Measures to strengthen tax avoidance scheme disclosure rulesFriday, December 31st, 2010
In a consultation document issued at the time of the 2009 Pre-Budget Report, HMRC sought views on a number of proposed changes to the “Disclosure of Tax Avoidance Scheme” (DOTAS) regime. The disclosure rules were originally introduced by means of the Finance Act 2004 but they have been developed extensively since then and now apply to income tax and NICs, corporation tax, capital gains tax and stamp duty land tax.
In basic terms the DOTAS regime requires scheme promoters to disclose information about a tax avoidance scheme that meets certain definitions within 5 days of it being made available to clients. On disclosure, promoters are issued with a scheme reference number (SRN) which must be passed on to clients so that they can identify themselves to HMRC. HMRC has powers to investigate non-compliance and impose penalties for failing to disclose a scheme and for failing to pass on or report an SRN.
The consultation document described five amendments that HMRC wished to make to the disclosure rules, in particular to prevent scheme promoters from avoiding or delaying disclosure. Four of the five proposed amendments were included in section 56 and Schedule 17 of the Finance Act 2010, namely:
- bringing forward the obligation to disclose a scheme to the time when the scheme is sufficiently developed for a description of it to be attractive to clients, and the promoter makes the existence of the scheme known to third parties who can make potential clients aware of the scheme,
- requiring promoters to supply HMRC within a prescribed period with the names and addresses of clients to whom an SRN has, or should have been, issued, and
- requiring persons who introduce scheme promoters to clients to identify anyone who has provided the introducer with information about the scheme, within prescribed time limits.
- increasing the daily penalty for failure to comply with a disclosure obligation to up to £5,000.
All four of these provisions are brought into force from 1 January 2011 by a recent statutory Order.
A number of technical changes have also been made to the definitions of the “hallmarks”, i.e. the descriptions of the types of tax avoidance schemes that are disclosable.