ERSM210010 - Disclosures

Introduction

Legislation introducing disclosure of tax avoidance schemes (DOTAS) was introduced in the Finance Act 2004.

The main primary legislation is Part 7 of the Finance Act 2004, sections 306 to 319.

The DOTAS regime allows HMRC to obtain information early on about the types of tax avoidance schemes that are in circulation and how they operate, enabling appropriate counteraction to be taken.

For an overview of how DOTAS works see Disclosure of tax avoidance schemes overview.

More extensive guidance can be found at Disclosure of tax avoidance schemes.

Details of other relevant legislation is detailed at section 1.3 of that guidance.

Certain people must provide information to HMRC about avoidance schemes within 5 days of the schemes being made available or implemented. Usually, the person providing the information will be the promoter of the scheme — the person who designs or markets the scheme.

However, there are some limited circumstances when the person using the arrangements must disclose it instead. They are:

  • if the promoter is a non-UK promoter who has not disclosed
  • if the lawyer is unable to disclose due to legal professional privilege
  • if there is no promoter — for example, it’s a scheme that has been designed “in-house”

The legislation imposes a number of tests to determine if disclosure is required. Briefly these are:

  1. are there arrangements which are expected to provide a tax advantage?
  2. Is getting a tax advantage expected to be one of the main benefits?
  3. Does the scheme fall within one of a number of descriptions, called ‘hallmarks’ (see ERSM210020)

Whether HMRC allocate a Scheme Reference Number (SRN) following a disclosure by a promoter or as a result of the power afforded in s310D and s311(3) Finance Act 2004, HMRC will notify the SRN to the promoter. The promoter is then obliged to provide this number to any client who implements or has implemented the scheme. The promoter is also required to give HMRC information about all clients who have implemented the scheme. There are penalties for failing to disclose notifiable proposals or arrangements, for failing to provide a client with the SRN and for failing to report client details to HMRC. If you suspect you are dealing with a scheme that should have been disclosed you should contact HMRC Counter Avoidance using the contact details in section 1.5 of the DOTAS guidance.

Clients who have received a SRN will then be obliged to report this on their tax return or on form AAG4 depending on the type of tax advantage sought. There are penalties, if the SRN is not reported or if there is a late notification.