This factsheet tells you about the ‘serial tax avoidance’ legislation, and warning notices given under that legislation. You should read this factsheet if you’ve used a tax avoidance scheme, or if a tax avoidance scheme has been used by a:
- partnership that you’re a member of
- company within your group of companies
- person who is an associate of yours
The factsheet explains that HM Revenue and Customs (HMRC) may give you a warning notice after we’ve defeated a scheme that you’ve used. We explain what we mean by ‘used’ and ‘defeated’ later in this factsheet.
The serial tax avoidance legislation doesn’t apply to schemes where you entered into the scheme before 15 September 2016 and we defeated the scheme before 6 April 2017.
Where this factsheet refers to ‘tax’, this means the taxes, levies and contributions to which the serial tax avoidance legislation applies. These are listed at the end of this factsheet. Where this factsheet refers to ’scheme’ it also includes ’arrangements’ or ’tax arrangements’, which are expressions used in tax avoidance legislation.
This factsheet is one of a series of compliance checks factsheets.
1. Serial tax avoidance legislation – how it works
The serial tax avoidance legislation was introduced on 15 September 2016. It’s designed to deter people from using tax avoidance schemes.
Once we’ve defeated a tax avoidance scheme that you’ve used, we’ll give you a warning notice. That warning notice will remain in place for 5 years. This period is known as the ‘warning period’. During a warning period, you’ll have to give us detailed information about any tax avoidance schemes you’ve used during that period.
If you’re already in a warning period and we give you another warning notice, then we’ll extend your warning period by up to a further 5 years.
If we defeat a tax avoidance scheme that you’ve used during a warning period, we may impose certain sanctions. However, we can’t impose these sanctions if you entered into the scheme before 15 September 2016.
If we’ve defeated a tax avoidance scheme on or after 6 April 2017 and you entered into that scheme before 15 September 2016, we won’t take that defeat into account for the purposes of the serial tax avoidance legislation if you’ve done one of the following before 6 April 2017:
- fully disclosed details of the scheme to us
- told us that you’ll fully disclose details of the scheme to us - and you then do so within the time limit that we’ve set
2. What a tax avoidance scheme is and what we mean by ‘used’
For the serial tax avoidance legislation, a tax avoidance scheme is one of the following:
- arrangements that are disclosable under the disclosure of tax avoidance schemes (DOTAS) legislation
- a scheme that is disclosable, or has been disclosed, under the VAT Avoidance Disclosure Regime (VADR) legislation
- tax arrangements for which we’ve given you a follower notice
- tax arrangements where we’ve given you a notice of final decision, telling you that the tax advantages arising from the scheme are to be counteracted under the General Anti-Abuse Rule (GAAR)
You’ve used a tax avoidance scheme if you’ve done one or more of the following:
- sent us a tax return or claim that relies on a tax avoidance scheme to reduce your liability to tax, or to increase tax reliefs
- failed to meet your tax obligations as a result of a tax avoidance scheme - for example, by not registering for VAT when you should have
3. When a tax avoidance scheme is defeated
If you’ve used one of the types of tax avoidance scheme described above, we may counteract the tax advantages claimed by you. How we’d counteract them would depend on the type of tax and the tax avoidance scheme you’ve used. Counteracting the tax advantages would involve you or us making adjustments to your tax position, which may also mean you’ll have to pay additional tax.
Your tax avoidance scheme would be defeated when the counteraction becomes final. It would become final when the adjustments made to your tax position, and any additional tax resulting from those adjustments, can no longer be varied – either on appeal or otherwise.
Adjustments to your tax position would normally involve us doing one of the following:
- telling you about adjustments that you’re required to make to your tax returns or claims
- making adjustments to your tax returns or claims
- giving you one or more tax assessments, decision notices or determinations for the additional tax that you have to pay
4. If we defeat your scheme
If we defeat your scheme and the serial tax avoidance legislation applies to the defeat, we’ll give you a warning notice. That warning notice will remain in place for a period of 5 years, although this warning period may be extended if we defeat other schemes that you’ve used. We explain this in more detail below. During the warning period you’ll have to send us the following each year:
- details of any tax avoidance scheme that you’ve used during that year, and which is disclosable under DOTAS
- details of any tax avoidance scheme that you’ve used during that year which is disclosable, or has been disclosed, under VADR
- explanations of why you think the scheme or schemes you’ve used achieve the intended tax advantage, or avoid an obligation in relation to tax that you would otherwise have
- details of how much tax would be payable to us if you hadn’t used the scheme, or the scheme doesn’t achieve the tax advantage that it tries to achieve - whichever applies
If you’re already in a warning period and we defeat another tax avoidance scheme that you’ve used, we’ll give you a new warning notice. That notice will extend your existing warning period by up to 5 years. If we defeat a tax avoidance scheme after a warning period has ended, we’ll give you a new notice, which will start a new 5-year warning period.
Also, if we defeat one or more tax avoidance schemes where both of the following apply, you:
- entered into the scheme on or after 15 September 2016 (this is referred to as a ’new scheme’)
- used the scheme during a warning period - including an extended warning period
then we may impose one or more sanctions under the serial tax avoidance legislation. These sanctions are explained below.
4.1 Charge you a penalty
If we defeat one or more new schemes that you’ve used during a warning period, we’ll charge you a penalty. We’ve explained above what we mean by ‘new scheme’. The penalty will be calculated as a percentage of the counteracted advantage. The counteracted advantage is normally the additional tax due, but we would tell you more about this at the time. After the:
- first defeat of a new scheme used in the warning period, we’ll charge you a penalty equal to 20% of the value of the counteracted advantage
- second defeat of a new scheme used in the warning period, we’ll charge you a penalty equal to 40% of the value of the counteracted advantage
- third and any subsequent defeats of new schemes used in the warning period, we’ll charge you a penalty equal to 60% of the value of the counteracted advantage
4.2 Publish your name
If we defeat 3 new schemes that you’ve used, and you’ve used them all during the same warning period, we may publish your name and other details to identify you as a serial tax avoider.
4.3 Stop you from claiming tax reliefs
If we defeat 3 new schemes that you’ve used during a warning period, and each of those schemes involves the misuse of direct tax reliefs, we’ll stop you from claiming, or making use of direct tax reliefs for 3 years. If this happens, we’ll give you a ‘relief restriction notice’. The direct taxes to which the serial tax avoidance legislation applies are listed under the heading General information.
5. Benefits of disclosing your DOTAS or VADR scheme before we start a check of your tax affairs
If you want to settle your tax affairs on the basis that you no longer want to use one or more of your avoidance schemes, you can do so and the defeat won’t count for the purposes of the serial tax avoidance legislation. That means we won’t give you a warning notice for it, or extend an existing warning period for it. This can only apply if:
- you have no reason to believe that we’ve started, or are about to start, a check of your tax affairs
- the arrangements aren’t afterwards counteracted under the GAAR
- we haven’t sent you a follower notice for the arrangements
If you want to settle on this basis, you need to contact us straightaway. When you do, you’ll need to make a full disclosure of the details of the scheme and its use, and tell us the additional amount of tax.
A check of your tax affairs might be referred to as a compliance check, enquiry, investigation, review or other similar term.
6. Partnerships, groups of companies, and associates
Special rules apply for:
- members of a partnership that has used an avoidance scheme that we’ve defeated
- companies in a group of companies, where one of the companies has used an avoidance scheme that we’ve defeated
- associates of a person who has used an avoidance scheme that we’ve defeated
In these circumstances, as well as giving a warning notice to you when we’ve defeated a scheme you’ve used, we’ll give a warning notice to those linked to you through partnership, company group membership, or by being associates.
For the serial tax avoidance legislation, 2 persons are associates if one of them is a body corporate (for example, a company) controlled by the other, or if they’re both bodies corporate under common control.
The rules about sanctions are different depending on whether the link between persons is from being in a partnership, being part of a group of companies, or by being associates.
If we defeat a new avoidance scheme that was used in a partnership tax return, we may publish the names of all partners in the partnership. We may also restrict their direct tax reliefs. We may only charge a penalty on the partners whose tax position was affected by the defeat. However, for all partners, the defeat will count towards the number of defeats they’ve had when we’re considering charging them penalties and restricting their direct tax reliefs.
6.2 Groups of companies
If we give a warning notice to other companies in the group, we may also publish the name of those companies.
Although those warning notices can’t result directly in us charging the other companies penalties, or stopping them from claiming or using direct tax reliefs, they’ll count towards the number of warning notices they’ve had when we’re considering those matters.
The warning notices that we give to associates can’t result directly in us publishing the names of those associates. However, they’ll count towards the 2 warning notices required before we can publish their names. These warning notices don’t count towards the number of defeats for the associates where we’re considering penalties or direct tax reliefs.
7. Your rights when we’re considering penalties and relief restriction
You can’t appeal against our decision to give you a warning notice. However, you can appeal to an independent tribunal if we charge you a penalty, or give you a relief restriction notice, and you disagree with our decision.
8. Your rights when we’re considering publishing your name
We’ll let you know if we’re considering publishing your name and other details to identify you as a serial tax avoider. And we’ll give you the opportunity to make representations about whether or not the information should be published.
9. If we’ve charged you a penalty and you think you have a reasonable excuse
If you use a new scheme during a warning period and we defeat it, you’ll be liable to pay a penalty. This is explained in the section headed If we defeat your scheme.
When we’re considering penalties, your use of the scheme we’ve defeated is considered to be a failure to meet a tax obligation.
If you have a reasonable excuse for failing to meet that tax obligation, we won’t charge you a penalty for it. Also, that defeat won’t count if we’re considering penalties for defeats of other new schemes that you’ve used during that warning period.
A reasonable excuse is something that has stopped a person from meeting a tax obligation on time, which they took reasonable care to meet. This might be due to circumstances outside their control, or a combination of events. Once the reasonable excuse has ended, the person must put things right without any unnecessary delay.
Whether a person has a reasonable excuse depends on the particular circumstances in which they failed to meet the tax obligation, and their particular circumstances and abilities. This may mean that what is a reasonable excuse for one person may not be a reasonable excuse for someone else.
It is not a reasonable excuse if the failure to meet the tax obligation was because:
- of a lack of funds – unless it’s attributable to events outside your control
- you had relied on another person to do something – unless you took reasonable care to avoid the failure
- you were acting on advice, unless that advice was addressed to you and took account of your circumstances - relying on general advice given to a group of people or advice addressed to another person or which takes no account of your individual circumstances won’t count as a reasonable excuse
10. General information
10.1 Customers with particular needs
If there’s anything about your health or personal circumstances that may make it difficult for you to deal with this matter, please let us know. Telling us will mean that we can help you in the most appropriate way. There is more information at Dealing with HMRC if you have additional needs.
10.2 Taxes, levies and contributions to which the serial tax avoidance legislation relates
The direct taxes are:
- Annual Tax on Enveloped Dwellings
- Apprenticeship Levy
- Capital Gains Tax
- Corporation Tax (including any amount chargeable as if it were Corporation Tax, or treated as if it were Corporation Tax)
- Diverted Profits Tax
- Income Tax
- Inheritance Tax
- National Insurance contributions
- Petroleum Revenue Tax
- Stamp Duty Land Tax
The indirect tax is Value Added Tax (VAT).