be reasonable for an informed observer to conclude are unlikely to have been entered into but for a tax advantage, condition 3 may be met and the hallmark would apply.

There is more detailed guidance about the hedging of foreign exchange risks in the Corporate Finance Manual from CFM62210.

Non-qualifying corporate bonds

Holders of a loan security can ensure it is not treated as a qualifying corporate bond (QCB) for Capital Gains Tax purposes by including a term that the security may be converted into, or redeemed in, a currency other than sterling.

This means that the loan agreement falls outside the definition of a corporate bond at section 117(1) of the Taxation of Chargeable Gains Act 1992. As a result the asset is not exempt from Capital Gains Tax and any capital losses arising will be available to set off against chargeable gains on other assets.

HMRC considers there is a significant possibility that it would be reasonable for an informed observer to conclude that the introduction of the foreign currency clause could meet both conditions 3 and 4.

Condition 3 could be met because there is a significant possibility that an informed observer would reasonably conclude that the terms of the security would be unlikely to include the foreign currency conversion or redemption clause if this did not result in the security not being a QCB and so being liable to Capital Gains Tax.

Condition 4 could also be met because it might be reasonable for an informed observer to conclude that introducing the foreign currency clause into the terms of the security would be a contrived or abnormal step.

The hallmark is therefore explicitly prevented from applying where the only reason why both conditions 3 and 4 would otherwise be met is the inclusion of the term providing that the security may be converted into, or redeemed in, a currency other than sterling in order to ensure that a security is not a QCB for the purposes of Capital Gains Tax.

5.9.12 Securities which have both a minimum term and a foreign currency clause

It is not uncommon for securities received as consideration for the sale of a business to include both:

• a minimum holding period to ensure that sections 135 and 136 operate as intended (regulation 19(6)(a)(i))

• a foreign currency option in order for the security to be treated as a non-QCB for the purposes of Capital Gains Tax (regulation 19(9)(a))

As described in section 5.9.11, the statutory exceptions ensure the financial products hallmark does not apply to securities whose terms include either a minimum holding period or a foreign currency option.

However, the exceptions do not cover securities with both of these provisions. This means that the hallmark could potentially apply to arrangements solely by reason of the security containing both terms.

HMRC is satisfied that the combination of these terms in the same security does not create extra Exchequer risk compared to securities containing only one of the terms. HMRC can therefore confirm that arrangements do not have to be notified under this hallmark in these circumstances.

The hallmark will be treated as not applying if the only reason conditions 3 or 4 are met is because the financial product included in the arrangements has both of the terms described in regulation 19(6)(a)(i) and regulation 19(9)(a).

6. Determining a SDLT notifiable scheme — the tests

6.1 General

The hallmarks described in section 5, including the ‘confidentiality’ and ‘premium fee’ hallmarks, do not apply to this section.

6.2 Test 1: are there arrangements that enable an SDLT advantage to be obtained (section 306 (1)(a) and (b), and section 318 of the Finance Act 2004)

The guidance at section 4.3 applies to this section in the same way as it does for section 4.

Note: The definition of ‘arrangements’ used for disclosure purposes is wider than the concept of ‘linked transactions’ used for SDLT purposes (section 108 of the Finance Act 2003).

6.3 Test 2: is the advantage a main benefit of the arrangements (section 306(1)(c) of the Finance Act 2004

The guidance at section 4.4 applies to this section in the same way as it does for section 4.

6.4 Test 3: grandfathering

Certain schemes are exempted from disclosure (or ‘grandfathered’). Schemes are exempt if they are the same or substantially the same as arrangements made available by any person before 1 April 2010. But some schemes involving the transfer of rights rules do not benefit from this grandfathering (see section 6.7.2).

See section 10.2.3 for the meaning of ‘substantially the same’. It is irrelevant whether a given legal entity made the arrangements available prior to 1 April 2010, what is important is whether any person made them available prior to this date.

It is a matter of fact whether an arrangement is ‘grandfathered’. Evidence of grandfathering would include:

• the existence and substance of the arrangement being clearly described in tax manuals or publications

• a practitioner’s own record as to when they made, or learnt that competitors were making, an arrangement available

‘Makes available for implementation’ takes the meaning at section 308(2) of the Finance Act 2004 and detailed guidance as to its meaning is given at section 10.2.3.

The fact that any particular scheme is exempted from disclosure by the application of test 3 should not be taken as an indication that HMRC either finds the scheme acceptable, or that we accept that it works under current law.

Satisfying tests 4 to 7 (section 6.6) will also remove the need to notify HMRC of arrangements.

6.4.1 Exceptions to grandfathering

The grandfathering rule does not apply to certain arrangements involving the transfer of rights rules. Arrangements are not exempt under the grandfathering rules where:

(a) a chargeable interest is acquired under a contract, the substantial performance or completion of which falls to be disregarded under section 45(3) of the Finance Act 2003, and

(b) the secondary contract referred to in section 45(3) of the Finance Act 2003 applies to a transaction with one or more of these features:

(i) a distribution in specie (such as a distribution of an asset in physical form without selling it and distributing the cash)

(ii) an acquisition by a partnership

(iii) an acquisition by a settlement

(iv) an element of gift or transfer at an undervalue

(v) the grant of an option

(vi) an assignment or novation

6.5 Tests 4 to 7: introduction to steps A to F

6.5.1 General

To further restrict disclosed schemes, you are not required to notify schemes that comprise one or more of 6 ‘steps’ A to F (test 4). However, this is subject to:

• an overarching rule that any arrangement that contains an unlisted step — where that unlisted step is necessary for securing the SDLT advantage — is not exempted from disclosure (test 5)
• certain restrictions on using combinations of steps or multiples of the same step (tests 6 and 7, see section 6.7)

This is in addition to the grandfathering rule at Test 3 and section 6.4. The steps A to F have been described to us as ‘existing toolkit’. We believe a better term would be ‘existing building blocks’.

For SDLT purposes, HMRC is not interested in the existing building blocks in themselves. But we are interested in the ways in which the building blocks are put together to form more complex products. Hence the limits on the ways in which steps A to F can be used in combination.

The fact that any particular scheme is exempted from disclosure by the application of tests 4 to 7 should not be taken as an indication that HMRC either finds the scheme acceptable, or that we accept that it works under current law.

6.5.2 The 6 steps — a summary

The 6 listed steps are:

• Step A: the acquisition of a chargeable interest in land by a special purpose vehicle (SPV)
• Step B: claims to certain reliefs (see section 6.5.3)
• Step C: the sale of shares in a SPV which holds chargeable interests in land, to a person who is not connected to either the SPV or the vendor
• Step D: not electing to waive the exemption from VAT (not ‘opting to tax’)
• Step E: structuring a transaction as the transfer of a going concern for VAT purposes
• Step F: the creation of a partnership to which a property subject to a land transaction is to be transferred

6.5.3 The 6 steps: the legislation

The 6 steps are listed in the schedule to The SDLT Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2005 (SI 2005/1868).

The steps are as follows:

Step A: acquisition of a chargeable interest by special purpose vehicle

The acquisition of a chargeable interest in land by a company created for that purpose (‘a special purpose vehicle’).

Step B: claims to relief

(a) making a single claim to relief under any of the following provisions of the Finance Act 2003:

(i) section 57A (sale and leaseback arrangements)

(ii) section 58B (relief for new zero-carbon homes)

(iii) section 58C (relief for new zero-carbon homes: supplemental)

(iv) section 60 (compulsory purchase facilitating development)

(v) section 61 (compliance with planning obligation)

(vi) section 63 (demutualisation of insurance company)

(vii) section 64 (demutualisation of building society)

(viii) section 65 (incorporation of limited liability partnership)

(ix) section 66 (transfers involving public bodies)

(x) section 67 (transfer in consequence of reorganisation of parliamentary constituencies)

(xi) section 69 (acquisition by bodies for national purposes)

(xii) section 71 (certain acquisitions by registered social landlords)

(xiii) section 74 (collective enfranchisement by leaseholders)

(xiv) section 75 (crofting community right to buy)

(xv) schedule 6 (disadvantaged areas relief)

(xvi) schedule 6A (relief for certain acquisitions of residential property)

(xvii) schedule 6B (transfers involving multiple dwellings)

(xviii) schedule 7 (group relief and reconstruction acquisition relief)

(xix) schedule 8 (charities relief)

(xx) schedule 9 (right to buy, shared ownership leases), or

(aa) a single claim to relief under schedule 61 to Finance Act 2009 (alternative finance investment bonds), or

(ab) one or more claims to relief under any one of the following provisions of the Finance Act 2003:

• section 71A (alternative property finance: land sold to financial institution and leased to individual)
• section 72 (alternative property finance in Scotland: land sold to financial institution and leased to individual)
• section 72A (alternative property finance in Scotland: land sold to financial institution and individual in common)
• section 73 (alternative property finance: land sold to financial institution and resold to individual)

Step C: sale of shares in special purpose vehicle

The sale of shares in a special purpose vehicle, which holds a chargeable interest in land, to a person with whom neither the special purpose vehicle, nor the vendor, is connected.

Step D: not exercising election to waive exemption from VAT

No election is made to waive exemption from value added tax contained in paragraph 2 of schedule 10 to the Value Added Tax Act (treatment of buildings and land for value added tax purposes).

Step E: transfer of a business as a going concern

Arranging the transfer of a business, connected with the land which is the subject of the arrangements, in such a way that it is treated for the purposes of value added tax as the transfer of a going concern.

Step F: undertaking a joint venture

The creation of a partnership (within the meaning of paragraph 1 of schedule 15 to the Finance Act 2003) to which the property subject to a land transaction is to be transferred.

6.6 Approach to tests 4 to 7

The way to approach the steps is as follows:

• identify all the single listed steps comprised in the arrangement — section 6.6.1 provides guidance on what constitutes a single step B
• identify any unlisted steps in the arrangement that are necessary to secure the expected SDLT advantage (if there are any such steps, the scheme is not exempted from disclosure — see section 6.5.2)
• if the arrangement involves a combination of steps, or more than one instance of the same step, refer to tests 6 to 7 — see section 6.7 to see if that combination or multiple falls within the arrangements exempted from disclosure

6.6.1 Single step B

A single instance of step B consists of either:

• a single claim to one of the reliefs listed under step B(a)(i) to (a)(xx) and step B(aa) in the schedule (see section 6.5.3)
• one or more claims to one the reliefs listed under step B(b)(i) to (b)(iv) in the schedule (see section 6.5.3)

Note: for this purpose a claim can still be a ‘single claim’ even if it is one of a number of identical claims being made in respect of separate and distinct properties. So, for example, where 2 properties are transferred from group company A to group company B, each of the 2 claims to group relief is a ‘single claim’ for this purpose.

Examples of single step B:

• a single claim to charities relief is one step B (single use of a relief in group (a))
• 2 claims to alternative property finance: land sold to a financial institution and leased to an individual constitutes one step B (multiple use of a relief in group (b))

We will accept that a single step B(a)(xviii) (group relief and reconstruction acquisition reliefs) includes actions taken or not taken with the intention of ensuring that, within the context of the withdrawal of group, reconstruction or acquisition relief:

• the purchaser ceases to be a member of the same group as the vendor
• control of the acquiring company changes
• arrangements for either of the events are entered into
• on or after the end of the period of 3 years beginning with the effective date of the relief, rather than before the end of that period

A ‘single claim’ to a relief means step B does not include any arrangement that comprises more than one claim to the same listed relief within groups (a) and (aa) of the schedule. Nor do such schemes constitute multiples of step B. They are not within step B at all.

For example:

• 2 claims to group relief fall outside step B (2 claims to the same listed relief)
• a claim to group relief and a claim to reconstruction relief also fall outside step B (2 claims to the same listed relief — although these are separate reliefs, they are listed together in group (a)(xviii))

Any such arrangement is not excepted from disclosure.

• an arrangement that comprises the use of 2 or more different listed reliefs will amount to 2 or more separate instances of step B. For example: a claim to charities relief and a claim to group relief constitute 2 separate steps B (use of 2 separately listed reliefs)
• a claim to group relief and a claim to alternative property finance: land sold to financial institution and leased to individual constitute 2 separate steps B (use of 2 separately listed reliefs)

In such cases, you should refer to section 6.7 to see whether the combination is excepted from disclosure.

6.7 Tests 6 and 7: combination steps

Rules 1 and 2 of the schedule to The SDLT Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2005 (SI 2005/1868) specify which combinations of steps, or multiples of the same step, can be used as part of the excepted arrangements.

These 2 rules are separate (that is, they are not 2 legs of a single rule in which rule 2 is merely an extension of rule 1). It is necessary to consider rule 2 even where rule 1 is not in point.

6.7.1 SI 2005/1868: rule 1 to the schedule

This rule merely confirms that arrangements exempted from disclosure can include any combination of steps B, D, E and F, including multiple uses of the same step.

6.7.2 Tests 6 and 7 (SI 2005/1868, rule 2 to the schedule)

These tests provide that arrangements are not excluded from disclosure if they:

• include any combination of steps A, C and D
• involve a multiple use of any of steps A, C or D

6.7.3 Examples of arrangements exempted from disclosure

Examples of arrangements exempted from disclosure include schemes that consist of:

• 2 steps B
• 2 steps B and a single step A
• 2 Steps B and 2 steps F

6.7.4 Examples of arrangements not exempted from disclosure

Examples of arrangements that are not exempted from disclosure include schemes that consist of:

• 2 claims to group relief (double use of the same relief does not fall within step B at all — see section 6.5.3
• 2 steps A only
• 2 steps B and single steps A and D
• 2 steps B and 2 steps A

7. Determining an ATED notifiable scheme — the tests

7.1 General

The hallmarks at section 5, including the confidentiality and premium fee hallmarks do not apply to ATED. However, the disclosure rules for other taxes may apply to the arrangement.

7.2 Test 1: are there arrangements that enable an ATED advantage to be obtained (section 306(1)(a) and (b), and section 318 of the Finance Act 2004)

The meaning of ‘arrangements’ is not exhaustively defined in the primary legislation but includes any scheme, transaction or series of transactions. The guidance at see section 4.3 applies to this section in the same way as it does for section 4.

7.3 Test 2: is the tax advantage a main benefit of the arrangements (section 306(1)(c) of the Finance Act 2004

The definition of ‘tax advantage’ is widely drawn and construed. It involves the avoidance or reduction of a charge to tax, a relief or an increased relief and the deferral of tax.

The guidance at section 4.4 applies to this section in the same way as it does for section 4.

7.4 Test 3: does the arrangement fall within one of the prescribed descriptions (SI 2013/2571 regulation 4)

The ATED descriptions are initially drawn very widely. However, disclosure is not required if the arrangement falls within one or more of the exclusions outlined in section 7.5.

The legislation

The legislation covering notifiable arrangements that come within DOTAS or are excluded from DOTAS are the ATED Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2013 (SI 2013/2571).

7.5 The legislation excluded arrangements

Arrangements are excluded arrangements if they comprise a transfer of the chargeable interest from a company, partnership or collective investment scheme (a ‘transferor’) to a transferee where one or more of the following applies:

• the transfer is on such terms as would reasonably be expected to be agreed between unconnected persons

• the transferor and the transferee are members of the same group of companies and the transferee meets the ownership condition

• the transfer constitutes a distribution out of the assets of the transferor, and the transferee is an individual, a corporation sole, a trustee or a person who meets the ownership condition

• the transfer constitutes a settlement

In paragraph 1, reference to being ‘unconnected persons’ is to be read in accordance with section 1122 of the Corporation Tax Act 2010.

In paragraph 2, reference to companies being ‘members of the same group of companies’ is to be read in accordance with section 152 of the Corporation Tax Act 2010.

In paragraph 4, ‘settlement’ has the meaning given by section 43 of the Inheritance Tax Act 1984.

Schemes are exempted from disclosure where they fall within one of these exclusions. The fact that a scheme is exempted from disclosure does not necessarily indicate that HMRC finds it acceptable or accepts that the scheme works. If an arrangement satisfies one or more of these tests then there is no requirement to notify the scheme to HMRC.

Where a dwelling is disposed of to an unconnected person then this will be outside DOTAS. However, HMRC acknowledge that de-enveloping may be achieved by the disposing of a dwelling to a connected person, either an individual connected with the corporate wrapper or a fellow group member.

Where such transactions are carried out on the same terms as they would for an unconnected person transaction then there is no requirement to notify HMRC of the disposal.

De-enveloping may also be achieved by the liquidation of a company giving rise to a distribution of the company assets to shareholders. Such transactions are outside the scope of DOTAS.

For ATED purposes, ‘entitled’ means beneficially entitled and this excludes entitlement in the capacity of a trustee or personal representative or entitlement as a beneficiary under a settlement. Where a dwelling is transferred to the shareholders of the company who are trustees of a settlement, then this will be regarded as a settlement under Paragraph 4.

7.6 Exclusion 1: the transfer is on such terms as would reasonably be expected to be agreed between unconnected persons

A dwelling has been transferred using the open market value.

For example, an individual owns a company which in turn owns a chargeable interest within the scope of ATED. The company transfers the dwelling to the individual at market value and thus takes the dwelling outside ATED.

Although the individual is a connected person because the market value of the dwelling has been used, there is no requirement to notify HMRC of the transfer.

7.7 Exclusion 2: the transferor and the transferee are members of the same group of companies and the transferee meets the ownership condition

A dwelling has been transferred to a fellow group member.

For example, a company owns a dwelling within the charge to ATED. The company transfers the dwelling to a fellow group company where it will also be within the charge to ATED.

There is no requirement to notify HMRC of the transfer.

7.8 Exclusion 3: the transfer constitutes a distribution out of the assets of the transferor, and the transferee is an individual, a corporation sole, a trustee or a person who meets the ownership condition

A company owns a dwelling within the charge to ATED and goes into liquidation.

For example, a company decides to de-envelope by winding the company up and makes a distribution of the company assets to the shareholder, who is an individual.

This transaction would be outside DOTAS.

7.9 Exclusion 4: the transfer constitutes a settlement

A company owns a dwelling within the charge to ATED and transfers the dwelling to trustees.

For example, a company owns a dwelling within the charge to ATED and the shareholders of the company are trustees of a settlement. The company decides to de-envelope by distributing the assets of the company to the trustees.

There is no requirement to notify HMRC of the transfer.

There are a number of statutory exemptions within ATED, including Charitable Companies, Public Bodies, Bodies established for National Purposes and Dwellings Conditionally Exempt from IHT. Where transactions relate to any of these exempt entities, there is no requirement to notify HMRC under the current ATED Regulations.

8. Determining an IHT notifiable scheme — the tests

8.1 General

A proposal or arrangement is notifiable under DOTAS as an IHT scheme if:

• there are arrangements which are expected to provide an IHT advantage

• this advantage is expected to be one of the main benefits of the arrangements and

• the arrangements fall within one of 3 hallmarks which apply for IHT

The Inheritance Tax Avoidance Schemes (Prescribed Description of Arrangements) Regulations 2017 (SI 1172/2017) give the description, or IHT hallmark, of arrangements that have to be notified.

The previous IHT hallmark included ‘grandfathering’ provisions to except from disclosure arrangements that were first made available before 6 April 2011 or which were substantially the same as arrangements first made available before that date.

These ‘grandfathering’ provisions cease to apply from 1 April 2018. This means that arrangements that would have been excepted from disclosure before 1 April 2018 under the 2011 hallmark will, from 1 April 2018, have to be tested again if they are still being promoted.

In addition to the specific IHT hallmark, the confidentiality and premium fee hallmarks also apply to schemes that are expected to obtain an IHT advantage. Guidance on the application of those hallmarks can be found in section 5.2 and 5.4.

The grandfathering exceptions do not apply to an IHT scheme which is covered by either the confidentiality or the premium fee hallmark.

8.2 The IHT hallmark and how it works

The IHT hallmark provides that an arrangement is notifiable if it would be reasonable to expect an informed observer, who has studied the arrangements and had regard to all relevant circumstances, to conclude that conditions 1 and 2 are met. ‘Arrangements’ takes it meaning from section 318 of Finance Act 2004 and includes any scheme, transaction or series of transactions (see section 4.3).

The ‘informed observer’ test is crucial as this provides the context in which the conditions are to be judged.

The informed observer is to be contrasted with an ‘uninformed observer’, but is not an expert or necessarily a tax practitioner.

The informed observer is independent, has all the relevant information about the scheme and has sufficient knowledge to understand both the scheme and the relevant statutory context.

The informed observer is assumed to have the appropriate knowledge and skillset to reach the conclusions that the hallmark requires.

While the promoter is not an informed observer for this purpose, the informed observer should be presumed to have access to all of the information that is available to the promoter of the scheme.

The scope of ‘all relevant circumstances’ will vary according to the nature of the arrangements, but circumstances which may be relevant for the informed observer to take into account include the:

• non-tax benefits that are expected to arise from the arrangements

• overall effect or consequences of the arrangements

• terms of the documentation and the substance of the arrangements

• HMRC guidance and published statements

8.3 The hallmark conditions

The IHT hallmark has 2 conditions. Both conditions have to be met for the arrangement to be notifiable.

Many commonly used tax planning arrangements falling within condition 1 will not cause condition 2 to be met and therefore will not be notifiable.

8.3.1 Condition 1

Condition 1 is that the main purpose, or one of the main purposes, of the arrangements is to enable a person to obtain an advantage in relation to Inheritance Tax set out in one or more of sub-paragraphs (a) to (d).

In most cases it should be clear whether the main purpose, or one of the main purposes, of the arrangements is to secure one of the listed tax advantages, or whether the tax advantage arises inadvertently as a by-product of the arrangements.

As this has to be determined by reference to how an ‘informed observer’ would view the arrangements, this test should be relatively straightforward.

Condition 1 focuses on areas of highest risk and greatest concern to HMRC. The tax advantages listed under condition 1 are:

(a) the avoidance or reduction of a relevant property entry charge

This imports the wording from the previous IHT hallmark (SI2011/170). Arrangements, the main purpose, or one of the main purposes, of which is to reduce or avoid the charge which would otherwise arise when property becomes relevant property are within (a).

(b) the avoidance or reduction of a charge to Inheritance Tax under:

• section 64 of the Inheritance Tax Act 1984 (the charge on relevant property at the ten-year anniversary)

• section 65 of the Inheritance Tax Act 1984 (the charge on relevant property at any other time)

• section 72 of the Inheritance Tax Act 1984 (the charge arising on property leaving employee or newspaper trusts) or

• section 94 of the Inheritance Tax Act 1984 (the charge arising in connection with close company transfers)

(c) the avoidance or reduction of a charge to Inheritance Tax arising from the application of section 102, 102ZA, 102A or 102B of the Finance Act 1986 in circumstances where there is also no charge to Income Tax under schedule 15 to the Finance Act 2004 (charge to Income Tax on benefits received by former owner of property).

This relates to arrangements that seek to avoid the Inheritance Tax implications of being a gift with reservation of benefit but where there is also no pre-owned asset Income Tax charge under schedule 15 to the Finance Act 2004.

(d) a reduction in the value of the person’s estate without giving rise to a chargeable transfer or potentially exempt transfer.

This relates to arrangements where a person removes value from their estate without that reduction giving rise to either a chargeable transfer or a potentially exempt transfer. A reduction in the value of a person’s estate other than in an arm’s length bargain will usually give rise to a transfer of value under section 3 of the Inheritance Tax Act 1984.

8.3.2 Condition 2

Inheritance Tax arrangements will not be notifiable unless both conditions 1 and 2 are met.

Condition 2 is that the arrangements involve one or more contrived or abnormal steps without which the tax advantage could not be obtained.

When considering this condition, it is the arrangements that must be reviewed to conclude whether they involve one or more contrived or abnormal steps and then to consider whether those contrived or abnormal steps are necessary to achieve the tax advantage.

For example, the use of trusts is not itself contrived or abnormal. A gift into a discretionary trust would not, on its own, meet condition 2. The gift would be an immediately chargeable transfer. The fact that the gift was to a discretionary trust would not, on its own, mean that the arrangements by way of which the gift is made include a contrived or abnormal step.

If a more complex trust structure was used instead, for example for added protection of the trust assets, the additional complexity might lead an informed observer to conclude that those additional steps are ‘contrived or abnormal’ in the sense that it was unusual to go to those lengths and levels of complexity. However, condition 2 will only be met if the steps that are contrived or abnormal are required to achieve a tax advantage.

To an ‘uninformed observer’ the creation of a trust might seem like an unusual and therefore abnormal thing to do. Equally the idea of creating a trust and then making a loan to the trustees of that trust might seem contrived to an uninformed observer.

However, whether arrangements are contrived or abnormal, or involve contrived or abnormal steps, has to be considered from the point of view of an ‘informed observer’.

A straightforward trust arrangement is not contrived or abnormal in this context. Nor is the making of a loan to trustees of a trust that an individual has set up, or to a company to which the individual has a connection. Equally, choosing to invest money into assets which will qualify for relief from Inheritance Tax may or may not be commonplace, but in the context of the ‘informed observer’ such an investment, on its own, would be neither contrived nor abnormal.

The inclusion of the words ‘contrived or abnormal’ in condition 2 and the requirement for them to be considered by the hypothetical informed observer mean that normal and straightforward Inheritance Tax planning will not be notifiable. Inheritance Tax planning that requires greater complexity or contrivance to achieve the intended tax advantages though is likely to be notifiable.

In particular it can be helpful to consider whether the economic consequences are as expected. Making a gift presupposes that the donor no longer beneficially owns the gifted property. If the donor is able to enjoy the gifted property in broadly the same way as previously this might well be an indicator of a disclosable scheme.

8.3.3 The ‘established practice’ exception

The new hallmark took effect from 1 April 2018. The ‘established practice’ exception may apply when a scheme was first promoted before 1 April 2018 and continues to be promoted on or after that date.

Arrangements will not be prescribed and so will not be notifiable, if they:

(a) implement a proposal which has been implemented by related arrangements, and

(b) are substantially the same as the related arrangements

‘Related arrangements’ are defined as arrangements which:

(a) were entered into before 1 April 2018, and

(b) at the time they were entered into, accorded with established practice of which HMRC had indicated their acceptance

This provision is designed to remove from the scope of the hallmark established IHT planning schemes whose workings are well understood and agreed. Such schemes are excepted if:

• that scheme has been sold and implemented at least once before the new hallmark takes effect

• HMRC has indicated its acceptance that it achieves that well understood tax outcome, and

• it is sold and implemented again without being changed after the hallmark takes effect

8.3.4 The proposal or scheme

The first stage is to establish whether the proposal or scheme in question, which is being implemented by the present arrangements, was implemented in the same form before 1 April 2018.

If that proposal has not been implemented before 1 April 2018 the exception does not apply. Even if the exception does apply, it is still necessary to test the proposal or arrangements against the premium fee and confidentiality hallmarks, which means the proposal or scheme may be notifiable by virtue only of one or both of those hallmarks.

For the exception to apply the present arrangements must implement a proposal which has previously been implemented by related arrangements. It is therefore important to identify the proposal which the present arrangements are implementing.

The proposal is the specific combination of elements or steps which are designed to achieve the intended tax advantage and which is being made available to a potential user. While there may be a number of very similar proposals in existence which are designed to achieve the same tax advantage, for example different companies offering their own versions of a tax saving scheme, each would be a separate proposal.

The exception applies to arrangements which implement a proposal which has been implemented by related arrangements. It follows that the proposal which is being implemented by the present arrangements has to be the same proposal that was implemented by the related arrangements before 1 April 2018.

The exception does not apply to arrangements which implement a different proposal. That other proposal must be considered on its own merits.

By way of example, Insurance Co have offered their clients a Discounted Gift Trust v1.0 since 2010. This proposal was first implemented in 2010 and continues to be offered in April 2018 in exactly the same way. The implementation of this proposal by arrangements entered into after 1 April 2018 would be the implementation of a proposal that has previously been implemented before 1 April 2018 and which, subject to satisfying the established practice requirements, would be within the exception.

The arrangements would still have to be tested against the confidentiality and premium fee hallmarks but if they accord with established practice they would seem likely not to be notifiable under the IHT hallmark.

However, suppose Insurance Co decide that they want to make changes to the elements or steps which are required to achieve the intended tax advantage and after 1 April 2018 offer their clients what amounts to Discounted Gift Trust v.1.1 (notwithstanding that they may choose not to change the name or version number). This is a new proposal, even though it may be ‘substantially the same’ as Discounted Gift Trust v1.0.

This proposal and any arrangements that implement it are not excepted, and must be tested by reference to the new IHT hallmark as well as the confidentiality and premium fee hallmarks.

Changes to a proposal or scheme which do not affect the elements or steps that are required to achieve the intended tax advantage would not result in this being a new proposal. For example, changes to the name of the scheme or the entity making the proposal, or changes for other regulatory reasons that do not affect the elements or steps which lead to the intended tax advantage, would not give rise to a new proposal.

If the proposal had previously been implemented before 1 April 2018, the next step is to consider whether the previously implemented arrangements are ‘related arrangements’.

8.3.5 Related arrangements

In order to be ‘related arrangements’, the earlier arrangements must:

• have been entered into before 1 April 2018, and

• at the time they were entered into those arrangements, have accorded with established practice of which HMRC had indicated their acceptance

8.3.6 Established practice and HMRC’s acceptance of that practice

There are 2 elements to this requirement. The first is to consider whether the arrangements ’accord with established practice’, and secondly whether HMRC has indicated acceptance of that established practice.

Taking the ’established practice’ first, this is not defined in the legislation and therefore takes its ordinary meaning.

Established practice may be demonstrated by reference to published material (whether from HMRC, or text books or articles in journals) or by other written evidence of what had become a common practice by the relevant time (that is, when the arrangements were entered into).

It is then necessary to consider whether the arrangements actually carried out were the same as those identified as established practice, or whether there were any significant differences between the actual arrangement in question and those that were commonly carried out. If, for example, the particular difference between the actual arrangement and the ‘normal’ arrangement was the introduction of some feature which was designed to achieve a particular tax advantage, then it is doubtful that the actual arrangement accorded with established practice.

The second requirement is that HMRC had, at the time the arrangements were entered into, indicated its acceptance of the established practice. This may have been through published material such as guidance or other means. For example, HMRC may have made a clear statement in its published tax bulletins, or its internal manuals, or in correspondence with some representative body (such as Society of Trust & Estate Practitioners, the Chartered Institute of Taxation, or other similar body).

8.3.7 Substantially the same

Having determined that the current arrangements implement a proposal that had previously been implemented by related arrangements but which would not have been notifiable as it pre-dates the 2018 IHT hallmark, the final criteria for arrangements to be within the exception is that they must be ‘substantially the same’ as the current arrangements.

It is therefore useful to set out what is meant by ‘substantially the same’ in this context.

It is important to bear in mind that the ‘substantially the same’ requirement relates to the arrangements being implemented and the related arrangements, not to the proposal that the arrangements are implementing. For the exception to apply the current arrangements have to implement the same proposal as was implemented by the ‘related arrangements’.

Minor changes, for example to reflect the different personal details of users, will not stop arrangements from being substantially the same. For example, a retail discounted gift product would provide for the user to specify the sum of money being placed into the product, the chosen beneficiaries, the amount and frequency of the payments that the user is to carve out for their own benefit and so on.

These differences in personal details do not change the underlying proposal. So, for example, an implementation of Discounted Gift Trust v1.0 by arrangements entered into by Ms Jones, investing £250,000 and retaining withdrawals of £1,041.66 per month, would be substantially the same as the implementation of Discounted Gift Trust v1.0 by Mr Smith, investing £1 million and retaining withdrawals of £75,000 per annum.

However, where the arrangements being implemented are altered beyond merely making the necessary changes to effect the proposal for that individual, the arrangements will no longer be ‘substantially the same’ and will not be capable of being related arrangements.

8.4 Examples of arrangements which are not notifiable

As set out, the hallmark does not catch straightforward Inheritance Tax planning. The following examples show how some of these arrangements (which could include proposals) would be tested against the hallmark. Bear in mind however, that arrangements must always be tested against all relevant hallmarks, which, for IHT, includes confidentiality and premium fee.

8.4.1 Ordinary outright gifts are not notifiable, even where they are exempt

Example 1: a lifetime gift to a spouse or civil partner

Condition 1 of example 1

Such a gift is caught by condition 1(d) as at least a main purpose of the gift is to reduce the value of the person’s estate without giving rise to a chargeable transfer or a potentially exempt transfer. Instead the reduction gives rise to an exempt transfer.

But to be notifiable condition 2 must also be met.

Condition 2 of example 1

It is not reasonable to expect that an informed observer would conclude a straightforward gift or transfer of assets to a spouse or civil partner includes either contrived or abnormal steps. This is simply the use of an exemption provided for by the legislation.

Although condition 1 is met, condition 2 is not, so these arrangements are not notifiable under this hallmark.

Example 2: regular gifts out of income

Condition 1 of example 2

If these are gifts to an individual, they may be caught by condition 1(d) as a main purpose of the gifts is to reduce the value of the person’s estate without giving rise to a chargeable transfer or a potentially exempt transfer — they give rise to a series of exempt transfers.

If these are gifts into trust, they may also be caught by condition 1(a) in that they avoid or reduce a relevant property entry charge.

Again, although condition 1 may be met, to be notifiable condition 2 must also be met.

Condition 2 of example 2

It is not reasonable to expect that an informed observer would conclude it is either contrived or abnormal for a person to make regular gifts to those the person wants to benefit from their generosity where they are straightforward gifts to an individual or gifts into trust. This would just be the use of an exemption provided for by the legislation.

In some cases the person intending to make such gifts may be advised to record their intention or commitment in writing before making the gifts. Such a step might seem contrived or abnormal in the sense that unilateral gifts are commonly made without being pre­ ordained, so that the pre-ordination appears abnormal.

But in the context of the exemption for regular gifts out of income, which have to be part of the transferor’s normal expenditure, recording this commitment in advance is simply a step in demonstrating that the exemption is due. Recording the commitment does not secure the exemption, but it may help to establish that the exemption is due based on the subsequent transfers.

Although condition 1 is met, condition 2 is not, so these arrangements are not notifiable under this hallmark.

Example 3: transfers of value equal to the available nil rate band into trust, which may be repeated every seven years

Condition 1 of example 3

These gifts are chargeable but within the available nil rate band, so they are taxed at zero per cent. There is no reduction or avoidance of any charge set out in condition 1, so condition 1 is not met.

Condition 2 of example 3

Even if the arrangements met condition 1, it would not be reasonable to expect an informed observer to conclude a gift of a sum equal to the available nil rate band on its own was either contrived or abnormal, or contained contrived or abnormal steps.

Neither condition 1 nor condition 2 is met, so these arrangements are not notifiable under this hallmark.

Example 4: making a lifetime transfer to a bare trust for a minor beneficiary

Condition 1 of example 4

The transfer is a gift into a bare trust from which the donor cannot benefit. Although the transfer reduces the value of the transferor’s estate, it gives rise to a potentially exempt transfer. Condition 1(d) is therefore not met and the arrangement does not give rise to any of the other tax advantages set out in condition 1.

This analysis would apply whether or not the trustees were able to defer actual payments to the beneficiary beyond the age of 18.

As condition 1 is not met there is no need to consider condition 2.

8.4.2 Executing a will, deed of variation or disclaimer which gives rise to exemption from Inheritance Tax

Example 5: executing a will that leaves property to an exempt beneficiary such as the spouse or a charity

Condition 1 of example 5

Executing a will does not meet any of the elements of condition 1. Although a will may be executed to reduce or avoid the IHT charge on death by use of exemptions, the will does not reduce the person’s estate. Rather the will determines how the estate devolves on death and it is this devolution which secures any IHT exemption.

As there is no reduction in the person’s estate without giving rise to a chargeable transfer, condition 1(d) is not met.

As condition 1 is not met there is no need to consider condition 2.

Example 6: executing a deed of variation to which section 142 of the Inheritance Tax Act 1984 applies to transfer assets on death to an exempt beneficiary

Condition 1 of example 6

Executing a deed of variation may reduce the Inheritance Tax charge on a person’s death, but it does not meet any of the elements of condition 1 with regard to the person who has died as their estate is not reduced

A deed of variation is a lifetime transfer by the donor (the beneficiary) who originally inherited the property on the death. The property is treated as never being comprised in the donor’s estate, so there is no reduction in the donor’s estate and condition 1(d) is not met with respect to the donor.

This is not therefore a notifiable arrangement under this hallmark.

As condition 1 is not met there is no need to consider condition 2.

Example 7: disclaiming an entitlement under a will to which section 142 of the Inheritance Tax Act 1984 applies where there is an exempt residuary beneficiary

Condition 1 of example 7

Disclaiming an entitlement under a will where there is an exempt residuary beneficiary may reduce the Inheritance Tax charge on a person’s death, but it does not meet any of the elements of condition 1 with regard to the person who has died.

The beneficiary who makes the disclaimer is making a lifetime transfer of the property, but the property is treated as never being comprised in the beneficiary’s estate, so there is no reduction in the value of the beneficiary’s estate and condition 1(d) is not met. This is not therefore a notifiable arrangement under this hallmark.

As condition 1 is not met there is no need to consider condition 2.

8.4.3 Acquisition of property which qualifies for a statutory relief or a transfer which is specifically provided for in the Inheritance Tax legislation

Example 8: purchase of shares which will qualify for business property relief after they have been owned for 2 years

Condition 1 of example 8

The purchase of shares does not reduce the value of a person’s estate. If it becomes available, business property relief only has the effect of reducing the value transferred by a transfer of value, it does not remove the value of the shares from the estate.

The act of purchasing shares in order to qualify for business property relief after 2 years does not, on its own, meet condition 1. It is not therefore a notifiable arrangement under this hallmark.

As condition 1 is not met there is no need to consider condition 2.

Example 9: gift of land where the donor continues to use that land but pays full consideration for their use

Condition 1 of example 9

The gift of land which the donor continues to occupy or use would normally be a gift with reservation of benefit, but the payment by the donor of full consideration in money or money’s worth for that use prevents section 102 of the Finance Act 1986 applying.

It would be reasonable to expect an informed observer to conclude that at least a main purpose of this arrangement is to reduce or avoid a charge to Inheritance Tax as a gift with reservation of benefit. As there is also no pre-owned assets Income Tax charge under schedule 15 Finance Act 2004, this arrangement meets condition 1(c).

Condition 2 of example 9

Even though condition 1 is met, the gift of land followed by payment of full consideration for use of that land would not, on its own, be regarded as contrived or abnormal, or involving contrived or abnormal steps. Sale and leaseback arrangements are not unusual in either the commercial world or for individuals (equity release).

Example 10: gift of an undivided share of property which is subsequently used by both the donor and donee

Condition 1 of example 10

The gift of land from which the donor continues to enjoy the benefit of occupation would be a gift with reservation of benefit, but where the donee has taken up possession and enjoyment of the property by occupying the property with the donor, section 102B Finance Act 1986 prevents this being a gift with reservation of benefit.

There is no preowned assets Income Tax charge under schedule 15 Finance Act 2004. Depending on all the relevant circumstances it is likely that an informed observer would conclude that obtaining the Inheritance Tax advantage was the main reason, or one of the main reasons for the arrangements. It would therefore be reasonable to expect an informed observer to conclude that condition 1(c) was met.

Condition 2 of example 10

If condition 1 was met, the gift of a share in land followed by the donee occupying that land with the donor could not be said to be contrived or abnormal. The analysis might be different where the donor only retained a very small proportion of the property in comparison to their level of occupation.

Example 11: a non-UK domiciled individual who is not UK resident transfers funds from a sterling denominated UK bank account into a US dollar denominated UK bank account, so that the bank account is left out of account under section 157 of the Inheritance Tax Act 1984

Condition 1 of example 11

The transfer reduces the value of the person’s estate that will be subject to Inheritance Tax on death, as the US dollar account will be ignored at that time. But the account remains part of the person’s estate, so there is no actual reduction in the value of that person’s estate and condition 1(d) is not met.

As condition 1 is not met there is no need to consider condition 2.

Example 12: a non-UK domiciled individual transfers non-UK situs property into a trust just before they become deemed domiciled in the UK. The individual can benefit from the trust

Condition 1 of example 12

The transfer reduces the value of the person’s estate, but this reduction does not give rise to a chargeable transfer or potentially exempt transfer due to section 3(2) of the Inheritance Tax Act 1984. It is likely that an informed observer would conclude that obtaining the Inheritance Tax advantage was the main reason, or one of the main reasons for the arrangements, so condition 1(d) is met.

Condition 2 of example 12

A transfer into a discretionary trust, on its own, is not contrived or abnormal. Although this arrangement is entered into to obtain an Inheritance Tax advantage, it is making use of the excluded property provisions. The transfer is not within condition 2 and is not a notifiable arrangement under this hallmark.

Example 13: immediately before a ten-year anniversary a distribution is made from a relevant property settlement to reduce the charge on the subsequent ten-year anniversary

Condition 1 of example 13

This arrangement meets condition 1(b) if it is reasonable to expect an informed observer to conclude that the main purpose, or one of the main purposes, of making the distribution is to reduce the charge at the ten-year anniversary. It would follow that condition 1(b) is met.

Condition 2 of example 13

This arrangement does not contain any contrived or abnormal steps. The Inheritance Tax legislation applies a tax charge in respect of the distribution and another tax charge at the ten-year anniversary. The choice of making the distribution before the ten-year anniversary may be to achieve a lower overall Inheritance Tax bill, but the trustees choosing to exercise their powers to make a distribution is, on its own, neither contrived nor abnormal. It would not therefore be reasonable to expect an informed observer to conclude that condition 2 was met.

8.4.4 Arrangements which may not result in a reduced Inheritance Tax liability, but which cap the value subject to Inheritance Tax

Example 14: loan trusts and gift and loan trusts

Gift and loan trusts involve the creation of a trust by a person by way of gift, followed by the person making an interest free loan to the trustees which is repayable on demand. The settlor is excluded from benefiting from the trust. Loan trusts are similar except that the trust is established by the granting of the interest free loan without the separate initial gift. The trustees invest the borrowed money.

The person may or may not require repayment of some or all of the loan in their lifetime. Any part of the loan which has not been repaid by the person’s death is included within their estate.

Condition 1 of example 14

The person’s estate is not reduced by the granting of the loan, so condition 1(d) is not met. The arrangement does not meet any of conditions 1(a) to (c). The hoped for Inheritance Tax saving arises only if the value of the Investment rises, but if it falls no Inheritance Tax saving is achieved.

As condition 1 is not met there is no need to consider condition 2.

Example 15: loans to companies or other entities from which the lender cannot benefit

Condition 1 of example 15

The granting of a loan which is repayable on demand, or on which a commercial rate of interest is charged, does not reduce the value of the lender’s estate, so condition 1(d) is not met. The granting of such a loan, without any further steps, would not meet any of conditions 1(a) to (c) either.

As condition 1 is not met there is no need to consider condition 2.

8.5 Examples of arrangements that might be notifiable

Because conditions 1 and 2 have to be evaluated taking all relevant circumstances of those particular arrangements, or that proposal for arrangements, into account, there will be some arrangements and proposals where it is difficult to be definitive about whether they are notifiable.

Where arrangements include multiple steps in order to achieve the intended tax advantage however, there becomes an increased likelihood that they may be notifiable, either by reason of the IHT hallmark or because they fall within the confidentiality or premium fee hallmarks.

Example 16: arrangement to gift shares which qualify for business property relief into trust and subsequently sell the shares back to the transferor

Condition 1 of example 16

In isolation the transfer of shares qualifying for business property relief into a trust, or the sale of trust assets by the trustees, would not meet condition 1. Where arrangements are entered into with the intention that all of these steps take place, the arrangements have the effect of placing cash into a relevant property trust, but without incurring a relevant property entry charge. As one of the main purposes of these arrangements is to reduce or avoid a relevant property entry charge it would be reasonable to expect an informed observer to conclude that condition 1(a) is met.

This can be contrasted to a situation where, for example, family company shares are transferred into trust for succession planning purposes, at which time there is no intention of the trustees selling those shares. If the trustees later took an independent decision to sell the shares it is unlikely that an informed observer would conclude these separate steps form part of a single overall arrangement, or to conclude that condition 1(a) was met.

Condition 2 of example 16

It would not normally be possible to transfer cash into a relevant property trust without incurring a relevant property entry charge, which is what has been achieved. To achieve this outcome and to gain this tax advantage, contrived steps are necessary, that is the transfer or shares qualifying for relief followed by their sale back to the transfer or rather than the simple transfer of cash which would be the non-contrived way of achieving the same result.

Without these contrived steps the tax advantage would not arise. It would therefore be reasonable to expect an informed observer to conclude, considering the arrangements as a whole, that condition 2 was met.

8.6 Examples of notifiable arrangements

Where new proposals for arrangements involve contrived or abnormal steps in order to obtain the Inheritance Tax advantages set out in condition 1 these proposals will be notifiable.

As explained in the introduction, the ‘grandfathering’ provisions in the 2011 regulations cease to apply from 1 April 2018. This means that arrangements which would have previously been excepted from disclosure will be notifiable if the 2 conditions in the new hallmark are met.

Example 17: creation of a reversionary lease

A person owning a freehold grants a lease to a trust or to their children. The lease starts in 21 years’ time, longer than the person expects to survive. The person continues to live in the property until the sub-lease begins.

Condition 1 of example 17

The arrangements avoid or reduce a charge to Inheritance Tax arising from the application of the gift with reservation of benefit rules. The person continues to benefit from the property, but the whole value of the property is no longer in the estate. If, in addition, no charge arises under schedule 15 Finance Act 2004, it would be reasonable to expect an informed observer to conclude that this arrangement meets condition 1(c).

Condition 2 of example 17

The creation of a lease which only takes effect several years in the future and which in the meantime allows the owner of the property to continue in occupation at no cost is a contrived or abnormal step.

The tax advantage would not be achieved without this contrived or abnormal step. It is therefore reasonable to expect an informed observer to conclude that this arrangement meets condition 2 and is notifiable under this hallmark.

Example 18: employee benefit trusts (EBTs)

A person owns an investment company with 2 part-time employees. The directors are that person and their 2 children. They are the sole shareholder and wishes to transfer the company to their children on their death. They creates an employee benefit trust and settles the shares on that trust. The trust excludes them and their children while they are alive and satisfies section 86 IHTA. Their children can benefit after their death.

Condition 1 of example 18

The arrangements result in a reduction in the value of the person’s estate which does not give rise to a chargeable transfer or a potentially exempt transfer. It is reasonable to expect an informed observer to conclude that obtaining this tax advantage was the main purpose, or one of the main purposes, of these arrangements and therefore that condition 1(d) is met.

Condition 2 of example 18

The use of an EBT in these circumstances is a contrived step. The purpose is to transfer the company shares to the children, but the tax advantage is obtained by using an EBT to achieve that outcome. The tax advantage could not be achieved without this contrived step. It is therefore reasonable to expect an informed observer to conclude that condition 2 is met and this arrangement is notifiable under this hallmark.

9. Determining an Apprenticeship Levy scheme — the tests

9.1 General

Any reference to a hallmark means one of the prescribed descriptions in the Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2006 (SI 2006/1543).

All references in this section to tax include a reference to the Apprenticeship Levy. All references in this section to a tax advantage include a reference to an Apprenticeship Levy advantage.

9.2 The tests for notifiable arrangements are notifiable if:

• they enable or might be expected to enable any person to obtain an advantage in relation to the Apprenticeship Levy

• the main benefit or one of the main benefits that might be expected to arise from the arrangements is the obtaining of that advantage, and

• one of the following hallmarks applies:

  • the confidentiality hallmarks — descriptions 1(a), (1)(b) and (2)

  • the premium fee hallmark — description 3, or

  • the standardised tax products hallmark — description 5

If the scheme is an in-house scheme with no promoter, the confidentiality and premium fee hallmarks apply only if the Apprenticeship Levy advantage is intended to be obtained by a business which is not a small or medium enterprise.

9.3 Meaning of ‘arrangements’ (section 318 of the Finance Act 2004)

The meaning of ‘arrangements’ is not exhaustively defined in the primary legislation but includes any scheme, transaction or series of transactions (see paragraph 4.3.1).

9.4 Meaning of ‘advantage’ in relation to tax (section 318 of the Finance Act 2004)

The definition of what represents a tax advantage is very widely drawn and is construed widely. It includes the avoidance or reduction of a charge to tax, a relief or increased relief from tax and the deferral of tax. There is more detailed guidance in section 4.3.2.

9.5 When is the tax advantage a main benefit of the arrangements (section 306(1)(c) of the Finance Act 2004)

The advantage is one of the main benefits of the arrangements if it is a significant or important element of the benefits and not incidental or insubstantial.

The following general points can be made as to when a tax advantage will be regarded as one of the main benefits:

• in our experience those who plan tax arrangements fully understand the tax advantage such schemes are intended to achieve so we expect it will be obvious (with or without detailed explanation) to any potential client what the relationship is between the tax advantage and any other benefits of the product they are buying or the arrangements they are entering into

• the test is objective and considers the value of the expected tax advantage compared to the value of any other benefits likely to be enjoyed

9.6 Hallmarks applying for arrangements which obtain an advantage in relation to the Apprenticeship Levy — confidentiality hallmarks

The confidentiality hallmarks apply in relation to arrangements which enable or might be expected to enable a person to obtain an advantage in relation to the Apprenticeship Levy.

There is detailed guidance on the confidentiality hallmarks in section 5.2 and 5.3.

9.6.1 Hallmarks applying for arrangements which obtain an advantage in relation to the Apprenticeship Levy — premium fee hallmark

The premium fee hallmark applies in relation to arrangements which enable or might be expected to enable a person to obtain an advantage in relation to the Apprenticeship Levy.

There is detailed guidance on this hallmark in sections 5.4 paragraphs.

9.6.2 Hallmarks applying for arrangements which obtain an advantage in relation to the Apprenticeship Levy — standardised tax product hallmark

The standardised tax product hallmark applies in relation to arrangements which enable or might be expected to enable a person to obtain an advantage in relation to the Apprenticeship Levy.

There is detailed guidance on this hallmark in section 5.5.

10. When to disclose a notifiable scheme

10.1 General

Section 3 explains who is required to disclose a notifiable scheme. In general, it is a scheme promoter who has to disclose. However, each user may have to disclose where an offshore promoter or a lawyer markets the scheme and there is no other person in the UK within the meaning of a promoter, or it is devised for use ‘in house’.

When new hallmarks are introduced or existing hallmarks are revised then arrangements which have already been marketed or made available may need to be disclosed. In such cases the scheme should be disclosed once one of the tests described in section 10.2.1 is triggered, on or after the date the scheme becomes notifiable.

10.2 Schemes where the promoter must disclose

10.2.1 Time limits (section 308(1) and (3) of the Finance Act 2004, and SI 2012/1836, regulation 5(4), (5) and 2(3))

Where a promoter is required to disclose a notifiable proposal he must do so within 5 days beginning with the day after the earliest of the following events:

• the promoter makes a firm approach to another person with a view to making the scheme available for implementation by that person or others (see section 10.3.1)

• the promoter makes a scheme available for implementation by another person (see section 10.3.2)

• the promoter becomes aware of a transaction forming part of the scheme (see section 10.3.3)

Which of these trigger events occurs first will in practice depend upon how the scheme is provided to users and the promoter’s precise role.

If a promoter in this position does not disclose the proposal under section 308(1), they may have an alternative requirement to disclose any arrangements they are aware of which implement that proposal under section 308(3). The latter requirement can be fulfilled by the promoter complying with either section 308(1) or section 308(3). Only one disclosure is needed. Weekends, bank holidays, Good Friday and Christmas Day are not counted in calculating the 5 days.

The definition of a notifiable scheme can change if the legislation changes.
One result is that arrangements implementing a scheme might become notifiable despite there having been no requirement to disclose the proposal for the scheme when a promoter started promoting it. This would be the case where for example a scheme was not previously covered by any of the other hallmarks but falls under a newly-introduced hallmark and a promoter continues making the scheme available to new clients.

In these circumstances, the promoter is required to disclose the scheme within 5 business days of first becoming aware of a transaction forming part of the arrangements of any person, who began implementing the scheme on or after the date on which the new hallmark came into force.

10.2.2 Exemption for co-promoters ((section 308(4) to (4C) of the Finance Act 2004)

Where 2 or more persons are promoters in respect of the same, or substantially the same, scheme, whether or not it is made available to the same person, the following rules can be used to enable only a single disclosure to be made, rather than a disclosure by each promoter. Use of these exemption rules is optional with the normal rules applying to those promoters who choose not, or are unable, to follow them.

The first rule (a) is intended to apply when there is a co-promoter at the time of disclosure, whereas the second (b) is intended to apply when a person becomes a co-promoter some time afterwards.

(a) a promoter (P2) is exempt from making a disclosure when:

(a) another promoter (P1) discloses the scheme information described at section 11.4

P2 holds that information (because for example, we would expect P1 to pass a copy of their disclosure to P2)

P1 has provided the identity and address of P2 to HMRC (normally, this would happen at the time P1 makes their disclosure of the scheme, but in any case the information must be provided before P2’s duty to disclose arises (see also section 8.4).

(b) A promoter (P2) is exempt from making a disclosure when:

• another promoter (P1) has previously made a disclosure of the scheme information described at section 8.3 to HMRC and been provided by HMRC with a scheme reference number

• P2 holds that information and the scheme reference number (for example P1 passes a copy of their disclosure along with the scheme reference number allocated by HMRC to P2)

In applying the rules to National Insurance contributions, the promoter P2 is exempt from disclosing the National Insurance contribution element of a scheme if the information provided to them is only in respect of any Income Tax advantage element. However, the promoter P1 continues to have a duty to disclose both elements.

In the first rule, if, as a result of promoter P1’s disclosure, a scheme reference number is allocated, HMRC will issue this to P2 as well as P1.

There is more on scheme reference numbers, and what you should do if you are provided with one, in section 14.

10.2.3 Exemption for substantially the same scheme (section 308(5) of the Finance Act 2004)

A promoter is required to disclose the same scheme only once (except for certain SDLT schemes (see section 10.2.4). Minor changes, for example to suit the requirements of different clients, need not be separately disclosed providing the revised proposal remains substantially the same.

What constitutes a change in a scheme or arrangement so that it is no longer substantially the same is a matter which will need to be considered on each occasion.

In our view a scheme is no longer substantially the same if the effect of any change would be to make any previous disclosure misleading in relation to the second (or subsequent) client.

In general, provided the tax analysis is substantially the same we will regard schemes as ‘substantially the same’ where the only change is a different client including a different company in the same group.

HMRC will not regard schemes as substantially the same where there are changes to deal with changes in the law or accounting treatment, changes in the tax attributes such as schemes creating income losses instead of capital losses or other legal and commercial issues.

However, special care must be taken where an existing tax product is used as part of an otherwise bespoke scheme. This has been described to us as ‘the use of existing toolkit’.

Where a piece of ‘existing toolkit’ is used as part of a separate scheme for the same or different client then it may be that the resulting scheme is so different from the earlier planning idea that the disclosure position needs to be considered afresh.

In some situations this might involve the client being given 2 or more numbers, for example where the scheme involves a combination of ideas that were themselves disclosed and allocated a number.

10.2.4 Disclosing SDLT schemes twice

Before April 2010, scheme reference numbers (SRNs) were not issued to SDLT disclosures. This meant that whilst HMRC obtained early warning of the arrangements disclosed it did not enable users of the arrangements to be identified.

From April 2010, SRNs were issued in respect of disclosable SDLT arrangements, but this only applied to new schemes.

As many SDLT arrangements are exempted from disclosure (or ‘grandfathered’) because they are the same as schemes HMRC is already aware of (see section 6.4), new users of these arrangements could not be easily identified.

To enable users of certain arrangements to be identified the disclosure rules have been amended to enable SRNs to be issued in respect of these schemes. This will bring these arrangements within both the client list rules (section 19) and the rules requiring users to notify HMRC of their use of the arrangements on form AAG4 (SDLT).

In general, schemes that have been disclosed once are exempted from being disclosed again (section 10.2.3). However, with effect from 1 November 2012, certain SDLT schemes (broadly those involving sub-sale arrangements) that were disclosed before April 2010 will have to be disclosed one further time.

Schemes will be disclosable one further time if:

• a promoter disclosed the scheme before April 2010

• on or after 1 November 2012, the promoter is a promoter in relation to the scheme, and

• the scheme falls within conditions A and B

Condition A is that a chargeable interest is acquired under a contract, the substantial performance or completion of which falls to be disregarded by virtue of section 45(3) of the Finance Act 2003.

Condition B is that the secondary contract referred to in section 45(3) of the Finance Act 2003 applies to a transaction with one or more of these features:

(i) a distribution in specie (that is, a distribution of an asset in physical form without selling it and distributing the cash)

(ii) an acquisition by a partnership

(iii) an acquisition by a settlement

(iv) an element of gift or transfer at an undervalue

(v) the grant of an option

(vi) an assignment or novation

Following a second disclosure of the arrangements promoters are reminded of their obligations to include users on a client list (section 19) and to pass the SRNS on to those to whom the scheme is marketed (section 11.2 and 11.3) so that users ultimately complete and return form AAG4 (SDLT).

10.3 The tests that trigger a duty to disclose a notifiable proposal

10.3.1 The ‘makes a firm approach’ test

The ‘makes a firm approach’ test was introduced to make sure disclosure of a marketed scheme is triggered as soon as a promoter takes steps to market the scheme to potential clients, as originally intended.

There is more detail concerning the point at which this takes place in the definition of a promoter at section 3.7 and section 3.7.1 in particular. It is the time when the promoter communicates information about the scheme, which is ‘substantially designed’ (see section 3.7.2), to a third party (who may be a potential client or a scheme introducer) with a view to obtaining clients for the scheme.

10.3.2 The ‘makes a scheme available for implementation’ test

The test is intended to cover the circumstances where a promoter makes a scheme available for implementation by clients without previously having come within the firm approach test (ie, without marketing the scheme when it was substantially designed).

For example, a promoter may offer a client a ‘packaged solution’. By ‘packaged solution’ we refer to the situation where a promoter does not actively market a scheme, but has a ready developed planning solution (for example, a scheme) on a solutions database or similar system which is rolled out, with or without modification, to a specific client in response to an approach from that client.

In our view a scheme is made available for implementation at the point when all the elements necessary for implementation of the scheme are in place and a communication is made to a client suggesting the client might consider entering into transactions forming part of the scheme, but it does not matter whether full details of the scheme are communicated at that time.

In practice, it is likely that even arrangements that have to be heavily modified to meet the circumstances of the particular client will reach a point where the design is complete, the scheme is capable of implementation, and the client is then invited to enter into arrangements forming part of the scheme. For further details about making a scheme available for implementation see section 3.7.3.

At that point the scheme is made available for implementation. The promoter might consider such arrangements to be bespoke. But the promoter should focus on whether or not the scheme is made available for implementation, not on to what degree it is bespoke.

10.3.3 The ‘becomes aware of a transaction’ test

The trigger for disclosure under this test is that a promoter becomes aware that the client has entered into any transaction forming part of the scheme implemented by the client.

In practice it is likely that the duty to disclose will normally be triggered by one of the other 2 tests, before this third test arises.

This third test may be the only test to arise where a scheme is wholly bespoke. By a wholly bespoke scheme we mean a tax arrangement designed by an interactive process in response to a client’s specific tax management issue, where it may be that at no point can the scheme be said to be made available for implementation.

The trigger for disclosure will then be the implementation itself.

10.4 Schemes promoted solely by offshore promoters (section 309 of the Finance Act 2004 and SI 2012/1836, regulation 5(6) and 2(3))

Where you are the client of a non-UK based promoter which fails to comply with any disclosure obligation, and where there is no other person resident in the UK promoting your scheme, including UK-based employees of the offshore promoter, you must disclose the scheme to HMRC yourself (see section 3.10).

You must do so within 5 days of entering into the first transaction forming part of the scheme (see section 10.8). Weekends, bank holidays, Good Friday and Christmas day are ignored for the purposes of determining the due date.

10.5 Schemes marketed by lawyers (section 310 of the Finance Act 2004 and SI 2012/1836, regulations 5(7) 2(3))

Where a promoter is a lawyer and legal professional privilege prevents him or her from providing all or part of the prescribed information to HMRC each user must disclose (see section 3.11).

Disclosure must normally be made within 5 days of entering into the first transaction forming part of the scheme (see section 10.8). Weekends, bank holidays, Good Friday and Christmas Day are ignored for the purposes of determining the due date.

10.6 Schemes with no promoter, including ‘in-house’ schemes (section 310 of the Finance Act 2004 and SI 2012/1836, regulations 5(8) and 2(3))

Where there is no promoter (other than in the case described in section 10.5) the user must disclose (see sections 3.9 and 3.11).

He must do so within 30 days of entering into the first transaction forming part of the scheme (see section 10.8). Weekends, bank holidays, Good Friday and Christmas Day are included for the purposes of determining the due date.

10.7 Exemption for substantially the same scheme (sections 309 and 310, SI 2012/1836, regulation 4(4))

If you have entered into 2 or more schemes which are substantially the same, and have disclosed the first scheme to HMRC under section 309 or section 310 of the Finance Act 2004, you do not need to make separate disclosures about the later schemes.

10.8 The first transaction test (sections 309 and 310)

The due date for making a disclosure, where the user is required to make the disclosure, is by reference to the first transaction forming part of the scheme.

In the majority of cases where disclosure is required, it is likely that the tax department or individual is fully aware that the scheme is to be implemented and can monitor when the first transaction takes place.

In other cases, especially in larger organisations, systems should be put in place to identify and report disclosable schemes within the relevant time limit. What those systems are depends on individual circumstances. However, they should be reasonable and proportionate to the risk.

In general, we expect the adopted system to involve the people who have the ability and authority to purchase, design or implement the sorts of schemes that are disclosable.

These will normally be people within the tax department itself. Such people should be identified and be made sufficiently aware of the adopted system in order that disclosure can be made on time. The system should be reviewed periodically, at least once a year.

It is, however, accepted that there may be unusual circumstances that are either unforeseeable or beyond your control where a disclosable scheme is not captured by the adopted system in sufficient time for the disclosure to be made within the relevant time limit. In some cases, the scheme may not be discovered until the end of year audit and tax computation.

You should make disclosure of the scheme as soon as you are aware that it is late with an explanation as to why. If you have a reasonable excuse for not disclosing earlier you will not be liable to a penalty (see section 21.3).

10.9 A transaction forming part of the scheme

A transaction which forms part of a scheme is one that will, either in isolation or in conjunction with other transactions, deliver the tax advantage expected from using the scheme (see section 11.3.4).

The concept of a transaction is not limited to the performance of a contract or the making of a payment under it — the entering into a contract is itself part of the transaction.

Whether an engagement letter is a transaction forming part of a scheme depends upon the nature of the engagement letter. An engagement letter is unlikely to amount to a transaction forming part of a scheme where the promoter is not counterparty to any of the scheme transactions as defined.

However, if the promoter, or a body controlled by the promoter such as an investment vehicle, is counterparty to a scheme transaction, and the engagement letter amounts to a contract to enter into such a transaction, then the engagement letter may be a scheme transaction.

This is to be distinguished from the case where the engagement letter merely amounts to an agreement by a client to pay for, and by the promoter to provide, details of a scheme. Indeed, in some cases a client may buy a scheme but not enter into any transaction which forms part of the scheme.

10.10 Arrangements that provide an advantage in respect of more than one head of duty

Where a single arrangement provides an advantage in respect of more than one head of duty, each advantage is subject to its own disclosure considerations. Where more than one advantage requires disclosure the timing rules will always require them to be disclosed at the same time.

For administrative ease, combined disclosures can be made. This is explained further at section 11.5.

11. How to make a disclosure

11.1 The forms to complete

There are 4 different forms available for use in the following circumstances:

• AAG1 - notification of scheme by promoter

• AAG2 — notification by scheme user where offshore promoter does not notify

• AAG3 — notification by scheme user where no promoter, or promoted by lawyer unable to make full notification

• AAG5 — continuation sheet

Use of these forms is a legal requirement.

11.2 How to obtain and submit the forms

You can make an online disclosure by using forms to disclose tax avoidance schemes on the GOV.UK website. This enables you to use a structured form to send HMRC the prescribed information by secure e-mail.

You can obtain PDF versions of the forms for printing out by clicking the relevant links on the same web page.

The completed forms should then be sent by either post or e-mail to the DOTAS Enforcement team. When sending a form by post use the address shown at section 1.5.

11.3 The information to be provided

11.3.1 General

The legislation (which is covered by SI 2012/1836, regulation 4, requires that information shall be provided by a promoter (or others) in respect of notifiable proposals or notifiable arrangements, as defined in the legislation. There is no provision in the legislation for information to be provided on a ‘precautionary’ basis.

Under the regulations, the disclosure should explain how the scheme is intended to operate. The information which must be provided includes:

• your name and address if you are a promoter making the disclosure, a client making a disclosure where the promoter is a lawyer, or making an ‘in-house’ disclosure where there is no promoter

• your and the promoter’s name and address if you are disclosing as the client of an off-shore promoter

• details of the provision, in the Prescribed Descriptions of Arrangements Regulations that makes the scheme disclosable — see section 11.3.3

• a summary of the proposal or arrangements and the name by which it or they are known — see section 11.3.4

• information explaining the elements and how the expected tax advantage arises — see section 11.3.4

• the statutory provisions on which that tax advantage is based — see section 11.3.4

11.3.2 Legal advice

Legal professional privilege may apply to certain advice given by lawyers to their clients (section 314 of the Finance Act 2004). Such information need not be disclosed.

11.3.3 The prescribed arrangements

The relevant forms have a list of the relevant provisions.

For hallmarked schemes, the relevant hallmark (see section 5) should be indicated. For some schemes, more than one hallmark may apply. If you are a promoter completing form AAG1 you should mark all hallmarks that apply to the scheme being disclosed. If you are a user of the scheme completing a form AAG2 or AAG3 you only need to report one hallmark. The hallmark selected should be the main applicable one to the scheme.

For SDLT schemes there are 2 options, first to indicate disclosure of a scheme in relation to the acquisition of a chargeable interest and then the type of property for which the arrangement is to be used.

See section 11.5 for situations where an advantage is obtained in respect of more than one head of duty.

11.3.4 Explaining the scheme

Sufficient information must be provided such that an officer of the board of HMRC is able to understand how the scheme works and in particular how the expected tax advantage is intended to arise. The explanation should be in straightforward terms and should identify the steps involved and the relevant UK tax law. Common technical or legal terms and concepts need not be explained in depth.

If the scheme is complex then copies of any prospectus or scheme diagrams will help us understand what is proposed. But even where you send such documents you must still use form AAG1, AAG2 or AAG3 as appropriate. Where such documents are supplied there is no objection to these documents excluding information that would identify a client.

11.4 Notification of co-promoters

When a promoter makes a disclosure, it may also provide HMRC with details of any other promoter (a co-promoter) of the same or substantially the same scheme (section 308(4A)(a) and (4C)(a) of the Finance Act 2004).

Promoters are not required to tell HMRC about co-promoters but if they do so and provide the co-promoter with the information at section 11.3.1 the other promoter will be exempt from making its own disclosure of the scheme (see section 10.2.2).

The details to be provided are the co-promoter’s name and address. Where the co-promoter is a company, it is the company’s name and address that is to be provided not that of an individual.

If you have already made a disclosure of the scheme and hold the scheme reference number allocated by HMRC, and your co-promoter seeks exemption from making their own disclosure, their details need not be provided to HMRC if rule (b) at section 10.2.2 is followed.

11.5 Arrangements that provide an advantage in respect of more than one head of duty

A single arrangement may provide an advantage in respect of more than one head of duty each of which is subject to its own disclosure considerations. For example, both a National Insurance contribution advantage and an Income Tax advantage or both an IHT advantage and a Capital Gains Tax advantage.

Where more than one advantage requires disclosure, the arrangements need only be disclosed on one form. However, the scheme description must make it clear that there is an advantage in respect of more than one head of duty and explain how each of those advantages arises.

The effect of the arrangements on the scheme reference numbers is explained at section 14.

12. Arrangements and proposals suspected of being notifiable: notice of potential allocation of reference number to scheme not already disclosed (s310D of the Finance Act 2004)

12.1 Summary

Under section 310D FA 2004 HMRC is entitled to issue notices informing persons it suspects of being promoters and other suppliers of a scheme that, unless they can satisfy HMRC that the scheme described in the notice is not notifiable, HMRC may allocate a reference number (‘SRN’) to the scheme. HMRC can issue a notice when it has become aware that:

• a transaction forming part of the arrangements has been entered into
• a firm approach has been made to a person in relation to a proposal for arrangements, with a view to making the proposal available for implementation
• the proposal for the arrangements has been made available for implementation
• HMRC has reasonable grounds for suspecting that the arrangements, or proposal for arrangements, are notifiable under DOTAS

The power to give a notice under section 310D of the Finance Act 2004 covers proposals or arrangements that HMRC has reason to suspect might be expected to give rise to any relevant tax advantage.

If HMRC reasonably suspect a person of being a promoter of the scheme in question, it must give a notice to that person. HMRC can also issue a notice to any other person they reasonably suspect of being involved in supplying the scheme. This notice advises the person receiving it that unless they satisfy HMRC within the ‘notice period’ that the scheme is not notifiable, HMRC may issue a SRN in respect of that scheme.

For schemes that have a main benefit of obtaining a tax advantage, HMRC can issue notices under section 310D of the Finance Act 2004 only in relation to transactions entered into, firm approaches made or proposals that are made available for implementation, on or after 10 June 2021.

For schemes that have a main benefit of obtaining a contribution advantage but do not have a main benefit of a obtaining tax advantage, HMRC can issues notices under regulation 11D of SI 2012/1868 as amended by SI 2022/526 only in relation to transactions entered into, firm approaches made and proposals that are made available for implementation, on or after 1 June 2022.

12.2 When S310D applies

12.2.1 Earliest date for notice

HMRC may not issue a section 310D notice until we have reasonable grounds for suspecting that the scheme is notifiable. The section 310D notice may not be issued until 15 days after first becoming aware of one of the following:

• a transaction forming part of arrangements has been entered into
• a firm approach has been made to a person in relation to a proposal for arrangements, with a view to making the proposal available for implementation
• a proposal for arrangements is made available for implementation

12.2.2 HMRC become aware that a firm approach has been made to any person about a proposal for arrangements with a view to the proposal being made available for implementation by any person

For guidance about when a firm approach is made with a view to a proposal being made available for implementation, see sections 3.7 to 3.7.3.

12.2.3 HMRC become aware a proposal has been made available for implementation

For guidance on when a proposal is made available for implementation, see section 3.6.

12.2.4 HMRC become aware that a transaction forming part of the arrangements has been entered into

This test will be satisfied if it comes to HMRC’s attention that at least one transaction forming part of a person’s arrangements has been entered into. Such a transaction takes place when the user of the scheme implements the proposal by becoming a party to one or more agreements or other required scheme documents.

12.2.5 HMRC have reasonable grounds for suspecting that the arrangements or proposal are notifiable

To be able to issue a notice under section 310D HMRC must have reasonable grounds for suspecting that the relevant arrangements, or proposal, are notifiable. Consequently, HMRC must have reasonable grounds to suspect the following 3 criteria are all met:

• the arrangements or proposal fall within any one or more of the ‘DOTAS hallmarks’ prescribed in the relevant regulations see section 5
• the arrangements or proposal enable or might be expected to enable any person to obtain a tax advantage in relation to a prescribed tax, see section 4.3.2 and
• the main benefit, or one of the main benefits that might be expected to arise from the arrangements or proposal is the obtaining of that advantage see section 4.4

For a person to have reasonable grounds for suspecting a matter, the suspicion must be firmly grounded in the sense that the person must be able to point to evidence that gave him or her reason to suspect the relevant matter. However, suspicion not a high hurdle. For instance, in R v da Silva (2006 EWCA Crim 1654) the Court of Appeal concluded that a person suspects something if they “think that there is a possibility which is more than fanciful that the relevant facts exist”.

It follows that HMRC will have reasonable grounds for suspecting a proposal or arrangements are notifiable when an officer has information or documents that have led him or her to conclude there is a genuine possibility the proposal or arrangements in question are notifiable.

12.3 Contents of the notice

HMRC will set out in the notice a description of the arrangements or proposal, which may include details of the various elements of the arrangements or proposed arrangements of which HMRC is aware.

The notice will include an explanation that, unless the person to whom it has been issued can satisfy HMRC that the arrangements or proposal are not notifiable, HMRC may allocate a SRN to the arrangements or proposed arrangements.

Notice period

The person to whom the notice is issued will have until the expiry of the notice period (30 days from the date of issue, or such longer period as HMRC may direct) to satisfy HMRC of their view.

12.4 Who can a notice be issued to

If HMRC reasonably suspects that one or more persons are promoters of the arrangements or proposal a notice must be issued to each of those persons.

HMRC can also give a notice to any other persons it reasonably suspects to be involved in the supply of the arrangements — see section 3.4.

HMRC may send a notice to persons resident outside the UK as well as to UK residents.

13. Scheme reference number

13.1 The scheme reference number system

The scheme reference number (SRN) system is a means of identifying the users of disclosed schemes, allowing HMRC to prioritise and co-ordinate enquiries into users’ returns.

It works by HMRC allocating an 8-digit reference number to a scheme and notifying it to certain persons. Those notified of a SRN are then required to report it and therefore their use of a scheme on their tax return or a specified HMRC form. They may also be required to pass on the number to other persons.

13.2 When HMRC can allocate a SRN

HMRC may allocate a SRN when:

• a person who discloses or purports to disclose a notifiable proposal or notifiable arrangements — SRN allocated under s311(2) FA 2004 (‘subsection 2’) cases, or
• HMRC has issued a notice under s310D FA 2004 to one or more persons and they have not satisfied HMRC that the arrangements or proposed arrangements are not notifiable — SRN allocated under s311(3) FA 2004 (‘subsection 3’ cases)

The issue of a SRN does not indicate that HMRC accept that the scheme achieves or is capable of achieving any purported tax advantage nor that the disclosure is complete.

You may incur a penalty if you fail to comply with the rules outlined in this section (see section 21).

13.3 Subsection 2 cases

These are cases where a person complies or purports to comply with section 308(1) or (3), 309(1) or s310 FA 2004.

A person will have complied with s308(1) or (3), 309 (1) or s310 FA 2004 where they have given HMRC the prescribed information about the scheme in the form and manner specified by HMRC in accordance with s316 FA 2004 (see section 10). A person will have purportedly complied with s308(1) or (3), 309 (1) or s310 FA 2004 if they have notified the scheme to HMRC on the basis that they were complying with the duty to do so under the relevant section but have not met all of the relevant requirements when making the disclosure.

The latest date HMRC can allocate a SRN in a subsection 2 case is 90 days from when the person provides the information about the scheme to HMRC.

13.4 Subsection 3 Cases

These are cases where HMRC has issued one or more notices under s310D FA 2004 (see section 12). Where HMRC receives no information from the persons to whom it gave a notice by the end of the 30-day period to do so (or such longer period as HMRC may direct), or any information that is provided is not sufficient to satisfy HMRC that the scheme is not notifiable, HMRC may allocate a SRN to the scheme.

This 30-day period (or longer period if HMRC directs) is the ‘notice period’. HMRC may allocate a SRN after the notice period has ended but may not do so more than a year after the end of that period. For example:

• HMRC issue one or more notices under S310D on 1 November 2021
• the 30-day notice period expires on 30 November 2021
• HMRC may allocate an SRN at any time during the period between 1 December 2021 and 30 November 2022

If a SRN is allocated in a subsection 3 case and HMRC later identify one or more other persons they reasonably suspect to be a promoter of the arrangements or proposal, HMRC can notify the SRN to those persons. HMRC may also notify the SRN to any other person they reasonably suspect to be involved in the supply (see section 3.4) of the arrangements or proposals regardless of whether they gave a s310D notice to those persons.

HMRC may withdraw a SRN allocated in a subsection 3 case at any time. The main circumstance in which HMRC would anticipate exercising its discretion to withdraw an SRN would be where, after allocating the SRN, it concludes that the arrangements or proposals do not meet the criteria for issuing a SRN in a ‘subsection 3’ case after all and accordingly the arrangements or proposals are not notifiable.

13.5 Duty of HMRC to notify persons of reference number

For SRN’s allocated in a subsection 2 case HMRC must notify the number to:

• The person who complied with or purported to comply with s308(1) or (3), s309(1) or s310 FA 2004,
• Any co-promoter whose details have been provided by a promoter in form AAG1

SRNs allocated in subsection 3 cases must be given to any person that HMRC reasonably suspects to be or to have been either a promoter of the arrangements or proposed arrangements, or otherwise involved in the supply or promotion of the arrangements or proposed arrangements. This includes to persons resident outside the UK.

HMRC is not required to notify the SRN to every person to which it sent a section 310D notice but this is what it will expect to do in most circumstances. HMRC is also entitled to notify the SRN to a person to which it did not give a s310D FA 2004 notice if, since sending the notices, it has received new information giving it reason to suspect that the person is a promoter or person otherwise involved in the supply of the scheme (see section 3.4).

Example

HMRC have reason to suspect person A of being a promoter of a scheme. At the time they also reasonably suspect that person B is involved in the supply of the scheme. HMRC issue person A with a s310D notice but choose not to send a notice to person B. After the expiry of the 30-day notice period, HMRC have not been persuaded that the scheme is not notifiable and therefore proceed to allocate a SRN. HMRC must notify the SRN to both person A and person B as they are both persons HMRC reasonably suspects of being either a promoter or otherwise involved in the supply of the scheme.

HMRC continues its enquiries into the scheme and after another 6 months, it has obtained more information. As a result it considers that it now has reasonable grounds to suspect that person X is also involved in the supply of the same scheme. Even though HMRC did not give X a s310D notice, HMRC writes to X notifying X of the SRN that it has allocated to the scheme.

When notifying the SRN to any person who was not given a notice under s310D, HMRC will include a description of the scheme based on what it knows about them, including details of transactions that form parts of the scheme and entities involved in the operation of the arrangements.

13.6 Right of appeal: Subsection 3 Cases (FA 2004, S311B)

13.6.1 General

If a person has been notified of a SRN in a subsection 3 case:

• allocated following the issue of one or more s310D notices for which the notice period has expired, and
• HMRC has not been satisfied that the scheme is not notifiable (for example, a subsection 3 case)
• the person has 30 days from the date the SRN was notified to them by HMRC to appeal to the tribunal

If the customer notifies their appeal to the tribunal late, they must ask the tribunal for permission to bring a late appeal, explaining why they did not notify their appeal within the time limit. In these circumstances, the appeal will only proceed if the Tribunal agrees.

There is no option to ask for HMRC to review their decision to allocate the SRN, only to appeal directly to the Tribunal.

13.6.2 DOTAS duties until appeal is determined

An appeal under s311B will not suspend any of the effects of the relevant SRN. Any persons who have been issued with an SRN will therefore be required to continue to comply with their DOTAS duties until the appeal is determined. For example, if an SRN is allocated following a s310D notice, promoters and other suppliers notified of the SRN will be required to notify the number to each of their clients. If the promoter or other supplier does not do so within the relevant time limit they will potentially be liable for a penalty not exceeding £5,000 per failure.

13.6.3 Grounds for Appeal against the allocation of the SRN in a subsection 3 case

Appeals can be made on the grounds that:

• in issuing the s310D notice HMRC did not act in accordance with s310D. For example, the s310D notice was issued earlier than 15 days after HMRC first became aware of one of:

  • a transaction forming part of the arrangements being entered into
  • a firm approach in relation to the arrangements or proposed arrangements being made
  • or a proposal for arrangements being made available for implementation

• the criteria for issuing the SRN under s311 have not been met:

  • one or more of the persons to whom s310D notices were sent have provided information on the basis of which HMRC should have been able to conclude that the arrangements or proposals are not notifiable
  • the SRN was issued either before the end of the notice periods relating to the s310D notices or, more than one year after the end of the notice periods

• the arrangements or proposal are not in fact notifiable (that is because they do not meet all of the statutory conditions in s306 FA 2004)

13.6.4 Tribunal’s Decision

The Tribunal may either affirm HMRC’s decision to allocate the SRN or cancel the decision. If the Tribunal cancels the decision, HMRC must withdraw the SRN. HMRC will write to any persons notified of the SRN that it has been withdrawn.

13.6.5 How to notify an appeal

Any person who wishes to notify an appeal against the allocation of a SRN in a subsection 3 case can do this:

• online to the tax tribunal
• by post using form T240

The Tribunals Service require that the appeal should contain the:

• customer’s name and address
• name and address of the customer’s representative, if any
• address where documents for the customer may be sent or delivered
• details of the decision appealed against
• grounds of appeal
• result the customer is seeking

The customer must also send the tribunal a copy of the letter or details of any other communications from HMRC notifying them of the allocation of the SRN.

The Tribunals Service will process the appeal and tell HMRC that the customer has appealed. They will write to the customer and explain to them what they need to do next.

13.7 Withdrawal of scheme reference numbers

HMRC has discretion to remove the reporting duties associated with the disclosure of a notifiable scheme by giving a notice specifying that with effect from a given date.

The scheme reference number need no longer be sent:

• by a promoter to its clients (section 16.2)
• by clients to parties to the scheme (section 16.3)
• by employers to their employees
• promoters and employers have no further reporting duties in connection with the scheme to which the reference number was allocated

The removal of these reporting duties will be notified to the person who originally made the disclosure and to any co-promoters whose details had been provided to HMRC.

Lifting these duties for the future does not relieve any DOTAS obligation that may have existed prior to the date specified in the notice.

If a party to a scheme reports the number after HMRC has issued a notice relating to it, it will have no impact on HMRC’s interventions.

HMRC may also withdraw a SRN allocated to a scheme in a subsection 3 case at any time. The main circumstance in which HMRC would anticipate exercising its discretion to withdraw an SRN would be where, after allocating the SRN, it concludes that the arrangements or proposals do not meet the criteria for issuing a SRN after all and accordingly are not notifiable.

14. What to do if you receive a SRN from HMRC or another person

This section and section 19 client lists cover what you will need to do if you receive a scheme reference number relating to an Income Tax, Corporation Tax, Capital Gains Tax or National Insurance contribution scheme.

14.1 Duty to provide scheme reference number to clients — Subsection 2 cases (section 312 and section 316A of the Finance Act 2004 and SI2012/1836, regulation 6)

If you are:

• a person who has complied with or purported to comply with s308(1) or (3) in relation to a notifiable proposal or notifiable arrangements
• a promoter of notifiable arrangements or a notifiable proposal including co-promoters, and
• the reference number allocated to the arrangements or proposal has been notified to that person either by HMRC or by the promoter which made the disclosure (see section 2)

you must:

• provide it to any other person (your ‘client’) to whom you provide, or have provided, services in connection with the disclosed scheme or any scheme that is substantially the same — your client may be the person who is intended to obtain the tax advantage or he may be a third party (for example, a person who does not himself enter into the scheme or expect to obtain a tax advantage)
• do so using form AAG6
• do so within 30 days after either being provided with the SRN or becoming aware of any transaction that forms part of the arrangements, whichever is later ‘the relevant date’
• include the client on a client list as required by s313ZA

If you have been provided with more than one SRN in relation to any given arrangements, you only need provide one of those numbers to your client.

The information relating to the scheme that a person is required to supply to clients comprises information prescribed in regulations, that is the promoter’s name and address, the name or brief description of the arrangements or proposal, the SRN and the date the promoter sent this information

Any promoter notified of a SRN allocated in a subsection 2 case may incur a penalty if they fail to provide the reference number and other required information to clients on the relevant form AAG6 available on the GOV.UK website (see section 21).

While there is no obligation to do so, you may find it more convenient to provide the number to a client when you make the scheme available rather than wait until it has been implemented. If, but only if, you do so using the form AAG6, you need not renotify the number to your client when you become aware of a transaction forming part of the scheme.

Promoters may incur a penalty if they fail to provide the reference number and other required information to clients on the relevant form AAG6 available on the GOV.UK website (see section 21).

14.2 Duty to notify client of SRN: subsection 3 cases (s312ZA of the Finance Act 2004)

Any person to whom HMRC has notified a SRN which has been allocated in a subsection 3 case is required to notify the SRN to their clients in the same way as promoters are required to do for an SRN allocated in a subsection 2 case.

This duty applies to anyone who is involved in the supply of relevant arrangements or proposed arrangements, whether as a promoter or otherwise.

If a person has been notified of a SRN allocated in a subsection 3 case they must do the following within 30 days of the relevant date:

• provide the SRN to any other person (your ‘client’) to whom you provide, or have provided, services in connection with the scheme or any scheme that is substantially the same that HMRC have allocated the SRN in relation to. Your client may be the person who is intended to obtain the tax advantage or he may be a third party (for example, a person who does not himself enter into the scheme or expect to obtain a tax advantage)
• do so using form AAG6
• do so within 30 days of being notified of the reference number
• include the client on a client list — see section 19

This duty will not apply if HMRC withdraw the SRN before the deadline for providing the client with the required information.

When a SRN allocated in a subsection 3 case is notified to a person who is a promoter of the scheme, the promoter must notify the SRN to any person to whom they have provided services in connection with the scheme at any time. This includes past clients to whom the promoter ceased providing services in relation to the scheme before 10 June 2021.

Where a person to whom a SRN allocated in a subsection 3 case is notified is involved in the supply of the relevant scheme otherwise than as a promoter, that person will only be required to notify the SRN to clients to whom they are providing or have provided services in connection with the scheme after the 10 June 2021. It follows that the supplier of a scheme will not be required to notify the SRN to any of their clients so long as they wholly ceased to be involved in the supply of the scheme before this date.

The duty in subsection 3 cases will not apply if HMRC withdraw the SRN before the deadline for providing the client with the required information.

14.3 Clients must provide scheme reference number to parties to the scheme (section 312A and SI2012/1836 of the Finance Act 2004, regulation 6)

14.3.1 The duty

As explained at section 14.1 and 14.2, if a promoter or supplier provides, or has provided, services in connection with a disclosable scheme, they must provide their clients with any scheme reference number allocated by HMRC in relation to that scheme.

This must be provided on the HMRC form AAG6 containing guidance about when and how to report the reference number to HMRC or provide it to other parties.

When you have been provided with a scheme reference number, by whatever route, you must:

• provide it to any other person whom you might reasonably expect to be a party to, and who might reasonably be expected to gain a tax advantage from, the scheme

• provide the information using form AAG6

• do so within 30 days of either being provided with the scheme reference number by the promoter or becoming aware of any transaction that forms part of the scheme, whichever is the later

You may incur a penalty if you fail to use the prescribed forms to provide the required information (see section 21).

14.3.2 Employers must provide scheme reference numbers to employees

Where the client is an employer and a promoter or other supplier of the scheme has provided the employer with a scheme reference number and additional information, the employer is required to pass the information to each of its employees who might reasonably be expected to receive an advantage as a result of the scheme or one that is substantially the same (section 312A(2), (2A) and (3) of the Finance Act 2004).

The employer must also provide the scheme reference number and additional information to employees in circumstances when it is the employer who might reasonably be expected to gain a tax advantage in relation to the employment of those employees by entering into the scheme.

The circumstances in which this duty applies includes when those employees are not themselves expected to gain a tax advantage by reason of the arrangements.

The scheme reference number and the additional information described in section 14.3 must be provided to the employees within 30 days in the specified form and manner using a form AAG7 .

The reference to employees includes former employees (including office holders) in relation to whose employment any person receives or might reasonably be expected to receive the advantage.

Employers may incur a penalty if they fail to provide the reference number and other required information to employees on form AAG7 (see section 21).

14.3.3 Reasonable expectation

Your obligation as the client of a promoter or other supplier to pass a scheme reference number to third parties only applies when you have sufficient commercial connection with that party to have a reasonable expectation that they will gain a tax advantage from the scheme. As examples:

• you are a parent company which purchases a scheme and makes it available for subsidiary companies to use but without yourself becoming a party to the arrangements that make up the scheme — you must provide the scheme reference number to those subsidiaries that are expected to gain a tax advantage from the scheme

• you are a property developer which purchases a scheme and makes it available to property purchasers but without yourself becoming a party to the arrangements that make up the scheme — you must provide the scheme reference number to those purchasers that are expected to gain a tax advantage from the scheme

You are not required to provide a number to a person simply because, for example, they learn about their use of a scheme through reading about it in the press or a tribunal decision.

You may incur a penalty if you fail to provide the reference number and other information to other persons as described in section 21.

14.4 On receipt of scheme reference number from a promoter or supplier clients must provide their National Insurance number and Unique Taxpayer Reference (UTR) to the promoter (section 312B of the Finance Act 2004 and SI 2013/2592)

Within 10 days from the later of the date that the client of a promoter or supplier of arrangement receives a scheme reference number or the date that the client first enters into a transaction forming part of the arrangements the client has to notify the person who gave the the SRN of their:

• National Insurance number

• UTR

Or if they have neither of these, confirmation that they do not hold a National Insurance number or a UTR. The person to whom these details are given will then provide this information.

14.5 Parties to a scheme must include the scheme reference number on a return (section 313 of the Finance Act 2004 and SI 2012/1836, regulation 8B)

As explained at section 14.1 and 14.2, if you are a party to a scheme, the promoter, other supplier or their client may provide you with a scheme reference number.

This must be provided to you on form AAG6. In some cases you may receive the number direct from HMRC as a result of disclosing the scheme yourself (see section 3.10 to section 3.12).

With the one exception for certain employees as mentioned, if you have received the scheme reference number and expect to obtain a tax or National Insurance contribution advantage as a result of being a party to the scheme you must:

• include the scheme reference number on your tax return only in the specific boxes provided or in specified circumstances on form AAG4 — see section 14.5.1

• state the last day of the year of assessment, tax year, accounting period or earnings period (as the case may be) in which, or the date on which, you expect the advantage to be obtained — see section 14.5.4

This is the same whether the SRN has been allocated in a subsection 2 or subsection 3 case.

If you are a partnership which expects a tax or National Insurance contributions advantage to arise in respect of a partner’s share of partnership profits or gains, the information is to be entered on both your partnership return and the relevant individual, company, or trust and estate return (as the case may be) for the partner in question.

There may be an exception from this requirement if it was your employer who notified you of the scheme reference number (see section 14.3 and section 14.3.1). If you received the number from your employer (unless your employer is a promoter and you received the reference number in your capacity as a client of your employer’s business), you are not required to include this number on your return or in any information you provide to HMRC on a form AAG4.

Your employer is required to provide HMRC with the reference number for the scheme and details identifying you and whether and when you obtain or might reasonably be expected to obtain a tax advantage resulting from the arrangements (section 14.8).

You may incur penalties if you fail to notify prescribed information within the prescribed time limits (see section 21).

14.5.1 When to enter information on tax return or form AAG4

Subject to the following the information (at section 14.4) must be entered on the return (in the specific boxes and nowhere else) that relates to the year of assessment, tax year, accounting period or earnings period (as the case may be) in which you first enter into a transaction forming part of the scheme.

If any one of the following apply the information must not be entered onto a return, instead you must use form AAG4:

• you expect to obtain a tax or National Insurance contribution advantage but do not have a return on which you would otherwise be required to enter the information (if you are a partnership which expects a tax or National Insurance contributions advantage to arise in respect of a partner’s share of partnership profits or gains, and do not have either or both the partnership return and the return for the partner in question, form AAG4 must be completed for each return)

• you expect to obtain a National Insurance contribution advantage but no other tax advantage

• you expect to obtain an Apprenticeship Levy advantage but no other advantage

• you are late submitting the return for the relevant period such that it will not be submitted to HMRC before the statutory filing date

• you have submitted the return for the relevant period but have not included the information at section 16.3 in it

• you need to notify more scheme reference numbers than there are spaces on the return (you should use form AAG4 to notify only those numbers that will not fit on the return)

• the scheme gives rise to a claim to relief made separately from your return under section 261B of the Taxation of Chargeable Gains Act 1992 (for example treating a trade loss as a Capital Gains Tax loss) or any of the various loss relief provisions within Part 4 of Income Tax Act 2007 — in these circumstances you must also notify the SRN on your Income Tax or Corporation Tax Return affected by the use of the scheme

You must continue to do this for every subsequent year or period until the advantage ceases to apply.

For example, if losses created by a scheme are expected to be used in a future year, you should enter the information at section 14.4 in the year you first enter into a transaction forming part of the scheme and each subsequent year, including those where the losses are not used, until the losses have been used up. The information must be included in the scheme reference boxes on the return or on the form AAG4 as described.

Where you use a scheme that involves an in-year claim not covered by the last bullet, for example a coding adjustment, reduction in any payment on account or quarterly payment, there is no statutory requirement to disclose the scheme reference number as part of the claim. However, it will be helpful if you show the number on any such claims and you must include it in your return or on form AAG4 as appropriate.

Individuals who received the scheme reference number from their employer are generally not required to include this number on their return or on a form AAG4 (see section 14.5).

You may incur penalties if you fail to notify the scheme reference number correctly (see section 21).

14.5.2 Where to send form AAG4

Other than for in-year claims, form AAG4 must be sent to the address specified in section 1.5 in sufficient time for it to be received by the date appropriate to the entity receiving the tax advantage as detailed at section 14.5.4.

14.5.3 Date for submission of form AAG4 to the DOTAS enforcement team in the Counter-Avoidance Directorate

Where the advantage that is expected to arise is a National Insurance contribution advantage in respect of employments (other than an advantage relating only to Class 1A contributions), the scheme reference number must be reported to HMRC by the employer on form AAG4 no later than 14 days after the final tax period in the tax year (for example, if the final tax period runs to 5 April, then by 19 April).

Where the advantage that is expected to arise relates to the Apprenticeship Levy, the employer must similarly report the SRN to HMRC on form AAG4 within 14 days of the end of the final tax period in the tax year.

However, see section 14.8 where the scheme is expected to give rise to a PAYE tax advantage, either on its own or as well as a National Insurance contribution advantage.

In other cases the form AAG4 must be sent as follows:

• where an NI contribution advantage is expected to arise relating only to Class 1A contributions and it does not give rise to a tax advantage, the reference number must be reported by 6 July following the relevant tax year

• for partnerships, or partners in respect of whom the partnership expects the tax or National Insurance contributions advantage to arise in respect of profits the form must reach Counter-Avoidance Directorate by 31 October following the end of the year of assessment, tax year, accounting period or earnings period in which the tax advantage arises

• if you are an individual, or trustee the form must reach Counter-Avoidance Directorate by 31 January following the end of the year of assessment, tax year, accounting period or earnings period in which the tax advantage arises

• if you are a corporate body the form must reach Counter-Avoidance Directorate within 12 months of the end of the accounting period in which the tax advantage arises

For in-year claims, form AAG4 must be sent to your HMRC office with the claim and not to the DOTAS enforcement team in the Counter-Avoidance Directorate.

14.5.4 Expectation of obtaining a tax advantage

You are required to state the last day of the year of assessment, tax year, accounting period or earnings period (as the case may be) in which, or the date on which, you expect the advantage to be obtained. You must continue to do this for every subsequent year or period until the advantage ceases to apply.

In the majority of cases the date will be the same as the period in which you first enter into a transaction forming part of the scheme.

However, this is not always the case. For example, where the implementation of a scheme spans the end of a period, with the advantage expected to arise in a subsequent period, you should quote the subsequent period in respect of which the advantage is expected to arise.

For loss schemes, if you use the loss or part of the loss in the period for which a return is being, or would otherwise be, completed, you should quote the last day of that period.

If you do not use any of the loss in that period you should quote the last day of the next period in respect of which you it expect it to be used.

14.6 How to obtain and submit form AAG4

Form AAG4 is available on the GOV.UK website.

The completed forms should be sent by post to the DOTAS Enforcement team.

14.7 Is an individual or a small and medium enterprise (SME) exempt from notifying reference numbers

Individual or a small and medium enterprises are not exempt from notifying reference numbers.

The available exemption for individuals who are not in business and small and medium enterprises is from the requirement to determine (and disclose) if they use in-house hallmarked schemes (see section 4.7).

However, they are required to declare on their tax return or form AAG4 any scheme reference numbers issued or provided to them that relate to schemes they use.

14.8 Employers using schemes expected to give rise to a tax advantage, National Insurance contributions advantage or both

This paragraph applies where:

• the client of a promoter in relation to a scheme is an employer

• the scheme in question is expected to result in either a tax or National Insurance contributions advantage, or both in relation to the employment of one or more directors or employees of the employer either for the employer or the employees or both, and

• the promoter has notified the scheme to HMRC and it has been given a reference number, the promoter is obliged to notify this number and other specified information to the client (the employer) in the usual way

The employer is required to make an annual report to HMRC providing information about relevant employees. Relevant employees are those employees:

• who might reasonably be expected to receive either a tax or National Insurance contributions advantage, or both, as a result of the scheme, or

• who are not expected to gain a tax or National Insurance contributions advantage as a result of the scheme, but in relation to whose employment the employer might reasonably be expected to gain either a tax or National Insurance contributions advantage, or both, from entering into the scheme

The employer is required to send this information to HMRC by 19 April after the end of the tax year to which the information relates. The employees will be the same employees to whom the employer is required to give information about the scheme on form AAG7 (see section 14.3) and section 14.3.1).

The information that an employer has to send HMRC is:

• the employer’s name, address and reference number

• the name and National Insurance number of all relevant employees

• the reference number allocated by HMRC to the scheme

• where an employee obtains or might reasonably be expected to obtain a tax advantage from the scheme, the tax year in which the tax advantage arises

• where any of the relevant employees do not or might not reasonably be expected to obtain a tax advantage from the scheme, confirm that this is so

• the name and address of the promoter and any name given to the scheme when it was notified

The information must be submitted by the same date for each subsequent tax year in which a person obtains or might reasonably be expected to obtain a tax advantage by reason of the scheme.

Where an employer enters into a scheme which is expected to result only in a National Insurance contributions advantage, and not a tax advantage as well, the employer is not required to send information about relevant employees to HMRC for tax years earlier than 2018-19.

This transitional provision does not remove the requirement for employers to tell employees the scheme reference number and to send HMRC a form AAG4 reporting their use of the scheme in the 2016-17 and 2017-18 tax years (see section 14.3.1 and section 14.5.1).

The employees receiving information from their employer are not required to include the scheme reference number on their returns.

All employee details must be sent to HMRC using a form AAG8. Form AAG8 may be sent either electronically or by post.

Do not send reports or information about your employees by email. The security of emails you send over the internet can not be guaranteed.

If you choose to send employee details electronically you should contact Counter- Avoidance to find out which digital method or methods HMRC is currently making available for the transfer of employee information in a secure way. The Counter- Avoidance Directorate of HMRC will let you know what you need to do in order to comply with your reporting obligations when using electronic communications and provide such access as you need.

Use the address specified in section 1.5 to send the employee details on an AAG8 client list by post if you do not want to report online.

Use the address specified in section 1.5 to contact HMRC about submitting a form AAG8 or about any DOTAS issue.

14.9 Arrangements that provide both a NI contribution advantage and an Income Tax advantage

A single arrangement may provide both a National Insurance contribution advantage and an Income Tax advantage, each of which is subject to its own disclosure considerations.

Where both advantages are required to be disclosed, HMRC will issue a single scheme reference number that will apply to both advantages.

You need only make one entry on your return or form AAG4 and an employer reporting in accordance with section 14.8 need only make one entry for each employee.

14.9.1 Duty of promoters to provide updated information

Promoters are required to notify HMRC about any change in the name by which the scheme is known and about any changes to the promoter’s name or address (section 310C of the Finance Act 2004). However this duty does not apply unless:

• the scheme is expected to obtain a tax advantage and HMRC allocated a scheme reference number to it on or after 26 March 2015, or

• the scheme is expected to obtain only a National Insurance contributions advantage and HMRC allocated a scheme reference number to it on or after 21 December 2017

If there is more than one promoter, each promoter is responsible only for notifying HMRC about changes to its name or address.

If there is more than one promoter and there has been a change in the name by which the scheme is known, and one of the promoters notifies HMRC about the change, the duty on the other promoters to provide the same information is discharged.

The information about the changes must be provided to HMRC within 30 days of the change happening by sending the information in writing to HMRC Counter-Avoidance DOTAS Enforcement at the address specified in section 1.5.

14.10 Withdrawal of scheme reference numbers

HMRC has discretion to remove the reporting duties associated with the disclosure of a notifiable scheme by giving a notice specifying that with effect from a given date. For more detailed guidance, see section 13.7.

15. What to do if you receive a scheme reference number relating to a SDLT scheme

15.1 Outline of the scheme reference number system

The scheme reference number system is a means of identifying the users of:

• disclosed schemes and
• undisclosed schemes to which HMRC has allocated a scheme reference number under section 311(3) FA2004

The system allows HMRC to prioritise and co-ordinate enquiries into users’ returns.

The scheme reference number system applies to SDLT schemes and arrangements which became notifiable on or after 1 April 2010 (including schemes that became notifiable for a second time after 1 November 2012 — see section 6.

Prior to 1 April 2010 numbers relating to notifiable schemes and arrangements were given to promoters but these were not Scheme Reference Numbers within the meaning of the legislation and there was no obligation either to pass the number to users or for the users to notify the number to HMRC.

The remainder of the guidance in section 15 relates solely to SDLT schemes and arrangements:

• which became notifiable on or after 1 April 2010
• to which HMRC allocates a scheme reference number under section 311(3) on or after 10 June 2021

If you are in doubt as to whether a reference number you have received should be passed on or notified to HMRC you should write to Counter-Avoidance Directorate using the address at section 1.5.

The scheme reference number system works by scheme users reporting an 8-digit scheme reference number to HMRC. For SDLT schemes the scheme reference number has to be reported on form AAG4 (SDLT).

The allocation or notification of a scheme reference number does not indicate that HMRC accept that the scheme achieves or is capable of achieving any purported tax advantage.

You may incur a penalty if you fail to comply with the rules outlined in this section (see section 21).

15.2 more detailed guidance about the scheme reference number system

There is more detailed guidance about the SRN system in section 13 of this guidance, see guidance about:

• when HMRC can allocate an SRN in section 13.2
• SRNs allocated under section 311(2) FA 2004 (‘subsection 2 cases’) in section 13.3
• SRNs allocated under section 311(3) FA 2004 (‘subsection 3 cases’) in section 13.4
• HMRC’s duty to notify the SRN after it has allocated it in section 13.5
• the right to appeal the allocation of an SRN under section 311(3) FA 2004 in section 13.6

15.3 Scheme reference number allocated under section 311(2) FA 2004, promoters must provide SRN to clients (section 312 FA 2004)

As the promoter of a SDLT scheme you will have been provided with a reference number by HMRC in a subsection 2 case because you disclosed a SDLT scheme.

You must:

• provide it to any other person (your ‘client’) to whom you provide, or have provided, services in connection with the disclosed scheme or any scheme that is substantially the same — your client may be the person who is intended to obtain the tax advantage or they may be a third party (that is a person who does not enter into the scheme or expect to obtain a tax advantage)

• provide additional information supplied by HMRC about avoidance schemes generally in the form and manner that HMRC requires

• provide the information using form AAG6

• do so within 30 days of either being provided with the scheme reference number or becoming aware of any transaction that forms part of the scheme, whichever is later

• include the client on a client list — see section 19

While there is no obligation to do so, you may find it more convenient to provide the number to a client when you make the scheme available rather than wait until it has been implemented. If, but only if, you do so using the form AAG6, you need not re-notify the number to your client when you become aware of a transaction forming part of the scheme.

If you have been provided with more than one scheme reference number in relation to any given scheme, you only need provide one of those numbers to your client.

This duty will not apply if HMRC has given a notice under section 312(6) FA 2004 before the deadline for providing the client with the required information.

15.4 Scheme reference number allocated under section 311(2) FA 2004, promoters and other suppliers must provide SRN to clients (section 312ZA FA 2004)

Any persons to whom HMRC has notified a SRN in a subsection 3 case is required to notify the SRN to their clients in the same way as promoters are required to do for an SRN allocated in a subsection 2 case.

This duty applies to anyone who is involved in the supply of relevant arrangements or proposed arrangements, either as a promoter or otherwise as a supplier.

If a person has been notified of a SRN allocated in a subsection 3 case they must do the following within 30 days of the relevant date:

• provide the SRN to any other person (your ‘client’) to whom you provide, or have provided, services in connection with the scheme or any scheme that is substantially the same that HMRC have allocated the SRN in relation to. Your client may be the person who is intended to obtain the tax advantage or he may be a third party (for example, a person who does not himself enter into the scheme or expect to obtain a tax advantage)
• do so using form AAG6
• do so within 30 days of being notified of the reference number
• include the client on a client list — see section 19

This duty will not apply if HMRC withdraw the SRN before the deadline for providing the client with the required information.

15.5 On receipt of scheme reference number clients must provide certain information (FA2004 s.312B and SI 2012/1836)

On receipt of scheme reference numbers clients must provide certain information to the promoter (section 312B and SI 2013/2592 of the Finance Act).

Within 10 days from the later of the date that the client receives a scheme reference number or the date that the client first enters into a transaction forming part of the arrangements the client has to notify the promoter or other supplier of their:

• National Insurance number

• UTR

Or if they have neither of these, confirmation that they do not hold a National Insurance number or a UTR. The promoter will then provide this information to HMRC in accordance with section 14.4.

15.6 Clients must provide scheme reference number to parties to the scheme

As explained at section 15.2, if a promoter or other supplier provides, or has provided, you with services in connection with a scheme to which HMRC has allocated a scheme reference number, they may also provide you with a scheme reference number.

This should be given to you on HMRC form AAG6. This form contains guidance about when and how to report the reference number to HMRC or provide it to other parties.

When you have been provided with a scheme reference number, by whatever route, you must:

• provide it to any other person who you might reasonably expect to be a party to, and whom might reasonably be expected to gain a tax advantage from, the scheme

• provide the information using form AAG6

• do so within 30 days of either being provided with the scheme reference number by the promoter or becoming aware of any transaction that forms part of the scheme, whichever is the later

15.6.1 Reasonable expectation

Your obligation, as the client of a promoter or other supplier of a scheme, to pass a scheme reference number to third parties only applies when you have sufficient commercial connection with that party to have a reasonable expectation that they will gain a tax advantage from the scheme.

As examples:

• you are a parent company which purchases a scheme and makes it available for subsidiary companies to use but without yourself becoming a party to the arrangements that make up the scheme — you must provide the scheme reference number to those subsidiaries that are expected to gain a tax advantage from the scheme

• you are a property developer which purchases a scheme and makes it available to property purchasers but without yourself becoming a party to the arrangements that make up the scheme — you must provide the scheme reference number to those purchasers that are expected to gain a tax advantage from the scheme

• you are not required to provide a number to a person simply because, for example, you learn about their use of a scheme through hearsay, reading about it in the press or a tribunal decision

15.7 Purchaser receiving a SDLT advantage must include the scheme reference number and other information on form AAG4 (SDLT)

As explained at section 17.2 and section 17.3, if you expect to obtain a tax advantage from a disclosed scheme, to which HMRC has allocated a scheme reference number, the promoter or supplier of the scheme or their client may provide you with a scheme reference number.

This should be given to you on an HMRC form AAG6. This form contains guidance about when and how to report the reference number to HMRC. In some cases you may receive the number directly from HMRC as a result of disclosing the scheme yourself (see sections 3.10 to 3.12).

The scheme reference number and additional information specified at section 15.7.2 must be entered on form AAG4 (SDLT).

This is the only means by which HMRC may be notified of a SDLT scheme. The scheme reference number for SDLT schemes should never be entered on either an SDLT 1 return or the user’s tax return. Such an entry will not discharge a scheme user’s obligations under DOTAS.

If you are a purchaser for SDLT purposes (see SDLTM07200 for definition) and expect to receive a SDLT advantage you must within the time limit detailed at section 15.7.1:

• include the number on form AAG4 (SDLT)

• provide the information specified in section 15.5.2

The purchaser is limited to a person who is either a party to the transaction or has provided consideration for that transaction. The term purchaser is defined as the person who acquires the subject matter of a land transaction and includes a tenant if the interest in land is a grant of a lease (section 43 of the Finance Act 2003).

When SDLT group relief is withdrawn, group relief may be recovered from a person other than the purchaser (schedule 7, paragraph 5 of the Finance Act 2003, SDLTM 23100). The obligation to disclose a Scheme Reference Number falls only on the purchaser.

Any other person from whom Group Relief may be recovered whilst they may be in receipt of a SDLT advantage, they are not obliged to be passed a Scheme Reference Number nor to disclose that to HMRC.

15.7.1 When to enter information on form AAG4 (SDLT)

The information detailed at section 15.7.2 must be entered on form AAG4 (SDLT) when you receive the number or you enter into the first land transaction in connection with the arrangements, whichever is later.

You must continue to do this for each subsequent transaction in which you expect to obtain a SDLT advantage from the scheme.

Form AAG4 (SDLT) should be sent to the DOTAS Enforcement team in the Counter- Avoidance Directorate within HMRC (the address can be found at section 1.5) in sufficient time for it to be received within 30 days of the later of the following 2 events:

• receiving a scheme reference number from the promoter or another party to the scheme

• the effective date of the first land transaction which forms part of the scheme

• The effective date takes its normal meaning for SDLT purposes (section 119 of the Finance Act 2003).

The general rule is when the land transaction is completed but there are exceptions and further guidance may be found in the SDLT Manual at SDLTM07600.

15.7.2 What to enter on form AAG4 (SDLT):

You will need to enter the following details on form AAG4:

• the scheme reference number

• the name and address of the person providing the scheme reference number (the person who is expecting to obtain a SDLT advantage)

• the address of the property forming the subject of the arrangements (see section 15.7.3)

• the title number (or numbers) of the property (see section 15.7.4)

• the unique transaction reference number which is found, for a paper return, in the ‘Reference’ box attached to the payslip on the Land Transaction Return (form SDLT 1) or, for an electronic return, on the electronic SDLT submission receipt

• the market value of the property (see section 15.7.5)

• the effective date (see section 15.7.1) of the first land transaction which forms part of the arrangement

• the name of the person providing the declaration as to the accuracy and completeness of the notification (see section 15.7.6)

• the capacity in which that person is acting (for example, a purchaser or company secretary), regardless of who has provided the information the signatory should be that of the purchaser

15.7.3 Address of property

Give the full address including the postcode if there is one. If the property does not have a postcode or a building number, then you must provide sufficient information of the nature and location of the property to enable it to be accurately identified.

15.7.4 Title number

Give the title number of any registered property that is the subject of the arrangements. If no title number has been allocated this information does not have to be provided.

15.7.5 Market value

The figure to be entered for the market value is the Open Market Value of all the property on which a SDLT advantage is to be obtained assuming it has been purchased without the benefit of the SDLT arrangements. Market value takes the statutory definition for SDLT purposes at section 118 of the Finance Act 2003. This in turn is tied to sections 272 to 274 of the Taxation of Capital Gains Tax Act 1992.

The market value of an asset is the price which that asset might reasonably be expected to fetch on a sale in the open market. In a normal land transaction such a value will normally have been arrived at by an independent valuer before the transaction has been entered into and so should be readily available.

If, exceptionally, such a value has not been obtained then a reasoned estimate is acceptable bearing in mind that HMRC requires the information in order to assess the likely tax at risk.

Submission of the AAG4 (SDLT) should not be held up because a valuation has not been obtained nor should the market value be omitted. Either of these courses of action could render the user liable to a penalty.

15.7.6 Declaration as to accuracy and completeness

The person obtaining the SDLT advantage from the arrangements should sign the declaration. This will usually be the purchaser. Whilst in the majority of cases the return is likely to be drafted and submitted by a solicitor, licensed conveyancer, legal executive or accountant, it is the responsibility of the person obtaining the advantage to make sure the information given on the AAG4 (SDLT) is complete and correct and sign the declaration accordingly.

15.7.7 Expectation of obtaining a tax advantage

If you are a party to a scheme, have been provided with a scheme reference number, but do not expect to obtain a tax advantage (for example, because the advantage is expected to be obtained by another person or you have not yet decided to implement the scheme), you need not include the number on form AAG4 (SDLT) unless and until such time as your expectation changes.

15.7.8 schedule 15, part 3 of the Partnerships Finance Act 2003

Where the arrangements involve a partnership all of the partners have joint and several liability for any SDLT subject to special provisions. Further guidance may be found at Stamp and property taxes: manuals.

Whilst more than one partner might therefore be expected to receive a SDLT advantage, HMRC will accept a single joint notification, signed by the representative partner on behalf of all of the liable partners, rather than each making their own notification.

15.8 How to obtain and submit form AAG4 (SDLT)

You can obtain and submit form AAG4 (SDLT) online along with other forms to disclose tax avoidance schemes.

You can obtain PDF version of the forms for printing out by clicking the relevant links on the same web page.

The completed forms should be sent by post to the DOTAS Enforcement team.

15.9 Duty of promoters to provide updated information (section 310C of the Finance Act 2004)

A promoter has a duty to tell HMRC about any change:

• in the name by which the scheme is known

• of the promoter’s name or address (section 14.9.1)

This also applies where the tax advantage relates to SDLT.

15.10 Withdrawal of scheme reference numbers

HMRC has discretion to remove the reporting duties associated with the disclosure of a notifiable scheme by giving a notice specifying that with effect from a given date. For more detailed guidance, see section 13.7.

16. What to do if you receive a scheme reference number relating to an IHT scheme

16.1 Outline of the scheme reference number system

The scheme reference number system is a means of identifying the users of:

• disclosed schemes and
• undisclosed schemes to which HMRC has allocated a scheme reference number under s311(3) FA 2004

The scheme reference number allows HMRC to prioritise and co-ordinate enquiries into users’ returns.

The scheme reference number system applies to IHT schemes and arrangements which became notifiable on or after 6 April 2011.

The remainder of the guidance in section 16 relates solely to IHT schemes and arrangements:

• which became notifiable on or after 6 April 2011
• to which HMRC allocated a scheme reference number under section 311(3) FA2004 on or after 10 June 2021

If you are in doubt as to whether a reference number you have received should be passed on or notified to HMRC you should contact Counter-Avoidance Directorate using the contact details at section 1.5.

The scheme reference number system works by scheme users reporting an 8-digit scheme reference number to HMRC. For IHT schemes the scheme reference number has to be reported in one of 2 ways.

16.1.1 More detailed guidance about the scheme reference number (SRN) system

There is more detailed guidance about the SRN system in section 13 of this guidance, see guidance about:

• when HMRC can allocate an SRN in section 13.2
• SRNs allocated under section 311(2) FA 2004 (‘subsection 2 cases’) in section 13.3
• SRNs allocated under section 311(3) FA 2004 (‘subsection 3 cases’) in section 13.4
• HMRC’s duty to notify the SRN after it has allocated it in section 13.5
• the right to appeal the allocation of an SRN under section 311(3) FA 2004 in section 13.6

16.2 Scheme reference number allocated under s.311(2) FA2004 (‘subsection 2 case’), promoters must provide scheme reference number to clients (section 312 FA 2004)

As the promoter of an IHT scheme in a subsection 2 case you will have been provided with a reference number by HMRC because you disclosed an IHT scheme. You must:

• provide it to any other person (your ‘client’) to whom you provide, or have provided, services in connection with the disclosed scheme or any scheme that is substantially the same — your client may be the person who is intended to obtain the tax advantage or he may be a third party (that is a person who does not themselves enter into the scheme or expect to obtain a tax advantage)

• provide additional information supplied by HMRC about avoidance schemes generally in the form and manner that HMRC requires

• provide the information using form AAG6

• do so within 30 days of either being provided with the scheme reference number or becoming aware of any transaction that forms part of the scheme, whichever is later

• include the client on a client list — see section 19

While there is no obligation to do so, you may find it more convenient to provide the number to a client when you make the scheme available rather than wait until it has been implemented. If, but only if, you do so using the form AAG6, you need not re-notify the number to your client when you become aware of a transaction forming part of the scheme.

If you have been provided with more than one scheme reference number in relation to any given scheme, you only need provide one of those numbers to your client.

This duty will not apply if HMRC has given a notice under section 312(6) FA 2004 before the deadline for providing the client with the required information.

16.2.1 Scheme reference number allocated under section 311(3) FA 2004 (‘subsection 3 case’), promoters and other suppliers must provide SRN to clients (section 312ZA FA 2004)

Any persons to whom HMRC has notified a SRN in a subsection 3 case is required to notify the SRN to their clients in the same way as promoters are required to do for an SRN allocated in a subsection 2 case.

This duty applies to anyone who is involved in the supply of relevant arrangements or proposed arrangements, either as a promoter or supplier.

If a person has been notified of a SRN allocated in a subsection 3 case they must do the following within 30 days of the relevant date:

• provide the SRN to any other person (your ‘client’) to whom you provide, or have provided, services in connection with the scheme or any scheme that is substantially the same that HMRC have allocated the SRN in relation to. Your client may be the person who is intended to obtain the tax advantage or they may be a third party (for example, a person who does not themselves enter into the scheme or expect to obtain a tax advantage)
• do so using form AAG6
• do so within 30 days of being notified of the reference number
• include the client on a client list — see section 19

This duty will not apply if HMRC withdraw the SRN before the deadline for providing the client with the required information.

16.3 Information to be provided on receipt of scheme reference number by clients (FA2004 s.312B and SI 2012/1836)

Within 10 days from the later of the date that the client receives a scheme reference number or the date that the client first enters into a transaction forming part of the arrangements the client has to notify the person who told them what the number was of their:

• National Insurance number

• UTR or other identification number that HMRC has allocated to the client

Or if they have neither of these, confirmation that they do not hold a National Insurance number or a UTR. The promoter will then provide this information to HMRC in accordance with section 14.

16.4 Clients must provide scheme reference number to parties to the scheme

As explained at section 14.1, if a promoter or other supplier of the scheme provides, or has provided, you with services in connection with a disclosable scheme, he may also provide you with a scheme reference number. This should be given to you on an HMRC form AAG6.

When you have been provided with a scheme reference number, by whatever route, you must:

• provide it to any other person who you might reasonably expect to be a party to, and whom might reasonably be expected to gain a tax advantage from, the scheme

• provide the information using form AAG6

• do so within 30 days of either being provided with the scheme reference number by the promoter or becoming aware of any transaction that forms part of the scheme, whichever is the later

16.4.1 Reasonable expectation

Your obligation, as the client of a promoter or other supplier, to pass a scheme reference number to third parties applies only when you have sufficient commercial connection with that party to have a reasonable expectation that they will gain a tax advantage from the scheme.

You are not required to provide a number to a person simply because, for example, you learn about their use of a scheme through hearsay, reading about it in the press or a tribunal decision.

16.5 Scheme user receiving an IHT advantage must include the scheme reference number and other information on an IHT account (form IHT100) or on form AAG4 (IHT)

As explained at section 16.2 and section 16.3, if you are party to an IHT scheme, the promoter or other supplier of the scheme or their client may provide you with a scheme reference number.

This should be provided to you on HMRC form AAG6. In some cases you may receive the number directly from HMRC as a result of disclosing the scheme yourself (see sections 3.10 to 3.12).

If you expect to obtain a tax advantage as a result of being a party to the scheme, you must:

• include the scheme reference number on your IHT account (form IHT100) or on form AAG4 (IHT) — see section 16.5.2 and section 16.5.3

• state the tax year in which or date on which you expect the advantage to be obtained

• the scheme reference number for IHT schemes should never be entered on any other IHT account form or Self Assessment tax return. Such an entry will not discharge your obligations as a scheme user under DOTAS.

You may incur penalties if you fail to notify prescribed information within the prescribed time limits (see section 21).

16.5.1 Date for notifying the scheme reference number

You must notify HMRC of the information at section 16.4 within 12 months of the end of the month in which you first entered into a transaction forming part of the arrangements.

16.5.2 When to enter information on an IHT account (form IHT100) or on form AAG4 (IHT)

You must enter the information (at section 16.4) on your IHT account (form IHT100) if:

• you are liable to submit an inheritance account form IHT100 in respect of a transaction forming part of the notifiable arrangements

• the statutory time limit for submitting the inheritance account is no later than the date by which you must notify the scheme reference number and you submit the account within that time limit

Enter the SRN in box K1 in the IHT account if you are liable to submit a single SRN in respect of a transaction forming part of arrangements to which HMRC has allocated a scheme reference number under s311(3) FA 2004. Box K1 in the IHT account has room for only one SRN.

If you have more than one SRN to report, use form AAG4 (IHT) to report the additional SRNs.

You must enter the information on form AAG4 (IHT) in all other circumstances, including in the following situations:

• you are not liable to submit an inheritance account

• you have more than one SRN to submit in relation to IHT

• you are liable to submit an inheritance account you must enter the information (at section 16.4) on your IHT account form IHT100 if:

• you are liable to submit an inheritance account form IHT100 in respect of a transaction forming part of the arrangements to which HMRC allocated the SRN but the statutory date for doing so is later than the date by which you must report the scheme reference number

• you are liable to submit an IHT account you must enter the information (at section 16.4) on your IHT account if:

• you are liable to submit an inheritance account form IHT100 in respect of a transaction forming part of the arrangements to which HMRC allocated the scheme reference number in respect of a transaction forming part of the notifiable arrangements by the date by which you must report the scheme reference number but your account will not be submitted by the statutory filing date or you have already submitted it without the scheme reference number

• you are liable to submit an IHT account you must enter the information at section 16.4 on your IHT account form IHT100 if:

• you are liable to submit an inheritance account form IHT100 in respect of a transaction forming part of the arrangements to which HMRC allocated the scheme reference number, in respect of a transaction forming part of the arrangements by the date by which you must report the scheme reference number but, exceptionally, you have more than one scheme reference number to report — you must enter the excess scheme reference numbers on form AAG4 (IHT)

16.5.3 What to enter on form AAG4 (IHT)

You will need to enter the following details on form AAG4 (IHT)

• the scheme reference number

• the name and address of the person providing the scheme reference number (the person who expects to obtain an IHT advantage)

• the UTR of the person providing the scheme reference number, if one has been allocated by HMRC

• the IHT reference number, if one has been allocated by HMRC

• the tax year in which or the date on which the person expects to obtain the IHT advantage

• the name of the person providing the declaration as to the accuracy and completeness of the notification

The person obtaining the IHT advantage from the arrangements should sign the declaration. The form may be drafted by a solicitor, legal executive or accountant but the person obtaining the advantage must make sure that the information given on the AAG4 (IHT) is complete and correct and sign the declaration accordingly.

16.5.4 Expectation of obtaining a tax advantage

If you are a party to a scheme, have been provided with a scheme reference number, but do not expect to obtain a tax advantage (for example, because the advantage is expected to be obtained by another person or you have not yet decided to implement the scheme), you need not include the number on form AAG4 (IHT) unless and until such time as your expectation changes.

16.6 How to obtain and submit form AAG4 (IHT)

You can obtain and submit form AAG4 (IHT) online along with other forms to disclose tax avoidance schemes.

You can obtain PDF version of the forms for printing out by clicking the relevant links on the same web page.

The completed forms should be sent by post to the DOTAS Enforcement team.

16.7 Duty of promoters to provide updated information (section 310C of the Finance Act 2004)

A promoter has a duty to tell HMRC about any change:

• in the name by which the scheme is known

• of the promoter’s name or address (section 14.9.1)

This also applies where the tax advantage relates to IHT.

16.8 Withdrawal of scheme reference numbers

HMRC has discretion to remove the reporting duties associated with the disclosure of a notifiable scheme by giving a notice specifying that the duties will be lifted with effect from a given date. For more detailed guidance, see section 13.7.

17. What to do if you receive a scheme reference number relating to an ATED Scheme

17.1 Outline of the scheme reference number system

The scheme reference number system is a means of identifying the users of:

• disclosed schemes
• undisclosed schemes to which HMRC allocates a scheme reference number under section 311(3) FA 2004

The scheme reference number system allows HMRC to prioritise and co-ordinate enquiries into users’ returns.

The scheme reference number system applies to ATED proposals and arrangements (called schemes):

• which became notifiable on or after 4 November 2013 or
• to which HMRC allocates a scheme reference number on or after 10 June 2021

If you are in doubt as to whether a reference number you have received should be passed on or notified to HMRC you should contact Counter-Avoidance Directorate using the contact details at section 1.5.

The scheme reference number system works by scheme users reporting an 8-digit scheme reference number to HMRC. For ATED schemes the scheme reference number has to be reported in one of 2 ways.

17.1.1 more detailed guidance about the scheme reference number (SRN) system

There is more detailed guidance about the SRN system in section 13 of this guidance, see guidance about:

• when HMRC can allocate an SRN in section 13.2
• SRNs allocated under section 311(2) FA 2004 (‘subsection 2 cases’) in section 13.3
• SRNs allocated under section 311(3) FA 2004 (‘subsection 3 cases’) in section 13.4
• HMRC’s duty to notify the SRN after it has allocated it in section 13.5
• The right to appeal the allocation of an SRN under section 311(3) FA 2004 in section 13.6

The allocation or notification of a scheme reference number does not indicate that HMRC accept that the scheme achieves or is capable of achieving any purported tax advantage nor that the disclosure is complete.

17.2 Scheme reference number allocated under s.311(2) FA2004 (‘subsection 2 case’) requirement for promoters to provide scheme reference number to clients (section 312 FA 2004)

As set out in section 312, and SI 2012/1836, regulation 6 of the Finance Act 2004, as the promoter of an ATED scheme you will have been provided with a reference number by HMRC because you disclosed an ATED scheme, or because you were named as co-promoter by another promoter at the time they disclosed the scheme (see section 13.5.

Alternatively, you may have provided with a scheme reference number by another promoter as a result of becoming a co-promoter sometime after the main promoter made their disclosure (see section 13.5).

However you come to be in receipt of a scheme reference number you must provide it to any other person (your ‘client’) to whom you provide, or have provided, services in connection with the disclosed scheme or any scheme that is substantially the same.

Your client may be the person who is intended to obtain the tax advantage or he may be a third party (a person who does not himself enter into the scheme or expect to obtain a tax advantage). You must also:

• provide additional information supplied by HMRC about avoidance schemes generally in the form and manner that HMRC requires

• provide the information using form AAG6

• do so within 30 days of either being provided with the scheme reference number or becoming aware of any transaction that forms part of the scheme, whichever is later

• include the client on a client list — see section 19

While there is no obligation to do so, you may find it more convenient to provide the number to a client when you make the scheme available rather than wait until it has been implemented.

If, but only if, you do so using the form AAG6, you need not re-notify the number to your client when you become aware of a transaction forming part of the scheme.

If you have been provided with more than one scheme reference number in relation to any given scheme, you only need provide one of those numbers to your client.

This duty will not apply if HMRC has given a notice under section 312(6) FA 2004 before the deadline for providing the client with the required information.

17.2.1 Scheme reference number allocated under section 311(3) FA 2004 (‘subsection 3 case’), promoters and other suppliers must provide SRN to clients (section 312ZA FA 2004)

Any persons to whom HMRC has notified a SRN in a subsection 3 case is required to notify the SRN to their clients in the same way as promoters are required to do for an SRN allocated in a subsection 2 case.

This duty applies to anyone who is involved in the supply of relevant arrangements or proposed arrangements, either as a promoter or a supplier.

If a person has been notified of a SRN allocated in a subsection 3 case they must do the following within 30 days of the relevant date:

• provide the SRN to any other person (your ‘client’) to whom you provide, or have provided, services in connection with the scheme or any scheme that is substantially the same that HMRC have allocated the SRN in relation to. Your client may be the person who is intended to obtain the tax advantage or they may be a third party (for example, a person who does not themselves enter into the scheme or expect to obtain a tax advantage)
• do so using form AAG6
• do so within 30 days of being notified of the reference number
• include the client on a client list — see section 19

This duty will not apply if HMRC withdraw the SRN before the deadline for providing the client with the required information.

17.3 After receiving the scheme reference number clients must provide scheme reference number to parties to the scheme

As explained at section 17.2, if a promoter or other supplier of a scheme provides, or has provided, you with services in connection with a scheme to which HMRC has allocated a scheme reference number, they may also notify that number to you (section 312A and SI 2012/1836, regulations 6 to 8 of the Finance Act 2004).

This should be given to you on HMRC form AAG6. This form contains guidance about when and how to report the reference number to HMRC or provide it to other parties.

When you have been provided with a scheme reference number, by whatever route, you must:

• provide it to any other person who you might reasonably expect to be a party to, and whom might reasonably be expected to gain a tax advantage from, the scheme

• provide the information using form AAG6

• do so within 30 days of either being provided with the scheme reference number by the promoter or becoming aware of any transaction that forms part of the scheme, whichever is the later

17.4 Reasonable expectation

Your obligation, as the client of a promoter or of a supplier of the scheme, to pass a scheme reference number to third parties applies only when you have sufficient commercial connection with that party to have a reasonable expectation that they will gain a tax advantage from the scheme.

You are not required to provide a number to a person simply because, for example, you learn about their use of a scheme through hearsay, reading about it in the press or a tribunal decision.

17.5 Information clients must give to the promoter or supplier on receipt of scheme reference number

As set out in section 312B and SI 2012/1863 of the Finance Act, within 10 days from the later of the date that the client receives a scheme reference number or the date that the client first enters into a transaction forming part of the arrangements the client has to notify the person from whom the client received the number of their:

• National Insurance number

• UTR

• if they have neither of these, confirmation that they do not hold a National Insurance number or a UTR

The promoter or supplier will then provide this information to HMRC in accordance with section 13.

17.6 Parties to an ATED scheme must include the scheme reference number and other required information on its ATED return or on form AAG4 (ATED)

As explained at sections 17.2 and 17.3, if you are party to an ATED scheme, the promoter or a supplier of the scheme or their client may provide you with a scheme reference number.

This should be given to you on HMRC form AAG6. This form contains guidance about when and how to report the reference number to HMRC. In some cases you may receive the number directly from HMRC as a result of disclosing the scheme yourself.

If you expect to obtain a tax advantage as a result of being party to the scheme, you must:

• include the scheme reference number on your ATED return or on form AAG4 (ATED) — see section 17.2

• state the chargeable period in which you expect the advantage to be obtained

The scheme reference number for ATED schemes should never be entered on any other Self Assessment tax return. Such an entry will not discharge your obligations as a scheme user under DOTAS.

You may incur penalties if you fail to notify prescribed information within the prescribed time limits (see section 21).

17.7 Date for notifying the scheme reference number

You must notify HMRC of the scheme reference number and other required information within 30 days of the later of:

• the effective date of the first transaction which forms part of the arrangements

• the date of the receipt of the scheme reference number

17.8 When to enter information on the ATED return or on form AAG4

You must enter the information on your ATED return if:

• you are liable to submit an ATED return

• the statutory time limit for submitting the ATED Return is no later than the date by which you must notify the scheme reference number and you submit the Return within that time limit

• You must enter the information on form AAG4 (ATED) in all other circumstances, including in the following situations:

  • you are not liable to submit an ATED Return
  • you are liable to submit an ATED Return but the statutory date for doing so is later than the date by which you must report the scheme reference number
  • you are liable to submit an ATED Return in respect of a transaction forming part of the notifiable arrangements by the date by which you must report the scheme reference number but your Return will not be submitted by the statutory filing date or you have already submitted it without the scheme reference number
  • you are liable to submit an ATED Return in respect of a transaction forming part of the notifiable arrangements by the date by which you must report the scheme reference number but, exceptionally, you have more than one scheme reference number to report — you must enter the excess scheme reference numbers on form AAG4 (ATED)

17.9 What to enter on form AAG4 (ATED)

You will need to include:

• scheme reference number

• name and address of the person providing the scheme reference number (the person who expects to obtain an ATED advantage)

• address of the relevant property (see section 17.10)

• title number or numbers of the property

• any tax reference number or other business unique identifier allocated by HMRC or a foreign tax authority (see section 17.12)

• where a foreign authority has allocated a business unique identifier, the name of the country on behalf of which that foreign authority acts and the type of business unique identifier allocated (see section 17.13)

• first chargeable period in which the person expects to obtain the ATED tax advantage (see section 17.14)

• name of the person providing the declaration as to the accuracy and completeness of the notification and the capacity in which they are acting (see section 17.15)

17.10 Address of the relevant property

Give the full address including the postcode of the property forming the subject of the arrangements. If the property does not have a postcode or a building number then you must provide sufficient information of the nature and location of the property to enable it to be accurately identified.

17.11 Title number

Give the title number (if any is allocated) of the property forming the subject of the arrangements, for example the UK HM Land Registry title number (or equivalent for Scotland and Northern Ireland).

In some cases the property subject to ATED may be registered under more than one title number, for example where properties under separate title numbers are treated as one for ATED purposes. In this scenario, you should enter one title number in the ‘Property title number’ box and any other title numbers in the Notes section of the form.

17.12 Business unique identifier

Enter any business unique identifier (for example, your HMRC Corporation Tax UTR number or Self-Assessment UTR). If you do not hold such a reference number you can enter the company registration number allocated by the Registrar of Companies where the company is incorporated, the VAT registration number or Employer PAYE reference number.

17.13 Country of origin and type of business unique identifier

Enter the name and country of the organisation that allocated the reference, plus the type of tax reference quoted, for example HMRC UK VAT registration number.

17.14 First chargeable period in which tax advantage arises

Enter the start date of the first chargeable period in which you expect to gain a tax advantage from using the scheme, for example 01 04 2013.

17.15 Declaration as to accuracy and completeness

The person obtaining the ATED advantage from the arrangements should sign the declaration. The form may be drafted by a solicitor, legal executive or accountant but the person obtaining the advantage must make sure the information given on the AAG4 (ATED) is complete and correct and sign the declaration accordingly.

17.16 Expectation of obtaining a tax advantage

If you are a party to a scheme, have been provided with a scheme reference number, but do not expect to obtain a tax advantage (for example, because the advantage is expected to be obtained by another person or you have not yet decided to implement the scheme), you need not complete form AAG4 (ATED) unless and until such time as your expectation changes.

17.17 How to obtain and submit form AAG4 (ATED)

You can obtain and submit form AAG4 (ATED) online along with other forms to disclose tax avoidance schemes.

You can obtain PDF version of the forms for printing out by clicking the relevant links on the same web page.

You can request a paper copy by:

• telephone on 08459 000 404
• fax on 08459 000 604

The completed forms should be sent by post to the DOTAS Enforcement team.

17.18 Duty of promoters to provide updated information (section 310C of the Finance Act 2004)

The duty of a promoter to tell HMRC about any change in the name by which the scheme is known changes and about any change of the promoter’s name or address (section 14.9.1) also applies where the tax advantage relates to ATED.

17.19 Withdrawal of scheme reference numbers

HMRC has discretion to remove the reporting duties associated with the disclosure of a notifiable scheme by giving a notice specifying that the duties will be lifted with effect from a given date. For more detailed guidance, see section 13.7.

18. What to do if you receive a scheme reference number relating to an Apprenticeship Levy scheme

18.1 General

All references in this section to tax include a reference to the Apprenticeship Levy. All references in this section to a tax advantage include a reference to an Apprenticeship Levy advantage.

18.2 Outline of the scheme reference number system

The scheme reference number system is a means of identifying the users of:

• disclosed schemes
• undisclosed schemes to which HMRC has allocated a scheme reference number under section 311(3) FA2004

The system allows HMRC to prioritise and co-ordinate enquiries into users’ returns.

It works by scheme users reporting an 8-digit scheme reference number to HMRC.

18.2.1 more detailed guidance about the scheme reference number system

There is more detailed guidance about the SRN system in section 13 of this guidance, see guidance about:

• when HMRC can allocate an SRN in section 13.2
• SRNs allocated under section 311(2) FA 2004 (‘subsection 2 cases’) in section 13.3
• SRNs allocated under section 311(3) FA 2004 (‘subsection 3 cases’) in section 13.4
• HMRC’s duty to notify the SRN after it has allocated it in section 13.5
• the right to appeal the allocation of an SRN under section 311(3) FA 2004 in section 13.6

18.2.2 Scheme reference number allocated under s.311(2) FA2004 (‘subsection 2 case’)

This reference number is allocated by HMRC within 90 days of the scheme being disclosed and is given to the person who disclosed the scheme and any co­ promoters notified in the disclosure.

They then in turn pass it to the scheme user, sometimes via a third party client, in accordance with the rules.

Where the scheme is expected to obtain an Apprenticeship Levy advantage and no other tax advantage the scheme user must report the number to HMRC on a form AAG4.

When the user of a scheme which is expected to obtain an Apprenticeship Levy advantage only is the person required to disclose the scheme, HMRC will provide the number directly to that person and that person must nonetheless report the number to HMRC on an AAG4.

The allocation or notification of a scheme reference number does not indicate that HMRC accept that the scheme achieves or is capable of achieving any purported tax advantage nor that the disclosure is complete.

This duty will not apply if HMRC has given a notice under section 312(6) FA 2004 before the deadline for providing the client with the required information.

You may incur a penalty if you fail to comply with the rules outlined in this section (see section 21).

18.2.3 Scheme reference number allocated under section 311(3) FA 2004 (‘subsection 3 case’, promoters and other suppliers must provide SRN to clients (section 312ZA FA 2004)

Any persons to whom HMRC has notified a SRN in a subsection 3 case is required to notify the SRN to their clients in the same way as promoters are required to do for an SRN allocated in a subsection 2 case.

This duty applies to anyone who is involved in the supply of relevant arrangements or proposed arrangements, either as a promoter or supplier.

If a person has been notified of a SRN allocated in a subsection 3 case they must do the following within 30 days of the relevant date:

• provide the SRN to any other person (your ‘client’) to whom you provide, or have provided, services in connection with the scheme or any scheme that is substantially the same that HMRC have allocated the SRN in relation to — your client may be the person who is intended to obtain the tax advantage or they may be a third party (for example, a person who does not themselves enter into the scheme or expect to obtain a tax advantage)
• do so using form AAG6
• do so within 30 days of being notified of the reference number
• include the client on a client list — see section 19

This duty will not apply if HMRC withdraw the SRN before the deadline for providing the client with the required information.

You may incur a penalty if you fail to comply with the rules outlined in this section (see section 21).

18.3 Promoters and suppliers must provide scheme reference number to clients

However you come to be in receipt of a scheme reference number, whether as a promoter or supplier, you must provide it to any other person (your ‘client’) to whom you provide, or have provided, services in connection with the disclosed scheme or any scheme that is substantially the same (section 312 and section 316A and SI 2012/1836, regulation 6 of the Finance Act 2004).

Your client may be the person who is intended to obtain the tax advantage or they may be a third party (for example, a person who does not themselves enter into the scheme or expect to obtain a tax advantage)

• do so using form AAG6

• do so within 30 days of either being provided with the scheme reference number or becoming aware of any transaction that forms part of the scheme, whichever is later

• include the client on a client list — see section 19

While there is no obligation to do so, you may find it more convenient to provide the number to a client when you provide services in connection with the scheme rather than wait until it has been implemented. If, but only if, you do so using the form AAG6, you need not re-notify the number to your client when you become aware of a transaction forming part of the scheme.

If you have been provided with more than one scheme reference number in relation to any given scheme, you only need provide one of those numbers to your client.

The information relating to the scheme that you as promoter are required to supply to clients comprises:

• your name and address

• name or a brief description of the arrangements

• the reference number HMRC has allocated to the scheme

• date you send this information to the client

• additional information reproduced on form AAG6

You must use form AAG6 to report SRNs to clients and must send clients the whole of the AAG6 form when doing so, including the additional information.

Promoters and suppliers may incur a penalty if they fail to provide the reference number and other required information to clients or do not provide the information by completing and sending clients the whole of the relevant form AAG6 (available on the GOV.UK website — see section 21).

18.4 No requirement for employers to send SRN to employees where scheme obtains Apprenticeship Levy advantage only

The Apprenticeship Levy advantage, which an employer expects to obtain from a disclosable scheme, when the scheme is expected to give rise to an Apprenticeship Levy advantage only and not to any other tax or National Insurance contributions advantage, would not relate to the employments of particular employees (section 312A of the Finance Act 2004).

An employer will not therefore be legally required to notify the scheme reference number for such a scheme to employees.

18.5 Clients must provide scheme reference number to parties to the scheme other than employees

Clients must notify a scheme reference number which they have received to any other person whom they might reasonably expect to be a party to, and who might reasonably be expected to gain a tax advantage from, the scheme (section 312A and SI 2012/1836, regulation 6 of the Finance Act 2004).

This information must be passed on within 30 days of either being provided with the scheme reference number or becoming aware of any transaction that forms part of the scheme, whichever is the later.

This requirement does not apply in relation to employees of a scheme-user which is an employer.

If the client of a promoter or supplier has sufficient commercial connection with a third party to have a reasonable expectation that they will gain an advantage from the scheme, that client is required to pass the scheme reference number to that third party.

Example: scheme made available to subsidiaries

A parent company purchases a disclosable scheme from a promoter and makes it available for subsidiary companies to use, but without becoming a party to the arrangements that make up the scheme.

The promoter is required to provide the company with the scheme reference number.

The parent company must provide the scheme reference number to those subsidiaries that are expected to gain a tax advantage from the scheme.

The client is not required to provide a number to a person simply because, for example, they learn about their use of a scheme through reading about it in the press or a tribunal decision.

If the client is required to report the scheme reference number to other parties to the arrangements, they must comply with the obligation by completing and sending the other persons the whole of form AAG6.

You may incur a penalty if you fail to provide the reference number and other information to other persons as described or do not use the prescribed forms to do so (see section 21).

18.6 On receipt of SRN from a promoter, clients must provide their National Insurance number and Unique Taxpayer Reference (UTR) to the person they received the SRN from

Within 10 days from the later of the date that the client receives a scheme reference number or the date that the client first enters into a transaction forming part of the arrangements the client has to notify the promoter of their:

• National Insurance number

• UTR

If they have neither of these, they must confirm that they do not hold a National Insurance number or a UTR (section 312B and SI 2013/2592 of the Finance Act 2004).

The promoter or supplier must provide this information to HMRC in accordance with section 14.

18.7 Parties to a scheme must include SRN on a form AAG4

If you expect to have obtained an advantage in relation to the Apprenticeship Levy only, you must report any scheme reference number you have received for that scheme to HMRC on a form AAG4.

The AAG4 must be sent to HMRC within 14 days after the end of the final tax period in the tax year (ie, if the final tax period runs to 5 April, then by 19 of April).

You must continue to do this for every subsequent year or period until the advantage ceases to apply.

You may incur penalties if you fail to notify the scheme reference number correctly (see section 21).

18.8 Where to send form AAG4

Form AAG4 must be sent to the address specified in section 1.5 in sufficient time for it to be received by the date appropriate to the entity receiving the tax advantage as detailed at section 14.5.4.

18.9 How to obtain and submit form AAG4

Form AAG4 is available on the GOV.UK website, this is a PDF version you can print.

The completed forms should be sent by post to the DOTAS Enforcement team.

18.10 No requirement for employers to send HMRC employee details where scheme obtains Apprenticeship Levy advantage only

The Apprenticeship Levy advantage, which an employer expects to obtain from a disclosable scheme, when the scheme is expected to give rise to an Apprenticeship Levy advantage only and no other tax or National Insurance contributions advantage, would not relate to the employments of particular employees (section 313ZC of the Finance Act 2004).

An employer will not therefore be legally required to report any employee details to HMRC under s313ZC in connection with such a scheme.

18.11 Duty of promoters to provide updated information

Where a promoter has notified a scheme under section 308, the promoter is required to notify HMRC about any change in the name by which the scheme is known and about any changes to the promoter’s name or address (section 310C of the Finance Act 2004).

If there is more than one promoter, each promoter is responsible only for notifying HMRC about changes to its name or address.

If there is more than one promoter and there has been a change in the name by which the scheme is known, and one of the promoters notifies HMRC about the change, the duty on the other promoters to provide the same information is discharged.

The information about the changes must be provided to HMRC within 30 days of the change happening by sending the information in writing to HMRC Counter-Avoidance DOTAS Enforcement at the address specified in section 1.5.

18.12 Withdrawal of scheme reference numbers

HMRC has discretion to remove the reporting duties associated with the disclosure of a notifiable scheme by giving a notice specifying that the duties will be lifted with effect from a given date. For more detailed guidance, see section 13.7.

19. Client lists

19.1 General

There are several different routes by which a promoter or other person providing services in connection with the scheme can receive the SRN that HMRC has allocated to a scheme. This includes cases where:

• HMRC has allocated the SRN after it was disclosed
• HMRC has allocated the SRN after giving one or more notices under section 310D without the scheme being disclosed
• a person has passed on the SRN to another promoter or supplier of the scheme, who is then required to pass on the SRN to persons because the latter might reasonably be expected to be a party to the scheme and to gain a tax advantage from it

However the promoter or supplier in relation to the scheme is notified about the SRN, they are required to provide quarterly lists to HMRC of clients to whom they are obliged to issue a scheme reference number during that calendar quarter.

HMRC uses the information from client lists to assess and monitor the level of risk posed by disclosed arrangements.

Failure to provide details of a client in accordance with the rules described in this section may result in a penalty see section 21.

19.2 Duty to provide details of clients

19.2.1 The duty

The duty applies to the following persons:

• a promoter who (a) is providing, or has provided, services to any person (‘the client’) in connection with a notifiable proposal or arrangements and (b) is required to pass the SRN to the client which has been allocated to the scheme or any scheme that is substantially the same under section 312(2) FA 2004 (see section 14.1 and section 13).
• co-promoters who have provided services to clients in connection with the scheme to which the SRN is allocated, whether or not they disclosed that scheme (see sections 3.4, 10.2.2
• a person (supplier) who (a) is providing, or has provided, services to any person (‘the client) in connection with the scheme and (b) is required to pass to the client the SRN which has been allocated to the scheme or any scheme that is substantially the same under s312(3) FA 2004
• a promoter who (a) is providing, or has provided, services to any person (‘the client) in connection with the scheme and (b) has failed to comply with s308(1) or (3) FA 2004 in relation to a scheme but (c) would be required to provide client lists to HMRC if an SRN had been allocated to the scheme or one substantially the same

Under the duty the promoter or supplier is required to provide prescribed information (see section 19.2.3) to HMRC within a prescribed period (30 days) of the end of a relevant period (calendar quarter).

There is an extended deadline in certain circumstances for provision of the client’s UTR and National Insurance number.

The time for compliance is not extended for weekends, bank holidays, Good Friday and Christmas Day.

19.2.2 When to provide a client’s details

The trigger for a promoter or supplier to provide a client’s details for any quarter is the time when they become subject to the section 312 (2) or 312 (3) obligation to notify the scheme reference number in relation to that client.

This obligation arises:

• for promoters when the later of 2 events occurs: the promoter being provided with the scheme reference number allocated under s313(2) or (3) FA 2004, or becoming aware of any transaction that forms part of the scheme (see section 10.9 on what constitutes ‘a transaction forming part of the scheme’)
• for those involved in providing services in connection with the scheme other than in the capacity of a promoter (‘suppliers’), when they are provided with the scheme reference number allocated under s312(3) FA 2004

In most cases this is likely to mean that the promoter will provide the client’s details in the quarter in which the promoter first becomes aware of a transaction forming part of the scheme. In any other case it will be the quarter in which the promoter or supplier receives the scheme reference number.

A client may take the first step and enter into an arrangement, but later withdraw from, or unwind, it so that no tax advantage is obtained. Even where this occurs within the same calendar quarter, the promoter or supplier is still obliged to include the client on the client list. This is because the trigger for inclusion on the client list is the same as for the SRN notification duty.

However, the client may not be obliged to report the scheme reference number on a return because the trigger for a client to report the scheme reference number on a return or AAG4 is different (see section 14.5).

Promoters and suppliers may therefore wish to advise Counter Avoidance Directorate of clients who have subsequently decided not to proceed with arrangements when they submit their client list to avoid any unnecessary enquiries in the future.

Promoters and suppliers are not required to make nil returns for any quarter in which they have no clients to whom they have to pass the scheme reference number.

There is an extended deadline for provision of the client’s UTR and National Insurance number in certain circumstances. The client has to provide the promoter or supplier with their UTR and National Insurance number within 10 days of the later of the client receiving the scheme reference number or the date that the client first enters into a transaction forming part of the notifiable arrangements.

If these events are at or near the end of the quarter then the promoter or supplier may not have the UTR and National Insurance number to provide to HMRC or be able to inform HMRC that the client does not have a UTR and National Insurance number.

In which case the promoter or supplier is obliged to confirm to HMRC, within the usual 30 day prescribed period, that either 1 of 3 scenarios applies:

• that the client has notified the promoter or supplier that they do not have a UTR or National Insurance number

• that the client has not complied with their obligation to inform the promoter or supplier of their UTR and National Insurance number

• on the 16 day after the relevant period that the time limit for the client to provide their UTR and National Insurance number has not expired

• where the time limit for the client to provide the information has not expired (the third bullet point) then the prescribed period is extended to 60 days. The extended period only applies to the following prescribed information

• the client’s UTR and National Insurance number

• confirmation that the client does not have a UTR and National Insurance number

• confirmation that the client has not complied with their obligation to provide the UTR and National Insurance number

19.2.3 Information that needs to be provided within the 30-day prescribed period

Information that must be provided within 30 days is:

• full name and address of the promoter or supplier

• scheme reference number issued by HMRC in connection with the scheme

• client’s full name and address which is the address the promoter sends the scheme reference number

• client’s UTR or National Insurance number

• confirmation the client does not have a UTR or National Insurance number

• confirmation the client has failed to provide their UTR and National Insurance number

• confirmation that on the 16th day after the end of the calendar quarter, the time limit for the client to provide their UTR and National Insurance number has not expired

• confirmation of the end date of the calendar quarter for which the information is being supplied

19.2.4 How to submit client lists

There are 2 parts to the report for the reporting of client details. The first part should contain the details of the promoter or supplier as appropriate. The second part contains the prescribed information relating to the clients.

Do not send reports or information about clients by email. The security of emails you send over the internet cannot be guaranteed.

If you choose to send client lists electronically you should contact Counter-Avoidance to find out which digital method or methods HMRC is currently making available for the transfer of client information in a secure way. The Counter-Avoidance Directorate of HMRC will let you know what you need to do in order to comply with your reporting obligations when using electronic communication and provide such access as you will need.

Use the address specified in section 1.5 to tell HMRC that you would prefer to send us your client list manually or to make any queries about the online facilities which may be used to make DOTAS reports.

19.3 Examples

In these examples ‘implemented the scheme’ refers to entering into a transaction forming part of the scheme (see section 10.8 and section 19.2.2).

Example 1

Promoter P discloses a scheme in January 2011 and HMRC issues a scheme reference number.

On 17 February 2011 P becomes aware that client X has implemented the scheme. He issues X with the scheme reference number 30 days later.

On 31 March 2011 P becomes aware that client Y has implemented the scheme. He issues Y with the scheme reference number 30 days later on 30 April 2011.

P is required to provide information about clients X and Y in the client list for the period 1 January to 31 March 2011, due by 30 April 2011.

Example 2

Promoter P discloses a scheme on 22 March 2011.

On 29 March 2011 he becomes aware that client X has implemented the scheme.

P receives a scheme reference number from HMRC on 2 April 2011. The ‘relevant date’ for the purposes of section 312 of the Finance Act 2004 is 2 April 2011.

P is required to provide information about client X in the client list for the quarter ended 30 June 2011, due by 30 July 2011.

Example 3

Promoter P has disclosed 2 schemes (A and B) each of which has been issued with a scheme reference number. In the period to 31 March 2011, he becomes aware that:

• clients X and Y have implemented scheme A

• clients Y and Z have implemented scheme B

• P will be required to submit 2 forms by 30 April 2011, one for scheme A (containing information about clients X and Y), one for scheme B (containing information about clients Y and Z)

Example 4

Following the issue of a notice under s310D FA 2004, HMRC issues an SRN under s311(3) to a Promoter (P1) and to a Supplier (P2) on 20 December 2021. The ‘relevant date’ for the purposes of section 312 FA 2004 is 20 December 2021.

P1 and P2 are required to provide information about clients who have implemented the scheme for the quarter ending 31 December 2021, due by 30 January 2022.

20. Information powers

20.1 Summary

There is a range of different information powers under the DOTAS regime in Part 7 Finance Act 2004. They enable HMRC to:

• require an introducer (a person who introduces clients to a promoter) to identify the person who provided them with information relating to the scheme or to identify persons with whom they have made a marketing contact in relation to a scheme

• enquire into the reasons why a promoter has not disclosed a scheme

• enforce disclosure in appropriate cases

• call for more information where a disclosure is incomplete or where HMRC considers that further information about the scheme is needed

• request further information from the promoter about clients using schemes

• require further information and documents from a relevant person after HMRC has allocated an SRN to a scheme under s311(3) FA 2004

20.2 Invoking the powers

In order to use many of the powers in connection with DOTAS, HMRC must have reasonable grounds to suspect that a person has been non-compliant in relation to a particular scheme.

The powers will be exercised only by officers within HMRC’s Counter-Avoidance Directorate.

20.3 Application hearings

Some of the DOTAS information powers described are dependent upon the First-Tier Tribunal making a relevant order following an application from HMRC. The precise procedure is a matter for the tribunal and you will find more about applications to a tribunal at Index ARTG - Appeals reviews and tribunals guidance.

The tribunal rules require the tribunal to notify other parties of an application by HMRC. However, when making an application, HMRC will notify potentially affected persons at the same time.

20.4 Pre-disclosure enquiries into non-disclosure of a scheme

20.4.1 Explaining why a scheme has not been disclosed (section 313A of the Finance Act 2004 and SI 2012/1836, regulation 9(5) and 2(3))

Section 313A allows HMRC to require a person, whom we suspect of being a promoter or introducer of a disclosable scheme, to provide an explanation of why they think that scheme is not notifiable by them.

In order to exercise this power HMRC must send a written notice to the suspected promoter or introducer requiring them to state whether or not they have a duty to notify the arrangements under DOTAS and, if their opinion is that they are not required to disclose the scheme, to give HMRC the reasons why they hold that opinion.

The notice must specify the scheme in relation to which the person’s opinion and reasons are sought.

Introducers are included in this power because it is not always obvious whether a person advertising a scheme to potential buyers is a promoter of that scheme or merely an introducer.

In such circumstances HMRC may not have sufficient evidence to suspect that person of being the promoter, but it is important to find out who the promoter is. An intermediary may have responsibilities to any extent for the organisation or management of a scheme and consequently fall to be treated as a promoter and not as an introducer under the DOTAS rules 8.

If the person to whom the notice is issued is an introducer only, their reply could be that the scheme is not notifiable by them because they are an introducer and not the promoter. The explanation should provide sufficient detail of their role in relation to the scheme to enable HMRC to confirm that they are not a promoter.

The explanation does not strictly need to identify the promoter in order to satisfy the person’s obligation under section 313A, but it would be helpful if that information were to be provided. If an introducer does not identify the promoter when responding to the notice under section 313A, HMRC have further powers to require the introducer to identify any persons who have provided the introducer with information about the specified scheme (see section 20.4.3).

If the person is a promoter of the scheme, they must provide an explanation of why they consider the scheme is not disclosable by them. In doing so it is not sufficient for the reply to simply refer to the fact that a lawyer or other professional has given an opinion that the scheme they are promoting is not notifiable.

Instead it must engage with all the relevant legal tests and give the reasons why they are not met. In particular, where the promoter maintains that the arrangements do not fall within any of the prescribed descriptions, the explanation must provide sufficient information for HMRC to verify whether this is the case.

The information required at this preliminary stage is that which is required to test whether or not a scheme is disclosable, not information that describes how the scheme works.

Because HMRC will normally issue a section 313A notice only following an informal approach (see section 20.2), it will usually be apparent which legal tests are engaged and the promoter’s explanation can focus on those tests.

The information must be provided to HMRC within 10 days, beginning with the day after the notice is issued, or longer if HMRC has so directed. Weekends, bank holidays, Good Friday and Christmas Day are not counted in calculating the 10 days. Failure to do so may result in a penalty (see section 21.6).

20.4.2 Orders for supplementary information or documents (section 313B of the Finance Act 2004 and SI 2004/1864, regulation 8A(2))

HMRC may apply to the tribunal for an order requiring a person to provide specified information or documents in support of their stated reasons as to why a scheme is not disclosable by that person, whether or not the reasons were given in response to a notice under section 313A (see section 20.4.1).

Again, the information or documents required at this preliminary stage are those which are required to test whether or not a scheme is disclosable by that person, not information that describes how the scheme works.

Example 1

Scheme Beta involves a trading partnership and is expected to provide the partners with tax losses which can be used to offset personal income and gains.

The promoter’s reply to a section 313A notice says that the tax losses are not the main benefit, or one of the main benefits, of using the scheme, which is wholly commercial.

The promoter chooses not to explain this position in further detail. HMRC uses section 313B to seek information and documents relating to how the various benefits, in particular the potential for taxable income, have been quantified and measured against the benefit of the tax losses.

The information must be provided by the 14th day after the date of the order or any longer period directed by HMRC.

HMRC will agree to a longer period where we are satisfied there is good reason why the promoter cannot provide the information within 14 days. Weekends, bank holidays, Good Friday and Christmas Day are not counted in calculating the 14 days. Failure to comply may result in a penalty (see section 21.6).

20.4.3 Notice requiring introducer to provide information leading to promoter of scheme or to a person with whom the introducer has made a marketing contact (section 313C and regulation 14 of the Finance Act 2004)

Where HMRC suspect a person of acting as an introducer for a notifiable scheme which has not been disclosed, it may, by written notice, require them to provide the name and address of any person who has provided them with information about that scheme. That person may be a promoter or another intermediary.

This formal power will be used only if the introducer is not willing to identify the promoter voluntarily.

An introducer may also be required by HMRC to provide the name and address of each person with whom the introducer has made a marketing contact in relation to the proposal (see section 3.7.1). This power is intended to enable HMRC who may have implemented the scheme and who may therefore either have information indicating who promoted the scheme or may themselves be required to disclose their use of the scheme.

The information must be provided to HMRC within 10 days, beginning with the day after the notice is issued, or longer if HMRC so directs.

Weekends, bank holidays, Good Friday and Christmas Day are not counted in calculating the 10 days. Failure to do so may result in a penalty (see section 21.6).

20.5 Resolving disputes and enforcing disclosure

20.5.1 Orders stating a scheme is disclosable

HMRC may, in relation to a specified promoter, apply to the tribunal for an order stating that a scheme is disclosable (section 314A of the Finance Act 2004 and section 98C(2E) of the Taxes Management Act 1970 and regulation 16(2) and 2(3) of SI 2012/1836).

HMRC’s application must specify the proposal or arrangements for which it is applying to the tribunal for an Order. The proposal or arrangements in question must be specified “in sufficient detail for them to be identifiable” (paragraph 128 of the Revenue and Customs v Hyrax (2019 UKFTT 175) decision).

HMRC’s application must also specify at least one person, which it is able to satisfy the tribunal hearing the application is a promoter of the specified proposal or arrangements. The application may specify one person as a promoter or may specify multiple such persons. So long as HMRC can show the tribunal that it has specified at least one person in the application who “answers to the statutory description of a ‘promoter’, then an order may be made not with standing the fact that another person or persons may also answer to it (whether more or less obviously than the person specified in the application).” (paragraph 77 of the Revenue and Customs v Curzon Capital Ltd decision (2019 UKFTT 63)).

The tribunal will make an order if it is satisfied on the evidence that the scheme falls within section 306 of the Finance Act 2004. Although the legislation provides that the tribunal has discretion whether or not to give an order, “it is clearly the intention of Parliament that where the necessary prerequisites to the making of an order are proved, the tribunal should exercise its discretion to make the order unless there is a compelling reason not to.” (paragraph 279 of the Revenue and Customs v Hyrax decision (2019 UKFTT 175)).

Such an order has the effect of confirming that a scheme is, and was always, disclosable within the time limits prescribed in SI 2012/1836 by a promoter which is subject to section 308 FA2004.

Failure to disclose a scheme may result in a penalty (see section 21.5). Failure to disclose a scheme within 10 days, beginning with the day after a section 314A order is made, may result in a higher penalty (see section 21.5.4).

Weekends, bank holidays, Good Friday and Christmas Day are not counted in calculating the 10 days.

20.5.2 Orders deeming a scheme to be disclosable

HMRC may, in relation to a specified promoter, apply to the tribunal for an order that a scheme is to be treated as disclosable (section 306A of the Finance Act 2004, section 98C(2E) of the Taxes Management Act 1970 and regulations 5(2),16(1) and 2(3) of SI 20/1836).

HMRC’s application must specify the proposal or arrangements for which it is applying to the tribunal for an Order. The proposal or arrangements in question must be specified “in sufficient detail for them to be identifiable” (paragraph 128 of the Revenue and Customs v Hyrax decision (2019 UKFTT 175)).

HMRC’s application must also specify at least one person, which it is able to satisfy the tribunal hearing the application is a promoter in relation to the specified proposal or arrangements. The application may specify one person as a promoter or may specify multiple such persons. So long as HMRC can show the tribunal that it has specified at least one person in the application who “answers to the statutory description of a “promoter”, then an order may be made notwithstanding the fact that another person or persons may also answer to it (whether more or less obviously than the person specified in the application).” (paragraph 77 of the Revenue and Customs v Curzon Capital Ltd (2019 UKFTT 63) decision).

The tribunal can only make an order if they are satisfied that HMRC have reasonable grounds for suspecting that the scheme may be disclosable and have taken all reasonable steps to establish whether it is.

Grounds for suspicion may include:

• the fact that the arrangements fall within any ‘hallmark’ prescribed in the relevant regulations

• an attempt to avoid or delay complying with section 313A or section 313B

• a failure to comply with section 313A or section 313B in relation to another scheme

The effect of an order is that a scheme is deemed to be disclosable under section 308 and must be disclosed.

The granting of a section 306A order does not determine whether or not the scheme would have been disclosable, at an earlier date before the tribunal gave the order. Consequently, the granting of the order may create a requirement to disclose that might not otherwise arise and the Information Regulations (SI 2012/1836) provide a time limit for complying with that requirement.

Disclosure must be made within 10 days, beginning with the day after the order is made. Failure to disclose a scheme is liable to a penalty (section 21.5.5).

Failure to disclose a scheme within 10 days, beginning with the day after a section 306A order is made, is liable to a higher penalty (see section 21.5.5). Weekends, bank holidays, Good Friday and Christmas Day are not counted in calculating the 10 days.

However, even if disclosure is made within the time period described, if, on the basis of information that subsequently comes to light, HMRC can demonstrate that the scheme was disclosable from when it was first promoted, an application to the tribunal for a late notification penalty (see section 21.5.5) may still be made.

20.6 Incomplete disclosures

If HMRC believes that a promoter has not provided all the prescribed information in relation to a disclosure, they may apply to the tribunal for an order requiring the promoter provide specified information or related documents (section 308A of the Finance Act 2004 and regulation 5(3) and 2(3) of SI 2012/1836).

A scheme reference number may be allocated within 90 days of the disclosure to ensure users of the arrangements are able to comply with their obligation to notify HMRC. Allocation of the reference number does not imply that HMRC considers that a complete disclosure has been made.

The tribunal can make an order only if satisfied that HMRC has reasonable grounds for suspecting that the specified information or documents form part of, or will support or explain, the prescribed information.

The effect of an order is that the specified information or documents must be provided to HMRC in the same way as if it were prescribed information. This must be done by the 10th day after the date of the order. Failure to do so may result in HMRC applying to the tribunal for a late notification penalty (see section 21.5.5).

Weekends, bank holidays, Good Friday and Christmas Day are not counted in calculating the 10 days.

If the information or documentation is provided within the time period described but HMRC nevertheless believes the information was always disclosable as prescribed information, and has been provided later than the normal disclosure due date, an application to the tribunal for a late notification penalty may still be made.

20.7 Further information and incomplete disclosures after a scheme has been disclosed (sections 310A and 310B of the Finance Act 2004)

HMRC may require a person to provide further information to HMRC in 2 circumstances:

• when the person has provided the prescribed information under section 308 (as a promoter), section 309 (as a person dealing with a promoter outside the UK) and section 310 (where the arrangements do not involve a promoter)

• when the person has provided information in purported compliance with section 309 or section 310 but HMRC believe that the person has not provided all the prescribed information (the equivalent provision for a promoter is described at 20.6)

In these circumstances HMRC can require the person to provide further specified information or documents about the notifiable proposal or arrangements in addition to the prescribed information already required under section 308, section 309 or section 310.

For example, HMRC may require the promoter to supply a detailed analysis of the financial transactions undertaken by a typical client as part of a scheme along with the documentation for those financial transactions.

HMRC does not need the tribunal’s permission to send a notice requiring a person to send in the specified information or documents. The time limit for complying with an order is 10 working days from when HMRC imposes the requirement or any longer period as HMRC may direct.

If HMRC believes that the person has failed to provide the information or documents required, it has the option to apply to the tribunal for an order requiring the production of the information or documents (section 310B).

A tribunal will not make such an order unless it is satisfied HMRC has reasonable grounds for suspecting that the information or documents will assist HMRC in considering the notifiable proposals or arrangements.

The time limit for complying with an order from a tribunal is 10 working days beginning on the day that the tribunal made the order or any such longer period as HMRC may direct.

20.8 Information to enable HMRC to identify the end user of a proposal or arrangement

HMRC can require a promoter to provide further information, if it suspects that a client on a client list section 19 is not a user of the proposal or arrangement but an intermediary (section 313ZB of the Finance Act 2004 and regulation 13A SI 2012/1836).

The promoter is only required to provide information which it has in its possession at the time the written notice requiring the further information is received. The required information is:

• the name and address of any person other than clients on the client list whom the promoter might reasonably be expected to know is or is likely to be a party to the scheme

• is likely to sell the arrangements to another person

• achieve a tax advantage by implementing the arrangements

• the UTR of that person

• sufficient information to enable an officer of HMRC to understand the way in which that person is involved in the arrangements

The information has to be provided within 10 days from the date that the promoter receives the written notice requiring the information.

20.9 Duty to provide further information requested by HMRC: SRN allocated in subsection 3 case (S311C of the Finance Act 2004)

20.9.1 General

HMRC can request further information and documents from a relevant person after it has allocated an SRN to a scheme in a subsection 3 case. In order to do this, HMRC must have reasonable grounds for suspecting that the information and documents requested will help them ‘in considering’ the scheme to which the SRN has been allocated.

20.9.2 Relevant Person

A relevant person is any person which HMRC reasonably suspect to be either a promoter of the arrangements or proposed arrangements or otherwise involved in the supply of the arrangements.

20.9.3 Meaning of ‘considering the scheme’

This power enables HMRC to require a relevant person to provide information and documents that would improve HMRC’s understanding of how both:

• the scheme is intended to operate
• DOTAS applies to the scheme

HMRC considers that the information and documents it is entitled to obtain under section 311C FA2004 include information and documents relating to the following matters:

• all transactions that comprise the scheme
• copies of all scheme documents
• details of any counterparties to contracts, agreements, deeds, transactions or any other scheme documents of any kind
• how the scheme is expected to obtain a tax advantage
• the legislation on which the tax advantage is based
• whether or not one or more hallmarks apply
• whether or not the scheme is notifiable

20.9.4 Time Limits for Providing Information and Documents

If HMRC request further information and documents a person must comply with the request no later than 10 working days from the date HMRC made the request, unless HMRC agrees a later date.

Example

HMRC request further information and documents by email on 1 September 2021. Unless HMRC agree a different deadline, the person must provide what has been requested no later than 14 September 2021.

A person will comply with the request if they provide the information and documents requested in full within the time limit for doing so.

Failing that, a person will comply with the request if they provide some of the information and documents requested, with a reasonable explanation as to why the remaining information and documents have not or cannot be provided.

The recipient is not relieved from the obligation to provide information or a document just because the notice describes it in a way that differs to the recipient’s own description, so long as it is clear what information or document is being requested.

21. Penalties

21.1 General

HMRC’s focus is upon enabling scheme promoters and users to comply with their DOTAS obligations. However, a penalty regime is necessary to deter non-compliant behaviours.

The penalties for failure to comply with a DOTAS obligation without reasonable excuse are provided for in section 98C Taxes Management Act 1970 and in regulation 22 of SI 2012/1868 in relation to National Insurance contributions).

Broadly, DOTAS penalties fall into 3 categories:

1. Disclosure penalties apply to failure to disclose a scheme. There are variations in cases where a tribunal has issued a disclosure order.

2. Information penalties apply to all other failures to comply with DOTAS except for those covered by category 3.

3. User penalties — apply to failure by a scheme user to report a scheme reference number to HMRC.

Disclosure penalties and Information penalties involve an initial penalty and a further daily penalty if non-compliance continues. The initial penalty is determined by a tribunal. Some of the initial penalties, including the penalty for failing to disclose a notifiable scheme, are also calculated as a daily penalty.

21.2 Tribunal penalty proceedings

21.2.1 General

The procedure is that HMRC will apply to a tribunal to determine a penalty on a specified person (or persons) for breach of a specified DOTAS obligation. You will find more about the tribunal system in the Appeals reviews and tribunals manual.

Applications will be subject to a hearing involving HMRC and the specified person. Each will be entitled to put their case to a tribunal.

Decisions on the selection of cases for penalty proceedings will be made in Counter- Avoidance Directorate of HMRC. Cases of suspected non-compliance are investigated by the disclosure enforcement team in this Directorate.

The factors taken into account when deciding whether to commence proceedings at the First-tier Tribunal will include the available evidence of whether a person had a reasonable excuse for not doing what they were otherwise required to do and whether they ultimately complied without unreasonable delay after that excuse ceased (see sections 21.3 and 21.5.3).

If the person, which is potentially liable for a penalty, engages with HMRC with a view to persuading it not to apply to the tribunal for a penalty, the onus is on that person to satisfy HMRC that they had a reasonable excuse at the time the failure began. Whether the person has a reasonable excuse will depend on the circumstances in which the failure occurred and the individual experience, knowledge and other attributes of the person who has failed. There is more guidance about HMRC’s understanding of reasonable excuse in section 21.3.

The other factors that we will consider in deciding whether or not to institute penalty proceedings will include:

• the level of knowledge and experience the person could reasonably be expected to have of DOTAS

• the person’s previous behaviour in relation to DOTAS

• the adequacy of the systems the person has put in place to ensure compliance with DOTAS

• the nature of the behaviour that led to the failure (for example, was it isolated error, carelessness or a deliberate act)

• whether the person alerted HMRC to the failure before we raised the issue

• what the person did after the failure was discovered, or brought to their attention, to prevent any recurrence

HMRC’s role at a penalty hearing is to put to the tribunal the case that a specified person has failed to comply with a DOTAS obligation and to make submissions about the strength of any evidence of a reasonable excuse that is presented to the tribunal.

If it accepts HMRC’s case that there was a prima facie failure to comply, the tribunal must consider whether the person had a reasonable excuse (see sections 21.3 and 21.5.3).

If the tribunal decides that either the person did not have a reasonable excuse for failing to comply with the DOTAS obligation, or there was an unreasonable delay after the excuse ceased before the person complied, it must decide upon the amount of the penalty (see sections 21.5 and 21.6)

21.2.2 SDLT schemes

Use of SDLT schemes is always notified on form AAG4 (SDLT) so there is no requirement to enter a scheme reference number on a SDLT return.

HMRC will only require one AAG4 (SDLT) from a partnership in respect of each notifiable arrangement, regardless of the number of partners.

All partners are jointly and severally liable for any penalties arising from any non­ compliance as detailed at section 21.2.

21.3 Reasonable excuse: general

A person will not be liable to a penalty for a failure if they meet both of the following:

• a reasonable excuse
• put the failure right without unreasonable delay after the excuse has ended

There is no statutory definition of ‘reasonable excuse’ or ‘unreasonable delay’. Both phrases must be given their ordinary meaning. Each case must be considered on the facts, and in view of the person’s abilities and circumstances.

HMRC considers reasonable excuse to be something that stops a person from meeting a tax obligation despite them having taken reasonable care to meet the obligation.

To be a reasonable excuse for failing to meet an obligation, the excuse must exist on or before the date of the obligation. If the excuse arises after that date and the obligation has not been met, it cannot be a reasonable excuse for that failure.

The onus is on the person who failed to comply to satisfy the tribunal that they had a reasonable excuse at the time of the failure. Whether the person has a reasonable excuse will depend on the circumstances in which the failure occurred and the individual experience, knowledge and other attributes of the person who has failed.

Each case will depend on the facts and circumstances and must be judged on its own merits.

A combination of events, that on their own may not be a reasonable excuse, may be a reasonable excuse when considered together. If there is a reasonable excuse it must exist throughout the period of default.

If the circumstances that causes the person to have a reasonable excuse ends, the excuse is treated as continuing if the person puts right the action, and does so without unreasonable delay after the excuse ends.

This means that if the person is found to have had a reasonable excuse for a failure and corrected that failure without unreasonable delay, then they will not have to pay a penalty.

But if the person does not put right the failure without unreasonable delay after the excuse has ended, they will not have a reasonable excuse and will remain liable to a penalty.

Example

Promoter P has put a reasonable and proportionate system in place to ensure that schemes are captured and if appropriate disclosed on time.

Something occurs, so unusual that it prevents P from making a timely disclosure of a scheme.

HMRC would consider P to have a reasonable excuse.

The Upper Tribunal’s comments in the case of Christine Perrin (2018 UKUT 156) (TCC), provide guidance on how the tribunal would approach reasonable excuse — see, in particular, paragraphs 69 to 71 and 81.

See Compliance Handbook for further guidance about reasonable excuse.

21.3.1 Limitations to defence of reasonable excuse — monitored promoters and their clients

A monitored promoter is a promoter to which a First-tier Tribunal has approved the issue of a monitoring notice under sections 242-244 of the Finance Act 2014 (Promoters of Tax Avoidance Schemes guidance section 3.1).

The objectives of the monitored promoter rules are to change the behaviour of a small and persistent minority of promoters of avoidance schemes who are not transparent with HMRC and display other behaviours detrimental to the fairness of the tax system.

A monitored promoter cannot rely on legal advice as a reasonable excuse in connection with the charging of penalties in respect of failing to meet any of its duties under the DOTAS rules if:

• the advice was not based on a full and accurate description of the facts

• the conclusions in the advice were unreasonable

Where a client of a non-resident monitored promoter fails to notify HMRC in accordance with section 309 of the Finance Act 2004, any legal advice given or procured by the monitored promoter is to be ignored in determining whether the person has a reasonable excuse for that failure in connection with the charging of penalties in respect of that failure.

Similarly, where a person has entered into a transaction that is part of arrangements for which there is no promoter under DOTAS and that person fails to provide information to HMRC in accordance with section 310 of the Finance Act 2004, any legal advice given or procured by a monitored promoter is to be ignored in determining whether the person has a reasonable excuse for that failure in connection with the charging of penalties in respect of that failure.

21.4 Appeals

There is a right of appeal against any penalty which has been determined either by a tribunal or by HMRC. In the case of a penalty determined by HMRC, the appeal will be to the First-tier Tribunal. In the case of a penalty determined by a First-tier Tribunal, the appeal will be to the Upper Tribunal.

Appeals against penalties determined by the First-tier Tribunal may be made both on points of law arising from the tribunal decision and against the amount of the penalty (see guidance on the appeals system at Appeals reviews and tribunals manual).

21.5 Disclosure penalties

21.5.1 Cases where no disclosure order is involved

For failure to disclose a scheme by the due date or in the specified form and manner a tribunal may determine a penalty of an amount not exceeding £600 a day during the ‘initial period’. The penalty may be the result of a:

• scheme promoter failing to notify a scheme as required by section 308(1) or (3) of the Finance Act 2004

• scheme promoter failing to comply with an order made by a tribunal under section 308A of the Finance Act 2004 requiring the promoter to make good an incomplete disclosure made under section 308 — when operating the penalty provisions this is treated in the same way as a failure to disclose the scheme under section 308

• scheme user failing to notify a scheme as required by section 309(1) or section 310 of the Finance Act 2004

• promoter or scheme user failing to comply with an information notice from HMRC under section 310A of the Finance Act 2004 (see section 21.7)

• promoter or person involved in the supply of a scheme failing to comply with a notice from HMRC under section 311C Finance Act 2004

When there has been a failure to disclose a scheme on time, the ‘initial period’ begins on the first day following the end of the ‘prescribed period’.

This is the period within which the scheme should have been disclosed. For guidance on when the prescribed period ends:

• section 10.2.1 explains when the prescribed period ends in relation to disclosure of a scheme under section 308 by a promoter

• section 10.4 explains when the prescribed period ends in relation to disclosure of a scheme under section 309 by a user of a scheme with no UK promoter

• section 10.6 explains when the prescribed period ends in relation to disclosure of a scheme under section 310 by a user of a scheme with no promoter

The initial period in relation to penalties payable by a promoter for failing to comply with an order made by a tribunal under section 308A, also begins on the first day after the end of the period within which the scheme should have been disclosed under section 308 (see section 10.2.1).

Where a person has failed to comply with an information notice under sections 310A or 311C, the ‘initial period’ begins the day after the date specified in the notice for that person to provide any information or documents covered by the notice.

In each case, the initial period ends with the earlier of:

• the day on which the tribunal determines the penalty

• the last day before the day on which the scheme is disclosed or as appropriate all of the required information and or documents are received by HMRC, thereby ending the failure

The amount of the initial daily penalty is determined by the First-tier Tribunal (see sections 21.5.2 and 21.5.3).

If the maximum penalty the tribunal can set using the daily penalty calculation described is less than £1 million for the initial period, it may impose a higher penalty of up to £1 million in certain circumstances.

When making this decision the tribunal will take into account all considerations it considers relevant, including particularly the aim of deterring that person or other persons from future compliance failures of a similar nature.

HMRC may determine a secondary daily penalty, not exceeding £600, for each day that the failure to disclose continues after an initial penalty has been determined.

You may incur penalties of up to £1 million or more if you fail to disclose a notifiable scheme or do not comply with a notice from HMRC under section 308A, section 310A or S311C of the Finance Act 2004.

21.5.2 Determining the amount of a penalty

The rate and amount of the initial daily penalty are matters for the tribunal to determine if it decides that a person has failed to comply with a DOTAS obligation to do any of the following:

• disclose a scheme

• provide information required by an order made under section 308A

• provide information required by a section 310A notice

• provide information or documents required by a s311C notice

A tribunal may determine any amount up to a maximum provided for in the law (see section 21.5.1, section 21.5.4 or section 21.5.5 as appropriate).

The wide range of amounts enables a tribunal to select an amount that is appropriate to the circumstances after taking into account all matters it considers relevant.

The aim of deterring that person or other persons from failing to comply in the same way in the future is specified to be one of those relevant considerations.

So for example, it may impose a much higher penalty on a promoter in a case of deliberate non-compliance than it would in a case of carelessness.

The law provides that in considering the rate of the penalty, a tribunal shall have regard (in particular) to:

• in the case of a failure by a promoter, the amount of fees received, or likely to have been received by the promoter in connection with the scheme

• in the case of a failure by any other person, the amount of the tax advantage gained, or sought to be gained by that person

This enables the tribunal to estimate the amount of the fees received or tax advantage gained where the actual figures are not known.

If a failure to comply with DOTAS continues after a tribunal has imposed an initial penalty, HMRC may determine a continuing daily penalty. In such cases we will normally begin by determining a daily amount that is proportionate to the amount imposed by the tribunal, compared to the maximum.

If the failure continues, HMRC will consider increasing the amount of the daily penalty it determines, up to the maximum.

21.5.3 Reasonable excuse — reason to consider a scheme is not disclosable

HMRC will consider a person to have a reasonable excuse for not disclosing a scheme where they are satisfied that there were reasonable grounds to consider that the scheme was not disclosable.

What is or is not a reasonable excuse is personal to the individual’s abilities and circumstances. Those abilities and circumstances may mean that what is a reasonable excuse for one person may not be a reasonable excuse for another. Each case must be considered on its merit taking into account all the circumstances that gave rise to the failure to comply with the obligation.

HMRC does not consider that the fact alone that a person has not disclosed a scheme on the basis of legal advice would provide a reasonable excuse.

Case law (in relation to section 118 (2) Taxes Management Act 1970 generally) indicates that what is reasonable in such circumstances depends upon the particular facts.

We consider that the proper test here, in the DOTAS context, is whether it was reasonable for a particular person to rely upon the particular advice received in relation to the particular facts of the case.

The factors we will consider in relation to a promoter may include the following:

• what level of knowledge did the promoter have, or might be expected to have, of DOTAS

• what level of knowledge did the promoter have, or might be expected to have of the tax system generally and specifically of the parts engaged by the scheme

• did the promoter provide the legal adviser with full and accurate information about both the scheme and other factors that might affect how DOTAS applies to it, for example in relation to the DOTAS hallmarks

• are any of the details of the scheme in dispute significantly different from those of the one to which the legal advice relates

• was any analysis or assumption made by the instructing promoter correct or reasonable (for example in a tax loss scheme, are any assumptions made about how much trading income the participants may receive reasonable and supported by evidence)

• to what degree does the legal advice explain why the scheme is not disclosable, by reference to the relevant tests in the DOTAS legislation

In cases where a disclosure order is issued by the tribunal (see section 20.5) any reasonable excuse which relies on doubt as to whether the arrangements are notifiable ends 10 days following the day that the tribunal issues the order. This includes instances where the promoter has legal advice that the arrangements are not notifiable.

21.5.4 Cases where a section 314A order has been made

A section 314A order issued by a tribunal determines that a scheme is notifiable. It has the effect of confirming that the scheme is, and was always, notifiable within the normal time limits prescribed in the Information Regulations (SI 2012/1836) section 10.2.1).

As described in section 21.5.1, the initial period for which penalties may be determined, both for failing to disclose the scheme and for failing to comply with an order made under section 308A relating to the scheme, starts the day after the end of the prescribed period, and the initial period ends with the earlier of:

• the day on which the tribunal determines penalties

• the last day before the day on which the scheme is disclosed or the promoter complies with the relevant section 308A order

The amount of the initial daily penalty is determined by the First-tier Tribunal (see section 21.5.2 and section 21.5.3).

If the promoter had reasonable grounds to believe that the scheme was not disclosable before the issue of the order, the order removes that doubt.

The law provides that the promoter cannot rely on doubt as to notifiability as a reasonable excuse for not providing the prescribed information about the scheme within 10 days of the tribunal making the order.

This does not mean that penalties will definitely be determined against on the promoter if it does not provide the prescribed information within 10 days of the order.

However, any contention the promoter makes that it should not be made liable for penalties because it has a reasonable excuse cannot depend on there being doubt about whether or not the scheme is notifiable.

If the promoter does not disclose the scheme within 10 business days of the order being made, the maximum amount of both the initial daily penalty (which may be determined by a tribunal) and the secondary daily penalty (which may be determined by HMRC) increase to £5,000 for each day that the failure continues after the 10 days.

Weekends, bank holidays, Good Friday and Christmas Day are not counted in calculating the 10 business days.

This higher daily penalty is in addition to any penalties at up to £600 for the period ending 11 days after the date on which the order was issued.

Where a tribunal has made an order under section 310A requiring more information about a scheme in respect of which a tribunal has given an order under section 314A, the maximum penalty for failing to comply with the section 310A order is £5,000 a day.

If the maximum penalty the tribunal can set using the daily penalty described is less than £1 million for the initial period, it may set a higher penalty of up to £1 million in some circumstances. When making this decision the tribunal will take into account all considerations it considers relevant, including particularly the aim of deterring that person or other persons from failing to comply in a similar way.

21.5.5 Cases where a section 306A order has been issued

A section 306A order issued by a tribunal determines that a scheme is to be treated as notifiable. It must be disclosed within 10 business days, beginning with the day after the order is made (see section 20.6).

After a section 306A order, the initial period for which penalties may be determined both for failing to disclose the scheme and for failing to comply with a section 308A notice relating to the scheme starts on the 11th business day after the order is made.

This initial period ends with the earlier of:

• the day on which the tribunal determines penalties

• the last day before the day, on which the scheme is disclosed or the promoter complies with the section 308A notice

The amount of the initial daily penalty is determined by the First-tier Tribunal (see section 21.5.2 and section 21.5.3).

The law provides that the promoter cannot rely on doubt as to notifiability as a reasonable excuse preventing the imposition of penalties if it does not provide the prescribed information within 10 business days of the section 306A order.

If the promoter does not disclose the scheme within 10 business days of the order, the maximum amount of the initial daily penalty (which may be determined by a tribunal) and the secondary daily penalty (which may be determined by HMRC) is the higher amount of £5,000 rather than £600. Weekends, bank holidays, Good Friday and Christmas Day are not counted in calculating the 10 days.

If a tribunal subsequently issues an order under section 314A or the person agrees that the scheme was disclosable and that they were required to have disclosed it before the section 306A order was made, HMRC may apply to the tribunal to determine a further penalty. This penalty will relate to the period starting on the date by which the scheme should have been disclosed and ending 10 business days after the section 306A order or, if earlier, on the day before the prescribed information was provided.

Any backdated penalty would be at the lower maximum rate of £600 per day.

Where a tribunal has made an order under section 310A requiring more information about a scheme in respect of which a tribunal has given an order under section 306A, the maximum penalty for failing to comply with the section 310A order is £5,000 a day.

If the maximum penalty the tribunal can set using the daily penalty described is less than £1 million for the initial period, it may set a higher penalty of up to £1 million in some circumstances.

When making this decision the tribunal will take into account all considerations it considers relevant, including particularly the aim of deterring that person or other persons from failing to comply in a similar way.

21.6 Other Information penalties

Information penalties apply to the following instances of failure to provide prescribed information by the due date and in the form and manner specified in this guidance:

• a promoter who does not respond to a pre-disclosure enquiry when required to do so (see section 20.4.1 and section 20.4.2)

• an introducer who does not provide, when required to do so, the identity of the person who supplied them with information about the scheme or persons with whom the introducer has made marketing contacts (see section 20.4.3)

• a promoter or person involved with the supply of a scheme who does not provide their client with a scheme reference number and with the further required information as supplied for this purpose by HMRC (see section 16.2)

• a client of a promoter or of a supplier who fails to provide the scheme reference number to any other person whom they might reasonably expect to be a party to the scheme and expected to obtain a tax advantage from using it) (see (section 16.3) — this includes employers failing to provide the scheme reference number to an employee for a scheme implemented by the employer in relation to that employee’s employment — it does not matter for this purpose whether the tax advantage is expected to be obtained by the employer only, the employee only or both.)

• a promoter or other supplier who fails to provide HMRC with details of a client to whom they are obliged to issue a scheme reference number (see section 19)

• a promoter or other supplier that does not supply further information on parties to the arrangement when required to do so by written notice (see section 20)

• an employer who fails to provide the scheme reference number to employees in relation to whose employments a tax advantage is expected to arise (see section 14.3.1)

• an employer who fails to provide HMRC with information about employees to whom it is required to provide a scheme reference number (see section 16.8)

• a client who does not provide to a promoter or supplier their National Insurance number, UTR or assurances that neither applies (see section 16.4)

• a person who fails to tell HMRC the scheme reference number notified to them by a promoter or supplier and the time when the person expects to obtain the tax advantage under the arrangements (see section 14.5)

• a promoter or supplier who fails to provide updated information about themselves and the scheme (see section 14.9.1)

In each case the failure includes cases where information is provided after the end of the period prescribed in the Information Regulations (SI 2012/1836) or in a format other than that specified in the DOTAS guidance.

For all of the information penalties listed, a tribunal may determine an initial penalty for each failure of an amount not exceeding £5,000.

HMRC may determine a daily penalty, not exceeding £600, for each day that each failure to provide information continues after an initial penalty has been determined.

The maximum daily penalty for all failures increases from £600 a day to £5000 per day starting on the 11th business day after an order has been made under section 306A or 314A.

21.7 The user penalty — tax advantage

A scheme user who fails to comply with a section 313 obligation to report a scheme reference number and related information (on a return or separately, as prescribed in the Information Regulations (SI 2012/1836)) is from 26 March 2015 liable to a penalty of:

• £5,000 per scheme (for example, each scheme to which the failure relates) for a first occasion

• £7,500 per scheme on the second occasion within 3 years (whether or not it relates to the same scheme involved in the previous occasion)

• £10,000 per scheme on the third and subsequent occasions (whether or not the failure relates to schemes involved in a previous occasion)

Before that date the penalty was £100 for a first occasion, £500 for a second occasion and £1,000 on third and subsequent occasions.

A scheme user, who is required to report this information on a return does not satisfy their obligations under section 313 unless they enter the information in the boxes provided for that purpose on the return.

For instance, including the scheme reference number or numbers in the ‘white space’ box on returns does not meet the user’s obligation to report the scheme reference number.

You may incur penalties up to £10,000 per scheme if you do not report the scheme reference number on your return in the boxes on the return specified for this purpose or in the form and manner specified if a report is to be made separately from a return. These penalties are determined by HMRC.

21.8 Failures involving both disclosable National Insurance contribution arrangements and disclosable Income Tax arrangements (SI 2012/1868, reg 22(14)

No penalty will be charged for a failure to disclose a National Insurance contribution arrangement if the arrangement, or substantially the same arrangement, is also a disclosable Income Tax arrangement and a penalty has been determined for failing to disclose that arrangement.

The same principle applies in relation to information and user penalties.

21.9 The user penalty — National Insurance contributions advantage

A scheme user who fails to report a scheme reference number and related information on an AAG4 form, in relation to a scheme which is expected to obtain only an National Insurance contributions advantage (and no tax advantage), is from 21 December 2017 liable to a penalty of:

• £5,000 per scheme (for example, each scheme to which the failure relates) for a first occasion

• £7,500 per scheme on the second occasion within 3 years (whether or not it relates to the same scheme involved in the previous occasion)

• £10,000 per scheme on the third and subsequent occasions (whether or not the failure relates to schemes involved in a previous occasion)

Before that date the penalty was £100 for a first occasion, £500 for a second occasion and £1,000 on third and subsequent occasions.

You may incur penalties up to £10,000 per scheme if you do not report the scheme reference number using form AAG4. These penalties are determined by HMRC.

22. Publishing information notified to HMRC under DOTAS (section 316C of the Finance Act 2004)

22.1 General

HMRC is entitled to publish information about schemes to which a SRN has been allocated and about their promoters. In certain circumstances, HMRC is also entitled to publish information identifying suppliers of such schemes.

Where a promoter is required to disclose a notifiable scheme to HMRC and has done so, and HMRC allocates the scheme an SRN, HMRC is entitled to name any person who is or has been a promoter of that scheme. This includes publicly naming promoters who are resident outside of the UK.

When HMRC allocates an SRN to a scheme without it having previously been disclosed by a promoter, HMRC is entitled to name any person who is or has been a promoter, including if they are not UK resident.

When HMRC allocates an SRN to a scheme without it having previously been disclosed, HMRC is also entitled to name publicly a person who is not a promoter but has otherwise been involved in the supply of that scheme. However, HMRC can name such a person only if they have been actively involved in the supply of the scheme to which it has allocated the SRN after 9 June 2021.

For schemes that have a main benefit of obtaining a contributions advantage but do not have a main benefit of obtaining a tax advantage, HMRC can name such a person only if they have been actively involved in the supply of the scheme to which HMRC has allocated the SRN after 31 May 2022.

HMRC is entitled to name a supplier whether or not they are UK resident.

22.2 Information that HMRC may publish

HMRC may publish the following information:

• the name and address of the promoter or other persons involved in the supply of the arrangements (if the involvement of the latter did not come to an end before 10 June 2021)

• any of the information prescribed for the purposes of making the disclosure

• a summary of the scheme and any name or names it is known by

• the statutory provisions on which the tax advantage is based

• any ruling of a court or tribunal relating to the scheme or promoter

• any other information which HMRC considers it appropriate to publish in order to identify the scheme or a promoter or other persons involved in the supply of it

No information identifying any persons who enter into the scheme may be published under section 316C of the Finance Act 2004. But where a promoter or person involved in the supply of the arrangements also entered into the scheme, this does not prevent HMRC publishing information about the promoter or supplier in relation to its activities as a promoter or supplier.

HMRC may also publish any ruling by a court or tribunal relating to any such arrangements or any such ruling relating to the promoter in that person’s capacity as a promoter in relation to a notifiable proposal or arrangements.

This provision is limited to court rulings given after 25 March 2015. HMRC may publish the number of persons who have entered into a scheme.

This information will generally be obtained from the promoter or supplier when it is required to provide client lists to HMRC under section 313ZA (see section 19.2).

HMRC may publish that a scheme is ‘APN relevant’ if it may exercise its power to issue Accelerated Payment Notices to users of the scheme because the scheme meets the definitional criteria for eligible ‘DOTAS arrangements’ set out at section 219 of the Finance Act 2014.

HMRC may also publish that a scheme is APN relevant if it has included the SRN allocated to the scheme on the list of schemes whose users HMRC may issue with an Accelerated Payment Notice.

The information may be published in any manner that HMRC considers appropriate. In the first instance, information will be published on GOV.UK.

Opportunity to make representations

In any case where HMRC is considering publishing information about a person who is a promoter or otherwise involved in the supply of a scheme, HMRC is required to inform that person that it is considering doing so and to give the person a reasonable opportunity to make representations about whether the information about them as a promoter or other supplier should be published.

HMRC will give the person a reasonable time in which to make any representations, usually 30 days from when HMRC tells them it is considering publishing the information. This may be longer if agreed. HMRC will consider all representations made and, if necessary, seek further details before making a final decision about publishing information. Either way HMRC will keep the person concerned informed of its decision.

HMRC will not publish details of any person where it concludes they are neither a promoter in relation to the relevant scheme nor have they otherwise been involved in the supply of the arrangements or proposed arrangements.

The decision to publish information about a scheme, including details about a promoter or person involved in the supply of the arrangements will be made by a Senior Manager within HMRC that is outside of the Directorate who is considering publishing information.

Lawyers and Legal and Professional Privilege

A lawyer, who promotes a scheme, is deemed not to be a promoter under the DOTAS rules if legal and LPP would prevent them from making a fully compliant disclosure of that scheme if it were notifiable section 3.11. HMRC is therefore not entitled to publicly name such a lawyer as a promoter of that scheme.

A lawyer, who promotes a scheme but is treated as not being a promoter for DOTAS, may still be subject to DOTAS as a person involved in the supply of the scheme they promoted or otherwise advised on. However, HMRC is not entitled to publicly name any lawyer as a person involved in the supply of a scheme if there are reasonable grounds for believing that the lawyer’s only involvement in relation to the scheme comprised activities subject to LPP.

HMRC acknowledges that lawyers may consider that they are unable to make detailed representations about a particular scheme they have been involved with owing to LPP. Lawyers who do not wish to have their details published in relation to a scheme, to which HMRC has allocated an SRN, may prefer to limit their representations to explanations of why it would be reasonable for HMRC to believe that all of their relevant activities were subject to legal professional privilege.

HMRC will consider very carefully all cases in which such representations are made. HMRC envisages that in many relevant cases it would not publish details about the lawyer or supplier but this would depend on the information it holds about the full extent of the lawyer’s activities and whether or not there are reasonable grounds for believing that the services it provided went beyond those covered by LPP.

Suppliers

Depending on the circumstances of a case and the evidence provided, including by way of representations, HMRC may use its discretion not to publish information about a supplier. Each case will be determined on its own merits.

It will be appropriate for HMRC to take account of the extent of the supplier’s involvement in the design or marketing of the scheme, its role in the implementation or operation of the scheme, the rewards it received for its activities in connection with the scheme.

Other factors that it may be relevant to take into account when making the decision whether to publish such a supplier’s information and which suppliers may wish to cover in their representations include:

• the supplier’s tax and professional knowledge
• their awareness of the elements of the scheme which were intended to give rise to a tax advantage at the time they were actively involved with the scheme
• whether the supplier adhered to professional standards
• whether the supplier exercised due diligence and made necessary checks
• whether the supplier or tax professional gave HMRC information early enough to identify the promoter

Time limits for publishing: SRN allocated in subsection 3 case

Where the SRN was allocated in a subsection 3 case:

• HMRC has up to a year after it allocates the SRN to a scheme in a subsection 3 case to publish information for the first time which identifies a promoter or supplier of that scheme
• once information about a person has been published, HMRC must take the information down no more than one year after it was first published and
• in the event that HMRC is precluded from publishing information by reason of any court or tribunal proceedings, the time during which the preclusion is in place would fall to be left out of account in calculating the relevant period

Example 1

HMRC allocated the SRN on 1 August 2022 and a week later it was notified to XYZ Ltd.

As of 1 August 2023, HMRC had not published any information identifying XYZ Ltd as a person who promoted or was otherwise involved in the supply of the scheme.

Consequently, HMRC lost the ability to publish any information identifying XYZ Ltd in connection with the scheme.

If HMRC had published information identifying XYZ Limited before 1 August 2023 they would be able to publish new information identifying XYZ Ltd (or continue to publish information identifying the company) after this date so long as it was not published (or did not continue to be published) more than one year after information identifying XYZ Limited was first published.

Example 2

HMRC allocated a SRN to a scheme on 1 August 2022. The SRN was notified to the promoter three days later.

Subsequently HMRC becomes aware of another person involved in the supply of the scheme (JKL Ltd) and notifies that person of the SRN on 1 November 2022.

HMRC can only first publish information about JKL Ltd up to and including 31 July 2023 — being the one-year anniversary of the date that the SRN was first allocated to the scheme.

A year after information is first published about a person involved in the supply of a scheme HMRC must remove that information from publication.

Example 3

A subsection 3 case SRN is allocated on 30 September 2021. Information identifying ABC Ltd as a supplier of the scheme is published on 1 November 2021.

Further new information identifying the company is published on 1 February 2022.

There are no ongoing court proceedings where there is a prohibition on HMRC’s ability to publish relevant information. HMRC must remove all information it has published identifying ABC Ltd before 1 November 2022 (the first anniversary of the date HMRC first published information identifying the company).

A prohibition made in ongoing court or tribunal proceedings may prevent HMRC publishing information that would identify a person as a promoter or as being otherwise involved in the supply of a relevant scheme.

In these circumstances the time limits for publishing information will be extended by the number of days during which the prohibition is in place (see example 4).

Example 4

HMRC allocated a SRN in a subsection 3 case on 1 November 2021. The SRN was notified to XYZ Ltd soon afterwards.

On 30 November 2021 XYZ Ltd appealed to the tribunal against the allocation of the SRN.

HMRC published details about the scheme on 5 December 2021 and on the same day wrote to XYZ Ltd informing the company that HMRC was considering publishing information identifying it as a person involved in the supply of the relevant scheme and offering it the opportunity to make representations about whether the information should be published.

After receiving and considering XYZ Ltd’s representations HMRC decided to go ahead with publishing information identifying the company. However, before HMRC could do so XYZ Ltd applied for a judicial review of HMRC’s decision and at the same time applied to the court for interim relief in the form of an order prohibiting HMRC from publishing information identifying the company. An order to this effect was made on 1 February 2022.

Subsequently, on 6 September 2022 the court refused permission for XYZ Ltd’s judicial review to proceed and withdrew the order granting interim relief. The order prohibited HMRC from publishing the information identifying XYZ Ltd for 217 days. The time limit for publishing details identifying XYZ Ltd as a supplier of the scheme is therefore extended by 217 days, giving HMRC until 6 June 2023 to publish information about XYZ Ltd for the first time.

22.3 Information HMRC must publish after a court ruling that is relevant to arrangements about which HMRC has published information

If HMRC has published information about tax arrangements under section 316C of the Finance Act 2004 and there is a final ruling by a court or tribunal based on principles or reasoning which, if applied to the scheme, would allow the tax advantage claimed to arise from the scheme, HMRC must publish information about the ruling.

HMRC must publish this information in the same manner as it published the information under section 316C.

A ruling is final if it is:

• a ruling of the Supreme Court

• a ruling in respect of which no appeal or further appeal may be made