CH81123 - Penalties for Inaccuracies: Types of inaccuracy: what is reasonable care - disqualified advice relating to avoidance arrangements

These rules for avoidance arrangements apply to all taxes where the inaccuracy is contained in a return or document submitted on or after 16 November 2017, which relates to a tax period that began on or after 6 April 2017 and ended after 15 November 2017.

For other tax periods, the normal rules apply when considering whether the person has failed to take reasonable care, see CH81120.

A person (P) seeking to demonstrate they took reasonable care cannot rely on disqualified advice, see below, in respect of an avoidance arrangement.

Disqualified advice

Advice is disqualified if any of the following apply

  1. the advice was given by an `interested person’
  2. there was an arrangement between an `interested person’ and another person (an advisor) who gave the person (P) the advice
  3. the advice was given by an advisor without `the appropriate expertise’, see below
  4. the advice took no account of the person (P’s) `individual circumstances’
  5. the advice was given or addressed to someone other than the person (P).

However, advice is not disqualified because of 1, 2, or 3 of the above criteria if at the relevant time

  • the person (P) took `reasonable steps’ to identify if the advice would be disqualified, and
  • the person (P) reasonably believed that it would not apply.

The specific meaning of 'the appropriate expertise', 'individual circumstances', 'reasonable steps' and 'interested person' are defined below. 

The appropriate expertise

In deciding if an advisor has the appropriate expertise you must consider if

  • they have relevant qualifications
  • they are a member of an accredited professional body
  • their principal business is giving tax advice
  • they have other relevant professional experience.

This is not an exhaustive list and each case must be considered on the individual facts.

Individual circumstances

Advice must recognise person’s individual circumstances and not be generic advice offered to everybody. For example, you should consider whether the advice only analyses the legislation and shows no consideration of how the arrangement will affect the individual circumstances and whether specific aspects of the person’s tax affairs been considered in the details of the advice.

Reasonable steps

When considering if the person (P) took reasonable steps to identify if the advice being given would be disqualified, you must take into account the individuals abilities and circumstances. We would expect the person (P) to have undertaken basic checks, such as

  • researching the advisor
  • checking their web-sites
  • obtaining the view of a trusted independent person, such as a tax professional
  • asking about the qualifications or experience of the advisor.

Interested person

An interested person means

  • any person, other than P, who participated in the avoidance arrangement(s); or
  • any person, other than P,  who participated in any transaction forming part of the arrangement(s); or
  • any person who received any money or other consideration for facilitating P’s entering into the avoidance arrangement(s).

However, advice given by any person covered by the final bullet point above will not be disqualified if

  • the person giving the advice had the appropriate expertise
  • the advice took account of the person’s (P’s) individual circumstances and
  • at the time when the question whether the advice is disqualified arises
  • para 3B(5) condition E (below) is met (the tax advantage was counteracted by reference to a TAAR or other avoidance- related rule) and
  • para 3B(5) conditions A-D ( below) have not at any time been met (the arrangements were not DOTAS, VADR or DASVOIT arrangements, they were not counteracted under the GAAR and no follower notice had been issued to correct, amend or assess in the absence of counteraction).

Sch 24 FA2007 3B(5) Conditions A-E

Condition A

The arrangements are DOTAS arrangements within the meaning given in FA2014 section 219(5) and (6).

Condition B

The arrangements are disclosable VAT arrangements or disclosable indirect tax arrangements for the purposes of FA2016 Schedule 18 para 8A to 9A.

Condition C

i) The person (P) has been given notice stating that a tax advantage arising from the arrangement is to be counteracted; and

ii) that tax advantage has been counteracted under FA2013 section 209.

Condition D

The person (P) has been given a follower notice under FA2014 section 204 by reference to the arrangement; and

i) the necessary corrective action has been taken in respect of the denied advantage under FA 2014 section 208; or

ii) the denied advantage has been counteracted in ways other taking the necessary corrective action.

Condition E

A tax advantage asserted by reference to the arrangement has been counteracted on the basis that an avoidance-related rule applies to the person’s (P’s) affairs.

If you need technical advice about counter avoidance legislation see the Counter Avoidance Technical Advice web page.