Section 7 - Disclosure of Disguised Remuneration schemes
Published 23 April 2020
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This publication is available at https://www.gov.uk/government/publications/independent-loan-charge-review-summary-of-evidence/section-7-disclosure-of-disguised-remuneration-schemes
The DOTAS (Disclosure of Tax Avoidance Schemes) regime was introduced in 2004 in response to the growing threat of mass marketed tax avoidance schemes to the Exchequer.
The main aim of the regime was to allow us to establish quickly what schemes were being marketed, how those schemes claimed to work and who had used those schemes. Promoters of schemes falling under the DOTAS legislation are required to notify us of the schemes which are given a Scheme Reference Number (SRN). Only one SRN is issued per scheme, regardless of the number of individuals or employers using that scheme.
Since DOTAS was introduced and up until 5 April 2019, 2,468 SRNs have been issued for all types of tax avoidance schemes. The breakdown of when SRNs were issued by year is set out in Table 33 below :
| Year | Number of SRNs |
|---|---|
| 2004 to 2005 | 503 |
| 2005 to 2006 | 607 |
| 2006 to 2007 | 346 |
| 2007 to 2008 | 277 |
| 2008 to 2009 | 130 |
| 2009 to 2010 | 177 |
| 2010 to 2011 | 118 |
| 2011 to 2012 | 129 |
| 2012 to 2013 | 77 |
| 2013 to 2014 | 38 |
| 2014 to 2015 | 9 |
| 2015 to 2016 | 13 |
| 2016 to 2017 | 13 |
| 2017 to 2018 | 15 |
| 2018 to 2019 | 16 |
| Total | 2,468 |
We estimate that of the around 250 DR schemes in scope of the loan charge around 113 were issued with SRNs and the balance were not notified to HMRC. Table 34 below sets out the years in which these 113 schemes were notified to HMRC.
| Year | Number of disclosures |
|---|---|
| 2004 to 2005 | 14 |
| 2005 to 2006 | 5 |
| 2006 to 2007 | 8 |
| 2007 to 2008 | 11 |
| 2008 to 2009 | 9 |
| 2009 to 2010 | 12 |
| 2010 to 2011 | 16 |
| 2011 to 2012 | 26 |
| 2012 to 2013 | 7 |
| 2013 to 2014 | 5 |
| 2014 to 2015 | - |
| 2015 to 2016 | - |
| 2016 to 2017 | - |
| 2017 to 2018 | - |
| 2018 to 2019 | - |
| Total | 113 |
In the 2000s, there was a clear trend in the reduction of disclosures from all avoidance, but this was not reflected in the disclosure of DR schemes. It was at this time that the use of DR schemes was increasing.
After the introduction of the Accelerated Payments legislation in 2014, the number SRNs being issued each year fell significantly across all avoidance and to zero for DR schemes in scope of the loan charge. We believe this is a result of whether the scheme is DOTAS notifiable being one of only 3 conditions for being eligible to receive an Accelerated Payment Notice (APN). The number of people using a scheme continued around the same level after 2014.
We have litigated 6 schemes for non-disclosure under the DOTAS rules, and have succeeded in 4 of those cases, with the outcome in the other 2 still awaited. One of the cases was against the promoter of a DR scheme used by individuals called Hyrax Resourcing Ltd. The win over Hyrax means the promoter now has to disclose the details of their tax avoidance scheme to us, along with the names and addresses of over 1,000 individuals who used it.
In cases where individuals provided the correct DOTAS number in the correct section of their Self Assessment return, HMRC routinely opened enquiries. However, many scheme users and promoters did not make a full disclosure.
Table 35 below shows details of the number of individuals who declared their use of a DR scheme on their Self Assessment tax return using the SRN in the correct box since 2004 to 2005 as at July 2019. It does not include declarations which may have been made in the notes/other information sections of the Self Assessment tax return. The year is when they declared the scheme which could be different to year they used a scheme.
| Tax year | Individuals who correctly disclosed |
|---|---|
| 2004 to 2005 | 550 |
| 2005 to 2006 | 520 |
| 2006 to 2007 | 860 |
| 2007 to 2008 | 1,180 |
| 2008 to 2009 | 430 |
| 2009 to 2010 | 1,620 |
| 2010 to 2011 | 1,380 |
| 2011 to 2012 | 1,070 |
| 2012 to 2013 | 1,050 |
| 2013 to 2014 | 1,030 |
| 2014 to 2015 | 200 |
| 2015 to 2016 | 50 |
| 2016 to 2017 | 110 |
| 2017 to 2018 | 50 |
| Total | 10,100 |
This shows the majority of individuals under enquiry did not correctly disclose their use of a DR scheme.
iCA records whether we have opened an enquiry but does not record whether an individual disclosed their scheme usage.
We understand that some individuals consider that they fully disclosed because they include the beneficial loan in their Self Assessment return. We disagree because there are lots of reasons for employers to make beneficial loans to their employees. This does not let us know that an avoidance scheme was used or that there is no intention to ever repay the loan.
The DOTAS regime was introduced in 2004 to provide early information about new and innovative tax avoidance arrangements, how they are intended to work and those who use them. It was not introduced to capture all avoidance or even all taxes.
Since then, DOTAS has been strengthened and refined in response to changes in the avoidance landscape. These changes include tightening rules and obligations requiring disclosure for employment income related avoidance in 2013 and 2015 and requiring more detail on these schemes from the promoters, employers and users of such schemes.
DOTAS relies on ‘hallmarks’ to describe what has to be disclosed. Arrangements must be disclosed when they fall within a hallmark. Hallmarks generally test arrangements in the hypothetical, considering how a hypothetical promoter might reasonably be expected to act, whether they could charge a premium fee, and what an informed observer could reasonably be expected to conclude from looking at the arrangement.
Promoters are required to provide information to HMRC about tax avoidance arrangements describing how they work within 5 days of first marketing them. HMRC then issues a Scheme Reference Number (SRN) to identify the disclosed arrangements so the appropriate compliance action can be taken. The regime requires each promoter to give each scheme user the SRN which the user must report to HMRC each year on their tax return (or special form) to identify them as having used the scheme in that tax year.
Since January 2011, promoters must provide information to HMRC about clients (users) to whom they have given a SRN. Since 2015, there has been a similar obligation on employers who implement schemes relating to employees’ remuneration.
The information provided under the DOTAS rules is used to investigate avoiders and inform legislative changes. The legislation has been strengthened in line with these objectives and will continue to be kept under review so that we can effectively challenge tax avoidance.
Go to section 8: Powers to tackle tax avoidance.