Guidance

Promoters of tax avoidance schemes: guidance

Updated 9 February 2022

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1. Overview

This guidance describes the legislation in Part 5 and schedules 33A,34,34A, 35 and 36 of the Finance Act 2014, as amended by:

  • Schedule 19 of the Finance Act 2015
  • Section 160 of the Finance Act 2016
  • Section 24 of the Finance Act 2017
  • Section 117 and schedule 29 of the Finance Act 2021

This guidance refers to avoidance arrangements, not schemes. Unless the context requires otherwise, the term ‘avoidance arrangements’ refers to both relevant proposals and relevant arrangements as defined in section 234 of the Finance Act 2014.

The purpose of the regime is:

  • to change the future behaviour of a small and persistent minority of promoters of avoidance arrangements who exhibit high risk behaviours
  • to deter the development and use of avoidance arrangements by influencing the behaviour of promoters, their intermediaries and clients

The regime aims to achieve its objectives by:

  • requiring monitored promoters to disclose details of their products and clients to HMRC
  • ensuring monitored promoters tell clients, potential clients and intermediaries that they are a monitored promoter
  • minimising the risk of tax loss via avoidance arrangements developed by promoters of tax avoidance arrangements
  • making sure that clients and intermediaries are fully aware of the risks of engaging in avoidance arrangements

The regime builds on the existing regime for the disclosure of tax avoidance schemes (DOTAS). It draws on and reinforces existing disclosure obligations and shares many similar definitions. This means that this guidance frequently refers to the existing DOTAS guidance.

The regime involves a graduated series of sanctions, which carefully balance the rights of a person against the need to prevent and defeat tax avoidance. There are 3 key steps:

  • a stop notice – can be issued by HMRC to a person carrying on business as a promoter where the arrangements they are promoting meet certain conditions – the stop notice requires the promoter to immediately cease promoting the arrangements, along with certain other duties and requirements
  • a conduct notice – which may be issued by HMRC where a person carrying on a business as a promoter meets a threshold condition
  • a monitoring notice – which can be issued by HMRC where an Authorised Officer determines that a person has breached a requirement in a conduct notice and obtains approval from the First-tier Tribunal

A person carrying on a business as a promoter that is subject to a monitoring notice is referred to in the legislation and in this guidance as a monitored promoter.

An Authorised Officer is a person that has been authorised by HMRC Commissioners in accordance with section 283(2) of the Finance Act 2014. Authorised Officers for most purposes are senior people in the HMRC counter-avoidance directorate. For the purposes of stop notices, Authorised Officers are senior people in HMRC outside of the counter-avoidance directorate.

The decision that a conduct notice must be given can only be taken by an Authorised Officer of HMRC. Conduct notices impose conditions about how a promoter must behave. There is no right of appeal against a decision to give a promoter a conduct notice, which can last for up to 5 years.

If a person breaches one or more conditions in a conduct notice an Authorised Officer of HMRC may ask the First-tier Tribunal for approval to issue a monitoring notice. There is a right of appeal against a decision of the First-tier Tribunal to approve the issue of a monitoring notice. If a monitoring notice is issued the monitored promoter is subject to a more stringent regime that includes:

HMRC expects few promoters will meet threshold conditions and subsequently be issued with conduct notices and that the majority of those will comply with the conditions in the notices.

This means the more significant sanctions consequent on a monitoring notice will only be imposed in very few cases. They will be subject to prior approval by the First-tier Tribunal, confirming that the giving of a monitoring notice is justified. The provisions that would publicly identify a monitored promoter do not apply until the promoter’s appeal rights have been exhausted.

The regime is subject to strict governance. Only an Authorised Officer can decide whether a:

  • conduct notice must be given to a person carrying on a business as a promoter
  • notice, once given, has been complied with
  • a stop notice can be issued to a person

While it may be appropriate, in suitable circumstances, to draw attention to the existence of the regime, only an Authorised Officer can determine whether it’s appropriate to issue a conduct notice and the content of any such notice, or whether it is appropriate to issue a stop notice.

The rules in Part 5 of the Finance Act 2014 also apply in relation to promoters of arrangements for the avoidance or reduction of liabilities to pay National Insurance contributions (NICs), and in certain circumstances, to arrangements involving VAT and other indirect taxes.

See Section 281A of the Finance Act 2014 and the paragraph on relevant proposal and relevant arrangements in this guidance.

2. Legislation

This section lists the key parts of the legislation that apply to promoters of tax avoidance arrangements.

The legislation in Part 5 and Schedules 34, 35 and 36 of the Finance Act 2014, as amended by:

is laid out as follows:

2.1 Legislation relating to National Insurance contributions

The National Insurance Contributions Act 2015 (NICA 2015) applies Part 5 of the Finance Act 2014 to NICs with effect from 12 April 2015.

For Class 4 National Insurance contributions and for Class 2 National Insurance contributions collected through Self-Assessment, Part 5 of the Finance Act 2014 applies, with necessary modifications, as if those contributions were income tax. This is in accordance with the following provisions in NICA 2015:

In this guidance, references to tax include:

  • class 4 National Insurance contributions
  • class 2 National Insurance contributions collected through Self Assessment

For other classes of contributions (class 1, 1A, 1B and class 2 National Insurance contributions not collected through Self-Assessment) NICA 2015 gives effect to Part 5 of the Finance Act 2014 and makes modifications to that part.

This is in accordance with section 4(2) of, and part 2 of Schedule 2 to, NICA 2015. These classes of contributions are defined by paragraph 31 of Schedule 2 to Part 5 NICA 2015 as ‘relevant contributions’ see relevant proposals and arrangements.

Part 5 of the Finance Act 2014 applies to promoters of arrangements that enable, or might be expected to enable, any person to avoid or reduce a liability to relevant contributions.

2.2 Legislation relating to VAT

POTAS only applies to arrangements involving VAT and other indirect taxes (OITs) in the sense that a defeat of such arrangements can be a relevant defeat, counting towards meeting threshold condition 12.

In broad terms, ‘tax’ in section 281 only includes VAT and OITs for the purposes of Schedule 34A (see section 281A, inserted by section 160 (7) of the Finance Act 2016 as regards VAT, and modified by section 66 of the Finance Act(2) 2017.

See relevant proposal and relevant arrangements and relevant defeat.

3. Definitions

3.1 Carrying on business as a promoter

The legislation refers in many places to a person carrying on a business ‘as a promoter’. This is defined in section 235(1) of the Finance Act 2014.

A person carries on a particular business ‘as a promoter’, if in the course of carrying on that business, that person is, or has been, a promoter in relation to a relevant proposal or arrangements. This means that person’s activities fall within any of the descriptions of a promoter given in section 235(2) or [3].

Where a person is part of a promotion structure under Schedule 33A they are treated as carrying on business as a promoter, whether or not the person carries on a business.

3.2 Promoter

A person is a promoter of a relevant proposal if it:

  • is responsible to any extent for the design of the proposed arrangements
  • makes a firm approach to a person in order to make that proposal available to that person or anyone else
  • makes the proposal available for implementation by anyone

A person is a promoter of relevant arrangements if it:

  • is a promoter of a relevant proposal that is implemented by the arrangements
  • is responsible to any extent for the design, organisation or management of the arrangements

Exclusion of persons as promoters

A person that would otherwise be a promoter may be excluded by regulations. The Promoters of Tax Avoidance Schemes (Prescribed Circumstances under section 235) Regulations 2015 (SI 2015/130) provide for 2 classes of excluded person:

  • excluded persons (regulation 3)
  • excluded companies (regulation 2) The exclusion is disapplied where a person is a member of a promotion structure under Schedule 33A.

Certain persons not promoters

In relation only to the design of a proposal or arrangements - see section 235(2)(a) or (3) - a person is not a promoter if it:

  • did not provide any tax advice in connection with the proposal or arrangements - see SI 2015/130, paragraph 3(2)(b)
  • could not reasonably be expected to know that the arrangements are relevant arrangements or a proposal for such arrangements – see SI 2015/130, paragraph 3(3)

Certain companies not promoters

A company is not a promoter for the purposes of this legislation if:

  • it is a member of a 51% group (as defined for Corporation Tax purposes - see SI 2015/130, paragraph 2(5)
  • it has for the past 3 years only provided services as described in section 235(2) or (3) (i.e. design, organisation, management), in relation to relevant proposals or relevant arrangements, to other members of its group – see SI, paragraph 2(1)

However, that company is not excluded from being a promoter if in the previous 3 years it provided services as described in section 235(2) or (3), in relation to relevant proposals or relevant arrangements, to persons that are not members of its group - see SI 2015/130.

The group company exclusion does not apply where a conduct notice or monitoring notice has effect in relation to that company - see SI 2015/130, paragraph 2(3).

The group company exclusion only applies when the company providing the services and the company to which those services are provided are members of the same group. Consequently it does not prevent a company from being a promoter if it provides services in connection with relevant arrangements or relevant proposals to:

  • an ex-member of the group after it has been sold
  • a member of a joint venture, which is not a member of the same group as the company carrying on a business as a promoter

For the purpose of these regulations, companies are members of the same group if one is a 51% subsidiary of the other or both are 51% subsidiaries of a third company.

Promoters offshore

There is always a risk that promoters move offshore to try to undermine the impact of the regime. However, the regime can apply to any promoter, wherever resident.

If a non-resident monitored promoter fails to comply with requests for information, that information may be sought from any other persons who have been involved in the avoidance arrangements . This may include both intermediaries and clients.

Treated as carrying on business as a promoter

Schedule 33A introduces Promotion Structures as a means of combating those who have sought to frustrate the application of the POTAS legislation through:

  • fragmentation
  • non-residence
  • manipulation of entities
  • transfers of business

Promotion Structures and the new legislation are discussed later in the guidance, however what it does do is change the definition of when a person is carrying on business as a promoter for the purposes of POTAS. It applies to all persons who are caught by one of the 4 cases within Schedule 33A.

Where a person is a member of a promotion structure, they are treated as if they are carrying on business as a promoter, even if viewing their activities in isolation that would not be the case.

3.3 Relevant proposal and relevant arrangements

The terms ‘relevant proposal’ and ‘relevant arrangements’ are defined at section 234 of the Finance Act 2014.

A ‘relevant proposal’ (section 234(1)) is a proposal for arrangements that would be ‘relevant arrangements’ if they were implemented. This is so whether the proposal is made to a particular person or to anyone who might wish to implement it.

Section 234(4)) states arrangements are ‘relevant arrangements’ if:

  • they might enable any person to obtain a tax advantage
  • that tax advantage is the main benefit, or one of the main benefits, that might be expected from the arrangements

Arrangements include:

  • any agreement, scheme, arrangement or understanding of any kind
  • whether or not legally enforceable
  • involving a single transaction or more than one transaction

The promotion of such arrangements does not by itself make a promoter subject to the powers or sanctions available under the legislation. Those powers and sanctions can only begin to apply when a person has met one or more threshold conditions.

Tax Advantage

The definition of ‘tax advantage’ is at section 234(3). It is similar to that used in other anti-avoidance legislation. To the extent that POTAS applies to arrangements involving VAT and other indirect taxes, tax advantage includes a tax advantage as defined in paragraphs 6 and 7 of the Disclosure of Tax Avoidance Schemes for VAT and Other Indirect Taxes (DASVOIT).

Paragraph 6.3 of the DOTAS guidance which considers when a tax advantage might be one of the main benefits of arrangements is equally relevant here. This is not intended to include cases in which a course of action is chosen to some extent because a client may wish to obtain a tax relief by straightforward transactions that are consistent with the purpose for which the relief exists. For example, it will not apply where a client chooses to invest in an ISA rather than some other savings product.

Any tax advantage must relate to one or more of the following taxes (see section 283(1)(1)):

  • Income Tax
  • Capital Gains Tax
  • Corporation Tax
  • Petroleum Revenue Tax
  • Apprenticeship Levy, with effect from 15 September 2016
  • Inheritance Tax
  • Stamp Duty Land Tax
  • Stamp Duty Reserve Tax
  • Annual Tax on Enveloped Dwellings
  • VAT and other indirect taxes, but only for the purposes of determining whether a person has met threshold condition 12 (see section 281A, with effect from 15 September 2016); threshold condition 12 is explained below

National Insurance contributions arrangements are also ‘relevant arrangements’ if:

  • they might enable any person to avoid or reduce a liability to pay relevant contributions
  • the avoidance or reduction of a liability to pay relevant contributions is the main benefit, or one of the main benefits, that might be expected from the arrangements

‘Relevant contributions’ are defined by paragraph 31 of Schedule 2 to NICA 2015 as meaning:

  • Class 1 National Insurance contributions
  • Class 1A National Insurance contributions
  • Class 1B National Insurance contributions
  • Class 2 National Insurance contributions not collected under Self-Assessment

The different classes of contributions are defined in Part 1 of the Social Security contributions and Benefits Act 1992 or Part 1 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992.

3.4 Firm approach

A person may be a promoter for the purpose of Part 5 if they make a ‘firm approach’ to any person in order to make a relevant proposal available for implementation. The definition of what constitutes the making of a firm approach is at section 235 (4) and (5) of the Finance Act 2014.

This ensures that a person falls within the meaning of promoter when any tax avoidance arrangements are being developed and marketed, even if that is before any person enters into any particular arrangements to implement those tax avoidance arrangements.

A promoter is treated as making a firm approach when:

  • it communicates information to a person about arrangements that have been ‘substantially designed’
  • the communication is made with a view to that person or any other person entering into transactions to implement those arrangements
  • the information provided includes an explanation of the intended tax advantage

Arrangements have been substantially designed when the nature of the transactions involved in implementing them have been developed to the point at which someone could implement those, or similar, transactions in order to obtain a tax advantage. This is similar to the DOTAS definition which is described in the DOTAS guidance.

3.5 Intermediary

POTAS imposes obligations on 3 classes of person:

  • the promoter
  • the client – typically the user of the arrangements
  • the intermediary – who sits between the promoter and the client, and typically provides the client with information in relation to the arrangements

The term ‘intermediary’ is defined at section 236 of the Finance Act 2014. A person is an intermediary in relation to a relevant proposal if the person:

  • in the course of business provides information about the proposal to another person
  • the information is provided with a view to the other person, or anyone else, entering into transactions to implement the proposal
  • the person providing the information is not a promoter in relation to that proposal

An intermediary will not have been responsible to any extent for the design, organisation or management of the arrangements.

An intermediary may have obligations to pass on promoter reference numbers and may be subject to obligations to provide information to HMRC. A promoter who is subject to a conduct notice may be required to ensure that adequate information about avoidance arrangements is provided to intermediaries.

Intermediaries will typically be accountants, lawyers or financial advisors, but the definition is not confined to these professions. For example, an estate agent may be an intermediary in relation to Stamp Duty Land Tax avoidance arrangements.

An intermediary may also be a person that, although not themselves a promoter, may have a business that involves providing information to potential users about avoidance arrangements developed by a promoter. A person that provides information about avoidance arrangements to another person privately but not in the course of a business will not be an intermediary.

A person that would normally fall within the meaning of intermediary may of course be a promoter if that person provides more than just information about arrangements to potential users. See the promoter definition for more information. For instance, if the intermediary is to any extent responsible for the design, organisation or management, or implementation of avoidance arrangements.

A client of a promoter may be an intermediary, for example if it provides information to other potential clients.

3.6 Client

POTAS contains several different definitions of client, each tailored to the purpose for which that term is used in the relevant provision. In each case a client is broadly a person that is the end user of avoidance arrangements developed by the promoter.

The client will typically be the person with which the promoter engages in the course of the promoter’s business. However, in some cases the client will not be the person to whom the tax advantage intended to flow from the avoidance arrangements will apply. For example, the client may be:

  • a director of a company, where another associated or group company is intended to benefit from the arrangements
  • an employer whose employees are intended to benefit from the arrangements
  • a trustee of a trust or settlement in circumstances in which the beneficiaries are intended to benefit from the arrangements

The term ‘client’ is defined for the following purposes:

In each case the guidance on those provisions explains how the term ‘client’ is defined and used in that context.

3.7 Authorised officer

Authorised Officers for most purposes are senior officers in the counter-avoidance business unit in HMRC. However, an Authorised Officer for the purposes of the stop notice provisions is a senior HMRC officer outside of the counter-avoidance business unit.

4. Stop notices

4.1 Overview

The stop notice regime was substantially amended in Finance Act 2021.

The new stop notice provisions apply from 10 June 2021(the date of Royal Assent of Finance Act 2021). They apply to all relevant proposals or arrangements first promoted on or after Royal Assent and to relevant proposals or arrangements first promoted before Royal Assent to the extent that they continue to be promoted on or after Royal Assent.

4.2 Section 236A – Power to give stop notices

Section 236A gives HMRC the power to issue stop notices. In addition to various duties placed on the promoter which are discussed below, the stop notice requires the promoter to immediately stop promoting the proposal or arrangements described in the notice, or any that are similar in form or effect.

This is designed to stop suspected promoters from selling schemes HMRC, on balance, think do not work. This will reduce the number of clients buying into such schemes, reducing the risk of taxpayers continuing to use a scheme for multiple tax years, potentially ending up with large tax bills if the scheme is ultimately found not to work.

Definitions

A person is a promoter if that person does anything that would, if the arrangements were relevant arrangements or a relevant proposal under S234 FA 2014 (see Section 3.3), cause the person to be carrying on a business as, or be treated under Schedule 33A FA 2014 (see 7 Schedule 33A Promotion Structures) as carrying on a business as a promoter under S235 FA 2014.

Authorising officer

Only an authorised officer (AO) can issue a stop notice. The AO considering the issue of a stop notice will be a senior officer in HMRC outside of the counter-avoidance business unit. The AO may give a stop notice under S236A(1) if he suspects that a person is promoting or has promoted avoidance arrangements in respect of which the AO considers that certain conditions are met.

The Court of Appeal concluded in R v da Silva [2006] EWCA Crim 1654 that a person suspects something if they ‘think that there is a possibility which is more than fanciful that the relevant facts exist’. A stop notice may therefore be given to a person where the AO thinks there is a possibility, which is more than fanciful, that the person is promoting or has promoted avoidance arrangements, which the AO considers meets the requisite conditions.

Note that there are 2 different standards in issue when an AO is considering whether to issue a stop notice to a person. First, the AO must suspect that the potential recipient promotes, or has promoted, the scheme in question. Second, the AO must consider that the relevant conditions are met.

Conditions: The combination of conditions that needs to be met

A stop notice operates by reference to arrangements of a description specified in the notice or that are similar in form or effect to the arrangements described. Arrangements may only be specified in a stop notice if the AO considers that a requisite combination of conditions A to D (set out in S236A(3)-(6)) is met. A requisite combination of conditions A to D will be met if, either the AO considers that condition A and any of conditions B and C are met, or conditions B and D are met (see S236A (2)).

Condition A

For condition A to be met, the AO must consider that arrangements of the relevant description would:

a. if implemented before 5 April 2019, cause a person to be treated as having taken a relevant step, or a relevant benefit to have arisen under the loan charge legislation

b. be the same, or similar, in form or effect to schemes where a:

c. be the same, or similar, in form or effect to a scheme in respect of which one or more persons have been given follower notices under Part 4 of Chapter 2 of FA 2014

d. be the same, or similar, in form or effect to arrangements of a description specified in regulations made by the Commissioners

Condition B

Condition B will be met if the AO considers:

  • arrangements, or proposals for arrangements, of the relevant description have been, or are likely to be, marketed in any manner (by any person) as capable of enabling a person to obtain a particular tax advantage
  • it is more likely than not that such arrangements or proposals are not capable of enabling that tax advantage to be obtained.

To meet condition B an AO must identify a tax advantage. To arrive at their view the AO will review relevant documents and information against relevant statutory provisions.

In arriving at their view on whether the arrangements have been, or are likely to have been, marketed in any manner as enabling a person to obtain a particular tax advantage, there is no requirement for the AO to identify a person either who has marketed the scheme, or who has been the recipient of the marketing. Where the main advantage, or one of the main advantages of the arrangements is a tax advantage, it is HMRC’s view that it is reasonable to infer that the arrangements are likely to have been marketed on that basis, whether or not they have actually been so marketed.

There is also no need for the arrangements to have actually been marketed at the time an AO considers whether to issue a stop notice. Evidence of marketing will strengthen any case, but it is not necessary for the AO to identify the marketing itself to meet Condition B.

In arriving at their view on whether the arrangements would be more likely than not to enable the obtaining of the relevant tax advantage, the AO will review the relevant legislation and what he knows about the arrangements, as well as any other material that may be relevant.

Condition C

Condition C will be met if condition A is met on the basis a DOTAS or DASVOIT scheme reference number has been allocated to the scheme by reference to which an AO is considering issuing a stop notice and, either:

  • a person has failed to comply with an information notice issued in relation to the ‘reference’ arrangements under DOTAS (S310A/S311C FA 2004) - see DOTAS guidance 21.5+ or DASVOIT (Paragraph 19 or 22C of Schedule 17 to F(No.2) 2017) - see DASVOIT guidance 12.1+
  • HMRC has made an application to the tribunal in relation to the reference arrangements requiring a person to provide information about, or documents relating to, the arrangements

In some cases, even though a DOTAS or DASVOIT scheme reference number has been allocated to arrangements, HMRC will not have adequate information about the scheme for an AO to take a view as to whether the scheme would work. Condition C is included to provide a basis on which a stop notice can be issued by reference to such schemes in these circumstances. Its effect is that, where condition C applies, an AO can issue stop notices by reference to relevant arrangements without needing to have taken a view as to whether they would be likely to work.

Condition D

Condition D will be met where the arrangements or proposals described in a stop notice are relevant arrangements or relevant proposals under S234 FA 2014 and the recipient of the notice is subject to a conduct notice or monitoring notice (See Sections 4 and 5).

As stop notices may be issued where a combination of conditions B and D are met, this means that an authorised officer would be able to issue a stop notice where they consider that avoidance arrangements are, or are likely to be, marketed on the basis that they are capable of achieving a particular tax advantage and it is more likely than not that the desired advantage will not be achieved (condition B) and considers that the relevant tax advantage would be one of the main benefits of using the arrangements and the recipient of the notice is the subject of a conduct or monitoring notice (condition D).

Procedural steps where the conditions for issue of a stop notice are met

When HMRC becomes aware of potential avoidance arrangements it will seek information in respect of those arrangements to determine whether the conditions in S236A are satisfied. HMRC’s purpose is to gather information to enable the AO to determine whether to issue a stop notice. When making that decision the AO will determine whether they suspect that:

  • a person carries on a business as a promoter (or is treated as carrying on such a business as a promoter)
  • the requisite combination of conditions A-D ((set out in S236A (3) to (6)) is met

When the conditions for the issue of a stop notice are met, the AO may give a stop notice to any person he suspects of being a promoter of the arrangements or proposals that are to be described in the notice.

The provisions give HMRC the power to issue stop notices relatively early in the enquiry process. In some cases, HMRC may have seen only limited information and documents relating to arrangements at the time it issues a notice. In such cases the description of the arrangements in the stop notice would provide a high-level summary based on how HMRC understands it to work at the time the notice is issued.

A stop notice is effective immediately. The notice describes the arrangements in relation to which it applies and the consequences of being subject to a stop notice. There are penalties for failure to comply with a stop notice, for example by continuing to promote avoidance arrangements which are the subject of the notice.

When stop notices are sent to promoters, one of the matters about which they will be informed is that they may become subject to a POTAS Conduct Notice if they fail to comply with the stop notice.

Persons who receive a stop notice have the right to request that the notice be withdrawn. Where they do this, the stop notice will remain in place during the review period.

If the AO refuses to withdraw the stop notice, the person who made the request has the right to appeal that decision by giving notice in writing to the AO who refused the request to withdraw the stop notice – (see section 4.6 Appeal against decision not to withdraw a stop notice) and may, at the same time, request that the effect of the stop notice be suspended until after the appeal has been determined, withdrawn or otherwise disposed of (see section 4.7).

A stop notice has effect in relation to a person from the date it is received (or deemed to have been received) until:

  • it is withdrawn in relation to a person
  • an AO decides to suspend the notice pending the outcome of an appeal (where this happens, the notice may be revived in relation to the person if their appeal is unsuccessful See section 4.7 [Suspension of stop notice pending appeal]
  • the tribunal directs that the stop notice should cease to have effect in relation to a person.

4.3 Section 236B – Effect of stop notices

A person who is subject to a stop notice is prohibited from promoting the arrangements which are described in the stop notice or that are similar in form or effect. A person is subject to a stop notice under S236B(2) if the:

  • person is the recipient of a notice
  • person controls or has significant influence over a body corporate or partnership which is the recipient of a notice
  • person itself is a body corporate or partnership that the recipient of a notice controls or has significant influence over
  • recipient of the notice makes a relevant transfer to the person

Control or significant influence over a body corporate or partnership

The recipient of a stop notice must, if they control or have significant influence over any number of bodies corporate or partnerships, give a copy of the notice within 5 working days to each such person and provide HMRC with the following information within 15 working days of the stop notice being issued:

  • the partnership or body corporate’s name
  • any name under which the partnership or body corporate carries on a business (along with any previous name or pseudonym) that is known by the recipient of the stop notice
  • the partnership or body corporate’s business address or registered office

Recipient of a stop notice is a body corporate or partnership

If the recipient of the stop notice is itself a body corporate or partnership, it must also give a copy of the notice within 5 working days to each person who controls it or has significant influence over it and provide HMRC with the following information within 15 working days of the stop notice being issued:

  • the person’s name
  • any name under which the person carries on a business (along with any previous name or pseudonym) that is known by the recipient of the stop notice
  • the person’s business address or registered office

Control or significant influence is defined at Part 2 of Schedule 34 FA 2014.

A person controls a body corporate if that person has the power to secure that the affairs of the body corporate are conducted in accordance with their wishes by means of:

  • the holding of shares or the possession of voting power
  • power conferred in the articles of association or other documents regulating the body corporate
  • controlling a partnership

A person controls a partnership if the person is a member of a partnership and either:

  • has a right to a share of more than half the assets, or more than half the income, of the partnership
  • directs, or is on a day-to-day level in control of, the management of the business of the partnership

A person has significant influence over a body corporate or partnership if that person does not control the body corporate or partnership, but is able to, or actually does, exercise significant influence over it. This is irrespective of legal entitlement.

Recipient of a stop notice makes a relevant transfer

‘Relevant transfer’ takes its meaning from paragraph 5 of Schedule 33A (transfer of promotion business).

If the recipient of the stop notice makes a relevant transfer to a person, the recipient must:

  • give a copy of the stop notice to that person before making the transfer
  • provide HMRC with the following information within 15 days of making the transfer:
    • the person’s name
    • any name under which the person carries on a business (along with any previous name or pseudonym) that is known by the recipient of the stop notice
    • the person’s business address or registered office

Power of Authorised Officer to give a copy of notice to other persons

An AO may give a copy of the stop notice to the following persons that they consider the recipient of the stop notice is obliged to give a copy to:

  • a partnership or body corporate that the recipient of the stop notice either controls or has significant influence over
  • each person who controls or has influence over it – where the recipient of the stop notice is itself a body corporate or partnership

The AO giving a copy of the notice to the above parties does not affect the obligation of the recipient of the stop notice to inform those parties.

Practical Implications

Persons who are subject to a stop notice are required to cease any promotion activity in relation to the relevant arrangements at once. Recipients of a stop notice also become subject to the duties to:

Penalties

A penalty regime underpins the stop notice legislation.

If a person promotes a scheme in relation to which the person is subject to a stop notice, they will become liable to a penalty which may be up to the following amounts (S236B(1)):

  • £100,000 in respect of one or more failures relating to a particular stop notice
  • £5,000 for each person to whom arrangements (or proposals for such arrangements) of a description specified in the stop notice were promoted

Where a person fails to comply with S236B(1) at a time when they, or another person who the person controls or has a significant influence over, are subject to a monitoring notice the above maximum potential penalties are increased to:

  • £250,000 in respect of one or more failures relating to a particular stop notice (or £1,000,000 where, having regard to the penalty of £250,000, the penalty appears in a particular case to be inappropriately low after taking account of paragraph 4 of Schedule 35)
  • £10,000 for each person to whom arrangements (or proposals for such arrangements) of a description specified in the stop notice were promoted

Maximum Penalties for other breaches of S236B are:

  • £10,000 for each failure to notify the following persons who are subject to a stop notice:

    • persons over whom the person subject to a stop notice controls or has significant influence over S236B(3)(a)
    • persons who control or have significant influence over a body corporate or partnership S236B(4)(a)
    • a person to whom a relevant transfer has been made S236(5)(a)

  • £25,000 for each failure to notify HMRC of the following persons who are subject to a stop notice:

    • persons over whom the person subject to a stop notice controls or has significant influence over S236B(3)(b)
    • persons who control or have significant influence over a body corporate or partnership S236B(4)(b)
    • a person to whom a relevant transfer has been made S236(5)(b)

Daily default penalties apply under paragraph 3 of Schedule 36 to FA 2008 for failure to comply with an information duty on each day on which the failure continues after the initial penalty is imposed.

4.4 Section 236C – Quarterly Returns

A person who is subject to a stop notice must provide quarterly returns to HMRC including information about the clients to whom they have promoted the relevant arrangements in the quarter to which the return relates. The first return must cover the 3-month period commencing on the day the stop notice was given. Further returns are required for each subsequent 3-month period that commences within 3 years of the date the stop notice was given.

The return for each relevant period must be provided to HMRC within 15 days of the end of the period.

The following information should be provided in returns:

  • The number of persons to whom the person subject to the stop notice has made a firm approach or provided services in relation to the relevant scheme in the period to which the return relates.
  • If the return is the return for the first relevant period, the number of relevant clients to whom such approaches were made or services provided at any time before the stop notice was given.

  • In respect of each client you must provide the:

    • i. client’s name and address
    • ii. unique taxpayer reference number (if any) allocated to the client by HMRC
    • iii. client’s national insurance number (if any)
  • Any names by which the scheme to which the stop notice relates is known or is marketed.

If the person subject to the stop notice had no relevant clients in the relevant period, that person must still make a return reporting this fact to HMRC.

If the person does not have the information at (ii) or (iii) in respect of any relevant client, the return for each such client must include a statement that the person does not have those details.

There is also a separate requirement for a person subject to a stop notice to disclose to clients that they are subject to a stop notice.

Penalties

Failure to comply with an obligation to provide a quarterly return will result in liability to the following penalties:

  • a maximum of £5,000 per failure to provide information about a relevant client (S236(C)(1))
  • where no return is provided before the end of the period within which it must be provided, a maximum penalty of up to £5,000 will be imposed in respect of the first day on which the failure occurs and on each subsequent day on which the failure continues

If a promoter, under their duty to make a return under S236(C)(1), was 10 days late providing information about 5 clients the maximum penalty chargeable would be £75,000 ((£5,000 x 5 clients = £25,000) + (£5,000 x 10 days = £50,000)).

4.5 Section 236D – Request for stop notice to be withdrawn

A stop notice requires the person subject to the stop notice to cease the promotion of arrangements subject to the notice, or similar in form or effect to them, with immediate effect. The person subject to the notice may request that it be withdrawn in relation to them. The stop notice will remain in place while the request is considered.

Section 236D details the grounds on which a request may be made, namely that the person making the request:

  • does not intend to promote, and has not promoted, arrangements or proposals that fall within the description specified in the stop notice
  • considers that the conditions in section 236A(2)(see Power to give stop notices) for specifying the description of arrangements were not met
  • considers that there are other reasons for the notice to cease to have effect

In making the request, the person subject to the stop notice should explain the basis for the request and provide evidence to support the explanation.

The request should be made in writing to the authorised officer within 30 days of the date on which the stop notice was given, contain an explanation of the basis for the request and include such evidence as it is reasonable to provide to support the explanation.

If a promoter considers that they should not be subject to a stop notice because the arrangements deliver the desired tax advantage, they should set out their view in detail, explaining by reference to the relevant legislation how the relevant arrangements operate to achieve the advantage, in sufficient detail to allow the AO to understand the promoter’s analysis and arrive at their own view as to whether the scheme would achieve the relevant tax advantage.

The authorised officer who considers the request must give the person who made it a decision notice within 45 days of the request being received indicating whether or not the stop notice will cease to have effect in relation to the person who made the request. If the authorised officer does not give a decision notice within the 45-day period for doing so, at the end of that period the stop notice will cease to have effect in relation to the person who made the request.

An authorised officer may also determine that a stop notice should cease to have effect in relation to any person who has not made a request by giving that person a withdrawal notice.

Decision notices and withdrawal notices must specify the date on which the stop notice ceases to have effect in relation to a person. The specified date may be earlier or later than the date on which the notice is given.

4.6 Section 236E – Appeal against decision not to withdraw a stop notice

Under S236E a person may appeal against the refusal of their request for a stop notice to be withdrawn in relation to them. The notice of appeal must:

  • be made in writing to the officer who gave the decision notice
  • be made within 30 days of the day on which the decision notice was given
  • state the grounds for appeal – the grounds that may be stated are the same as those set out in section 4.5

When an appeal is received an AO will review it and make a decision on whether to accept the appeal or proceed under the appeal provisions at S49A-D TMA 1970. The AO will notify the appellant of HMRC’s view of the matter in question.

Where an appeal reaches tribunal, the tribunal may either:

  • confirm the refusal to withdraw the stop notice in relation to the appellant
  • direct that the stop notice is to cease to have effect in relation to the appellant from such date as the tribunal considers appropriate (which may be earlier or later than the date on which the tribunal makes the direction)

The tribunal will consider the same factors in reaching their decision as the AO. The factors are described in the 3 bullets at the top of section 4.5.

Where a person appeals against a decision not to withdraw a stop notice, HMRC cannot publish information about the person until the end of the appeal period See section 4.9.

4.7 Section 236F – Suspension of stop notice pending appeal

When a person appeals against a decision not to withdraw a stop notice, they may at the same time request that the stop notice should cease to have effect in relation to them until the appeal has been determined, withdrawn or otherwise disposed of.

The request must:

  • be made in writing to the authorised officer to whom the notice of appeal was given,
  • contain an explanation of the basis for the request
  • be accompanied by such evidence to support the explanation as it is reasonable to provide

The AO to whom the suspension request is made must decide whether the stop notice should cease to have effect in relation to the appellant until the appeal has been disposed of. In reaching their decision the AO must have regard to the need to protect the public revenue and persons to whom the scheme specified in the stop notice might be marketed.

The AO must give the person who made the suspension request a notice setting out his decision on whether to grant the suspension request [a ‘suspension decision notice’] within 30 days of receiving the request.

If the AO has not given the notice after 30 days, the stop notice ceases to have effect in relation to that person from that point until either the:

  • AO gives notice that provides that the suspension request is not granted
  • appeal has been determined, withdrawn or otherwise disposed of

4.8 Section 236G - Automatic withdrawal of certain stop notices

Where a stop notice was issued on the basis that condition A in section 236A was met in relation to the notice by reference to the fact that either a DOTAS or DASVOIT scheme reference number (SRN) had been allocated to arrangements or proposed arrangements under condition A(b), the stop notice will automatically cease to have effect for all persons subject to it if that SRN is subsequently withdrawn, doing so from the time the SRN is withdrawn.

In all such cases HMRC must give notice to all persons to whom it gave the stop notice and all other persons that it is aware are subject to the notice that the stop notice has ceased to have effect. The notice must state the reason why the SRN was withdrawn and may also include any further explanation as HMRC considers appropriate (for example, HMRC’s view of the scheme in question).

4.9 Section 236H/I – Details that may be published

Publication of person subject to a stop notice

S236H provides that an authorised officer may publish the fact that a person is subject to a stop notice, the details of the arrangements promoted by the person to which the stop notice relates and details of any other arrangements promoted by that person which are similar in form or effect to those described in the stop notice.

The details that may be published include the person’s name (including any name under which the promoter carries on a business and any previous name or pseudonym), the person’s business address or registered office and any other information the authorised officer considers it appropriate to publish in order to make clear that person’s identity.

Where a person subject to a stop notice fails to comply with the stop notice HMRC may provide a copy of the stop notice and other relevant information to interested parties [see section 4.11.

The details of the arrangements specified in the stop notice may be published as soon as the notice is given to a person. However, information about a person who is subject to the notice cannot be published before the end of the appeal period.

The appeal period means:

  • the period during which a request for the withdrawal of the stop notice can be made under S236D(1)
  • where a request for withdrawal has been made, the period during which an appeal against a decision not to withdraw the notice could be brought to the tribunal (see section 4.6)
  • where an appeal has been brought to the tribunal, the period during which the proceedings on the appeal have not been determined, withdrawn or otherwise disposed of

It follows that the duration of the appeal period depends on the promoter’s decisions. If there is an appeal and the tribunal decides to uphold the stop notice, the promoter has the right to make an onwards appeal. However, doing so would not prevent the publication of the promoter’s details during the period that further appeal is live.

The reason for including these publication powers is that, by publishing relevant details HMRC will be able to increase taxpayers’ awareness that there are certain schemes being sold that HMRC considers not to work and of the identity of the persons who have been promoting them. In this way, taxpayers will be put on notice of the risks they should consider before choosing to take up or continue using relevant schemes.

Publication following Automatic Withdrawal

Where an AO has published information about a scheme and subsequently the stop notice is automatically withdrawn (see section 4.8 - automatic withdrawal of certain stop notices), the AO must publish:

  • the fact that the stop notice has ceased to have effect,
  • the reason for the withdrawal of the SRN in question
  • such further explanation as HMRC considers appropriate in the circumstances.

The AO may also publish information about the persons who were previously subject to the stop notice.

4.10 Section 236J - Disclosure to clients and intermediaries

Where a scheme is the subject of a stop notice, the promoter is required to notify:

  • each client to whom they promote, or have promoted, the scheme,
  • any persons they could reasonably be expected to know is an intermediary in relation to the scheme.

The notice to the client or intermediary must set out the fact that the:

  • promoter is subject to a stop notice,
  • recipient of the notice is a client or intermediary in relation to the relevant scheme

Notification must be accompanied by a copy of the stop notice.

Client

A person is a client if the promoter has, in relation to a scheme which is subject to a stop notice, made:

  • a firm approach, or provided services, to the client which is within the description specified in the stop notice
  • the scheme available for implementation by the client

The promoter is required to notify all existing clients (those that were clients before the giving of the stop notice) within 5 days of receiving the stop notice.

Intermediary

The definition of an intermediary is found at S236 FA 2014 (See 3.5 above).

The promoter is required to notify all persons that they could reasonably be expected to know were an intermediary in relation to the arrangements on or before the receiving of the stop notice, that the arrangements are subject to a stop notice within 5 days of receiving the stop notice.

In all instances where the promoter becomes aware that a person is an intermediary after the promoter receives the stop notice, the promoter must inform the intermediary that the arrangements are subject to a stop notice within 5 days of the promoter becoming so aware.

Penalties

A maximum penalty of £5,000 per breach applies to the requirement to notify clients and intermediaries of the stop notice S236I(1).

Daily default penalties subsequently apply under paragraph 3 of Schedule 36 to FA 2008 for failure to comply with an information duty on each day on which the failure continues after the initial penalty is imposed.

4.11 Section 236K - Notification of interested persons by HMRC

Where an AO suspects that a person has failed to comply with the effect of a stop notice HMRC may provide a copy of the stop notice to any person it considers might have been affected by that failure. This may include clients or any other person who may make use of the arrangements subject to the stop notice.

When providing a copy of the stop notice HMRC may also provide:

  • the name of the recipient of the stop notice
  • the business address or registered office of the recipient of the notice
  • any other information that the AO considers it appropriate to publish in order to make clear the identity of the recipient of the stop notice
  • details of the avoidance arrangements promoted by the person subject to the stop notice
  • an explanation of the effect of the stop notice
  • an explanation of why the stop notice was given

5. Conduct notices

Section 237 of the Finance Act 2014 and Section 237A of the Finance Act 2014 provide that if a person carrying on a business as a promoter meets, or is treated as meeting, at least 1 of the 12 threshold conditions listed in Schedule 34, Part 1 or Schedule 34A, an Authorised Officer of HMRC may determine that a conduct notice must be issued. Only an Authorised Officer may decide if the requirements for issuing a conduct notice have been met. There is no right of appeal against the Authorised Officer’s determination that a conduct notice must be given.

A conduct notice imposes conditions on the person to whom it is given, and can last for up to 5 years depending on a combination of factors.

If an officer of HMRC determines that a promoter has failed to comply with any of the conditions included in the conduct notice, an Authorised Officer may determine that that failure is sufficiently serious for HMRC to apply to the First-tier Tribunal for approval to issue a monitoring notice.

If HMRC does apply for the issue of a monitoring notice, the promoter may make representations to the Tribunal about the reasonableness of any condition imposed in a conduct notice (section 243(3)).

5.1 Finding out that a threshold condition has been met

Where HMRC finds out that a threshold condition has been met, it will seek to work with the person that met the threshold condition and (if necessary) any associated or successor bodies of that person (on associate and successor bodies, see Appendices 3 and 4 below)).

HMRC’s purpose is to try to change their behaviour, and if that can’t be done, to gather evidence to enable the Authorised Officer to determine whether to issue a conduct notice.

When making that decision, the Authorised Officer will determine:

  • whether that person carries on a business as a promoter
  • the significance, for the purposes of POTAS, of that person having met the threshold condition
  • the impact on the collection of tax in the future, of the current activities as a promoter, of the person to whom the conduct notice may be given

5.2 Opportunity letter

When an Authorised Officer has determined that they must give a person a conduct notice (sections 237 and 237A), they will give that person an opportunity to comment on the conditions they propose to include (section 238(2).

Any comments may cause the Authorised Officer to reconsider the conditions in the conduct notice. At the same time they may also invite the person to provide any additional information they want the Authorised Officer to take into account. The additional information may cause the Authorised Officer to reconsider their determination to give a conduct notice.

5.3 Threshold conditions

Threshold conditions 1 to 11

Threshold conditions 1 to 11 are set out in paragraphs 2 to 12 of Schedule 34. See Appendix 1 for detailed guidance on these conditions. They are summarised here.

Threshold conditions 1 to 11 are:

  1. HMRC publishing information about a person as a deliberate tax defaulter
  2. a person breaching the Banking Code of Practice in respect of arrangements that it promotes
  3. a person being given a conduct notice under paragraph 4 of Schedule 38 of the Finance Act 2012 as a dishonest tax agent
  4. a person failing to meet DOTAS obligations
  5. a person being charged with a relevant criminal offence
  6. arrangements in relation to which the person is a promoter being regarded as unreasonable by the General Anti-Abuse Rule (GAAR) Advisory Panel
  7. certain disciplinary action is taken against a person which is a member of a professional body either by or at the instigation of that professional body
  8. certain sanctions being imposed by a regulatory authority on a person
  9. a person failing to comply with an information notice
  10. a person imposing certain restrictive contractual terms on clients, in relation to a relevant proposal or relevant arrangements, in relation to which that person is a promoter
  11. a person continuing to promote arrangements despite being given a stop notice in respect of those arrangements

Threshold condition 12

Threshold condition 12 is set out in Schedule 34A of the Finance Act 2014. There is detailed guidance on this condition at Appendices 1 and 2 below.

It is summarised as follows: a person may meet threshold condition 12 if 3 relevant defeats occur in relation to that person, within a defined period, of up to 3 years (section 237A(11)) or up to 8 years (section 237A(12) and (13)).

A relevant defeat

A relevant defeat is one that can be counted for the purposes of giving a conduct notice (section 237A) or a defeat notice (see section 241A). A relevant defeat occurs in relation to a person where tax avoidance arrangements promoted by that person are defeated.

A defeat could occur where a final judicial ruling is given denying the tax advantage expected to arise from the tax avoidance arrangements, or where no such final judicial ruling has been given but more than 75% of the users of the arrangements have settled with HMRC (even though one or more of the remainder are actively pursuing an appeal and a final judicial ruling may one day be given).

There is more information on relevant arrangements and relevant defeats in Appendix 2.

The defined period

The defined period of up to 8 years is made up of the normal period of up to 3 years ending when the Authorised Officer becomes aware that a threshold condition has been met, and a look-forward period of up to 5 years. The look-forward period applies only where, following a relevant defeat, a single or double defeat notice has been given (section 241A).

Look-forward period

This is the period for which a section 241A defeat notice is valid. It begins on the day after a person was given a defeat notice. Its duration depends on the kind of defeat notice,for:

  • single or double defeat notices (section 241A(2) or (3), the period ends 5 years after the day after the person was given the notice (section 241A(10)(a))
  • a further defeat notice (section 241A(6), the period ends 5 years after the day the further relevant defeat occurred (section 241A(10)(b))

Commencement

Threshold condition 12 applies from 15 September 2016. Transitional rules are in section 160(20) to (25) of the Finance Act 2016. In brief, these rules prevent defeats from being treated as relevant defeats if:

  • they occur on or before 15 September 2016 (Finance Act 2016 Royal Assent date)
  • the person did not continue (or their associate did not start) to promote the defeated arrangements after POTAS came into effect on 17 July 2014

5.4 The duty to give a conduct notice

An Authorised Officer’s duty to give a conduct notice in relation to a person meeting a threshold condition is governed by sections 237 and 237A of the Finance Act 2014.

The detailed rules for threshold conditions 1 to 12 are in Appendix 1.

Giving a conduct notice to a person that met a threshold condition

An Authorised Officer must give a conduct notice to a person (“P”), where P has met at least one threshold condition (threshold conditions 1 to 11 apply with effect from 14 July 2014; threshold condition 12 applies with effect from 15 September 2016.) This can happen as follows:

  • P met one or more of threshold conditions 1 to 11 during the period of 3 years ending at the relevant time (section 237(1)(a))
  • P met threshold condition 12 because:
    • during the period of 3 years, ending at the relevant time
    • 3 relevant defeats have occurred in relation to P (section 237A(11))
    • a single defeat notice has been given to P
    • during the 5 year look-forward period, 2 relevant defeats have occurred (section 237A(12)), or a double defeat notice has been given to P and, during the 5 year look-forward period, one relevant defeat has occurred (section 237A(13))

An Authorised Officer must also give a conduct notice to a person (P), where P has met at least one threshold condition if:

  • P was carrying on a business as a promoter when it met that threshold condition see Carrying on business as a promoter.
  • P is carrying on a business as a promoter when an Authorised Officer becomes aware that the threshold condition has been met

A conduct notice may also be given to a person carrying on a business as a promoter if an Authorised Officer becomes aware that another person met a threshold condition (section 237(1A) or section 237A(2)) where the conditions set out in Part 2 of Schedule 34, or Part 4 of Schedule 34A are met. See Appendix 3.

Although the legislation imposes a duty on an Authorised Officer to issue a conduct notice if one or more threshold conditions is met, this is subject to separate safeguards relating to both significance and tax impact.

The Authorised Officer who gives the conduct notice does not have to be the same officer who became aware that one or more threshold conditions were met within that period. An Authorised Officer can, and usually will, become aware that a threshold condition has been met some time before an Authorised Officer determines that a conduct notice must be given.

The relationship between sections 237 and 237A

Section 237 takes precedence over section 237A (237A(5)). That means an Authorised Officer must consider whether to give a conduct notice in respect of the meeting of threshold conditions 1 to 11 before considering whether to give a conduct notice in respect of a meeting of threshold condition 12. But the meeting of threshold condition 12 is taken into account when considering the ‘significance’ of having met one or other of threshold conditions 1 to 11.

5.5 When a conduct notice is provisional

A conduct notice given as a result of a person meeting threshold condition 12 is classed as “provisional” if one or more of the 3 relevant defeats on which it relies is a “Case 3 relevant defeat” (section 237C(1)(b)), see Appendix 2.

In broad terms, a Case 3 relevant defeat occurs where at least 75% of known users of the arrangements have settled and there has been no final judicial ruling (Schedule 34A paragraph 9), see Appendix 2.

Such a conduct notice is provisional because until all users have settled or HMRC obtains a final judicial ruling that the arrangements do not work, it is still possible that the tax advantage asserted by the arrangements may be upheld by the courts. Provisional status reflects this possibility.

A conduct notice remains provisional unless an Authorised Officer notifies the person that it was given to that it is no longer provisional (section 237C(2), (3)).

5.6 Further conduct notice where provisional conduct notice not complied with

Where a provisional conduct notice is breached, and certain conditions are met, then a further conduct notice must be given (unless another conduct notice or a monitoring notice already has effect in relation to the same person) (section 237B). Those conditions are that:

  • the provisional conduct notice has ceased to have effect otherwise than by reason of being withdrawn, a monitoring notice is given to that person, or a final judicial ruling upholding a corresponding tax advantage has been given
  • one or more new relevant defeats have occurred, after cessation of the conduct notice, by virtue of Cases 1 or 2 (Schedule 34A paragraphs 7 and 8) see Appendix 2
  • had that defeat occurred before the provisional conduct notice ceased to have effect, then an Authorised Officer would have been required to notify the person that that conduct notice was no longer provisional

An Authorised Officer must consider the tax impact safeguard, the same as for any other conduct notice.

5.7 The effect on a provisional conduct notice of a judicial ruling upholding an asserted tax advantage

If a court or tribunal upholds the tax advantage asserted in any of the arrangements to which a Case 3 relevant defeat relates, and that decision can no longer be varied, i.e. it is a final judicial ruling, any provisional conduct notice which relied on that Case 3 relevant defeat ceases to have effect. (section 237D; Schedule 34A paragraph 9 Case 3 relevant defeat).

There are similar rules in section 241B relating to the effect of the ruling on a defeat notice.

5.8 Defeat notices

Defeat notices are designed to recognise that it may take a long time to achieve 3 relevant defeats for the purpose of threshold condition 12, especially where many users have implemented the same or similar arrangements. The effect of a defeat notice is to extend the time during which defeated arrangements may be considered for the purpose of the threshold condition by up to 5 years.

There are 2 types of defeat notice, a:

  • single defeat notice, which can be given if there is one relevant defeat in the backward-look period of 3 years preceding the giving of the notice
  • double defeat notice, which can be given if there are 2 relevant defeats in the backward-look period of 3 years preceding the giving of the notice

A defeat notice is like a warning notice. A person given a defeat notice knows that if one or 2, as the case may be, more relevant defeats occur during the period for which the defeat notice is valid, then threshold condition 12 will be met and a conduct notice may be given to that person.

A single defeat notice must be given within 90 days of the day on which the matters giving rise to the defeat first came to the attention of an Authorising officer, see section 241A(4)(4)).

Example of a section 241A(2) single defeat notice:

On 1 August 2018, arrangements S with 5 users, designed by Promoter A, are defeated, when at least 75% (here, 4 of the 5, 80%) of the persons using those arrangements accept that the asserted tax advantage should be denied.

On 26 July 2021 an Authorised Officer is made aware of the 1 August 2018 defeat. The last date on which the Authorised Officer can give A a notice in respect of this defeat is 31 July 2021 (3 year backward-look).

The Authorised Officer must ensure that this defeat occurred in the period of 3 years ending on the day the notice is given, and must ensure that the single defeat notice is given to Promoter A by 31 July 2021.

A double defeat notice must be given within 90 days of the day on which the matters giving rise to the defeat first came to the attention of an Authorised officer, see section 241A(4)(4)).

Example of a 241A(3) double defeat notice:

On 1 August 2018, arrangements S with 5 users, designed by Promoter A, are defeated, when at least 75% (here, 4 of the 5, 80%) of the persons using those arrangements accept that the asserted tax advantage should be denied.

Due to an oversight, an Authorised Officer was not made aware of this defeat at that time. The last date on which an Authorised Officer can give A a notice in respect of this defeat is 31 July 2021 (3 year backward-look).

On 26 May 2021 the Supreme Court rules in HMRC’s favour in relation to Arrangements T designed by A. On that day, an Authorised Officer is made aware of both this judicial ruling and the 1 August 2018 defeat. The Authorised Officer must ensure that both defeats will have occurred in the period of 3 years ending on the day the notice is given, and must ensure that the double defeat notice is given to Promoter A by 31 July 2021.

A defeat notice ceases to have effect if a final judicial ruling overturns the relevant defeat on which a single defeat notice is based (section 241B(1)), or, both relevant defeats on which a double defeat notice is based (section 241B(4)). For these purposes a further defeat notice is treated in the same way as a single defeat notice.

Further single defeat notice

In circumstances where a single defeat notice ceases to have effect because of a judicial ruling that upholds an asserted tax advantage (section 241B), an Authorised Officer may give a further defeat notice to a person that is carrying on a business as a promoter if a relevant defeat occurred during the period when the original defeat notice had effect.

A further defeat notice runs from the day after the day on which it is given and ends 5 years after the day on which that ruling is given.

Example of a 241A(6) further defeat notice:

On 1 August 2018, arrangements S with 5 users, designed by A, are defeated when at least 75% (here, 4 of the 5, 80%) of the persons using those arrangements accept that the asserted tax advantage should be denied. On 31 August 2018, an Authorised Officer gives A a single defeat notice in respect of that defeat. This notice will be valid for 5 years from 1 September 2018 to 31 August 2023.

On 26 July 2022, arrangements T designed by Promoter A are defeated, when the Supreme Court rules in HMRC’s favour in relation to Arrangements T. HMRC does not make an Authorised Officer aware of this defeat, because no practical or procedural advantage arises under the legislation from giving a person a single defeat notice on the occasion of the second defeat occurring during the period of validity of a single defeat notice.

On 10 August 2023, the Supreme Court gives judgement in favour of the 5th user of Arrangements S (the 5th user that did not settle). On that day by that ruling, the 31 August 2018 single defeat notice was overturned (section 241B(1)). An Authorised Officer is made aware of these facts. The last date on which the Authorised Officer can give A a further defeat notice in respect of the 26 July 2022 defeat (of arrangements T) is 31 August 2023.

The Authorised Officer must ensure that the further defeat (of arrangements T) occurred in the period of validity of the 31 August 2018 single defeat notice (in respect of arrangements S). HMRC will aim to give the further defeat notice to Promoter A without delay, to maximise the period in which the further defeat notice is valid.

Defeat notice content

Section 241A(8) stipulates that a defeat notice must set out when the 5-year look-forward period begins and ends and explain the effect of section 237A(12) or (13) for single or double defeat notices respectively. This is that if one, or two, respectively further relevant defeats occur during the look-forward period, the threshold condition will be met and an Authorised Officer must determine whether to give a conduct notice.

HMRC may also specify further information to be included in a defeat notice (section 241A(9)).

Effect on a defeat notice of a judicial ruling upholding an asserted tax advantage

If a court or tribunal overturns a relevant defeat and that decision can no longer be varied, i.e. it is a final judicial ruling, any defeat notice which relied on that relevant defeat ceases to have effect from the day after the relevant defeat was overturned (section 241B).

In the case of a single defeat notice, an Authorised Officer must notify the person to whom it was given that it ceased to have effect from that day.

In the case of a double defeat notice, an Authorised Officer must notify the person to whom it was given that it has become a single defeat notice, if one of the relevant defeats on which it relies has been overturned (section 241B(3)), or ceased to have effect if both relevant defeats on which it relied have been overturned (section 241B(4)).

Note: if a final judicial ruling is obtained in favour of any user of the related arrangements that are taken into consideration for the purposes of a Case 3 relevant defeat, then the Case 3 relevant defeat is overturned (section 237D(1), section 241B(5)). As a result any single defeat notice based on it has no further effect (section 241B(1)), any double defeat notice based on it is treated as a single defeat notice, and any conduct notice based on it ceases to have effect (section 237D(2)).

Example: case 3

Promoter Z signs up 1000 users to one of its promoted arrangements. A user of those arrangements is defeated at the First-tier Tribunal. The defeated user appeals that decision. In the meantime, against Z’s advice, 755 of the 999 other users (more than 75%) settle with HMRC; they may no longer pursue any appeal.

As a result of those settlements, there is a Case 3 relevant defeat. However, because not all users have agreed to settle, the Case 3 defeat is only provisional. It will remain provisional until either a user obtains a final judicial ruling in its favour, HMRC obtain a final judicial ruling in their favour, or all known remaining users agree to settle, including the person that appealed to the First-tier Tribunal.

5.9 Significance safeguard

A key requirement when determining whether a conduct notice must be given is the significance of a person meeting one or more threshold conditions in the context of the purpose of the POTAS regime (section 237(5) for threshold conditions 1 to 11 and section 237A(1) or (3) for threshold condition 12).

The meeting of threshold conditions 1, 2, 3, 5 or 6 (Part 1 of Schedule 34) is always regarded as significant. These are:

  • Threshold condition 1 – HMRC publishing information about a deliberate tax defaulter
  • Threshold condition 2 – a promoter’s arrangements breach the Banking Code of Practice
  • Threshold condition 3 – receiving a conduct notice as a dishonest tax agent
  • Threshold condition 5 – a person being charged with a relevant criminal offence
  • Threshold condition 6 – GAAR Advisory Panel says arrangements are is unreasonable

In all other circumstances, including when threshold condition 12 is met, an Authorised Officer must determine, having considered all relevant circumstances, whether a person’s meeting of a threshold condition is significant, in view of the purposes of the POTAS regime.

If more than one threshold condition is met, the Authorised Officer must consider whether the meeting of those conditions in combination is significant for the purposes of POTAS.

When considering whether the meeting of one or more threshold conditions is significant an Authorised Officer will take into account that all organisations make mistakes from time-to-time that will result in isolated or trivial failures. An officer may decide that isolated or trivial failures to meet obligations are not significant, for example, being a few days late with a DOTAS disclosure.

Where a person repeatedly meets one or more threshold conditions each individual failure might not be significant if viewed in isolation, however, when taken together they may be significant. Similarly, meeting a threshold condition only once might not be significant when viewed against a wider and long-standing pattern of compliant behaviour, for example an internal failure of otherwise good governance and procedures leading to a DOTAS failure which is notified to HMRC as soon as the error is discovered.

When considering the issue of a conduct notice to a person who has had the meeting of the threshold condition attributed to them, if the Authorised Officer considers it significant for the person that met the threshold condition, the Authorised Officer must also regard it as significant for the person to whom it is attributed.

This affects the issue of conduct notices both in respect of s237 FA14, and s237A FA14 where the notice is in respect of the promotion of defeated arrangements.

5.10 Significance examples

DOTAS non-compliance: threshold condition 5

Example: Promoter A only makes one or two disclosures a year under DOTAS. The promoter makes a firm approach to a potential customer about a notifiable proposal on 1 August 2015 and should have disclosed it by 6 August to HMRC. The person who usually makes the DOTAS disclosures is on leave and no-one else knows what to do, consequently Promoter A agrees in writing that the disclosure is made a week late on 13 August. Although a threshold condition has been met this would not be regarded as significant.

Example

Promoter B makes several DOTAS disclosures each year and has regular contact with the HMRC DOTAS team as well as employing several people who are able to make disclosures. The promoter makes a firm approach to a potential customer about a notifiable proposal on 1 August 2015 and should have disclosed it by 6 August to HMRC. The person who usually makes the disclosures is on leave. The disclosure is made by their deputy but the deputy agrees in writing that the disclosure is made a week late on 13 August. Although a threshold condition has been met this would not be regarded as significant.

Following on from the failure in August, Promoter B agrees in writing that it also missed the deadlines for 4 other disclosures between August and December 2014. The promoter has met the threshold condition and it is significant. The failures indicate that Promoter B’s system for making disclosures is not fit for purpose.

The tax impact test will be considered before deciding whether to issue a conduct notice. Any subsequent conduct notice will include a condition focussed on ensuring that the disclosure procedures Promoter B operates work effectively and will also include conditions seeking to address any other behaviours the promoter has exhibited, whether or not during the past 3 years, which it is permissible to impose as part of a conduct notice.

Example

HMRC discovers a number of users of tax avoidance arrangements marketed by Promoter D. From the evidence available HMRC considers that the arrangements should have been disclosed and successfully applies to the tribunal for an order under section 314A of the Financial Act 2004 that the arrangements are notifiable. The tribunal at same time agrees to the imposition of penalties under s98C TMA in respect of the failure. The promoter has met the threshold condition and it is significant. The tax impact test will be considered before deciding whether to issue a conduct notice.

Information notice non-compliance: threshold condition 10

Example

A person is given an information notice under Schedule 36 in respect of its own tax position. It complies with each item on the information notice apart from the requirement to provide bank statements for 2011. It has approached its bank for duplicate statements but they had not been provided before the time limit for providing the information under the notice has expired. Although a threshold condition has been met, this would not be regarded as significant.

Example

Promoter H is given an information notice under Schedule 36 in respect of its own tax position and fails to supply the majority of the information before the time limit expires and offers no evidence that it is attempting to comply. This would be significant. The tax impact test will be considered before deciding whether to issue a conduct notice.

Conduct notices: tax impact safeguard

A further key requirement when determining whether a conduct notice must be given is the impact on the collection of tax of the person’s business activities as a promoter (section 237(8) for threshold conditions 1 to 11, section 237A(10) for threshold condition 12).

Where the meeting of one or more threshold conditions is significant, an Authorised Officer must give a conduct notice unless they determine that the likely impact on the collection of tax of the person’s activities make it inappropriate to give one (sections 237(8) and 237A(10)).

When applying this test, the Authorised Officer is not limited to those activities in the course of which a person met, or is treated as meeting, one or more threshold conditions. On this basis it is not possible to provide comprehensive examples.

When applying this test, the Authorised Officer is also obliged to take into account the likely impact of all of the promoter’s activities on the collection of relevant contributions. When applying this test tax does not include VAT or other indirect taxes (section 281A(3)), even though those taxes are taken into account for the purposes of threshold condition 12.

When applying this test, the Authorised Officer may take into account a range of factors. This may include:

  • facts and arguments advanced by the person to whom the conduct notice would be given
  • that person’s record of cooperation or non-compliance and that of the person that met the threshold condition(s) in connection with enquiries into the arrangements it has promoted
  • the promoter’s behaviour in the context of Professional Conduct in Relation to Taxation (PCRT)

PCRT is a document written by professional bodies in the United Kingdom, for their members working in tax. It sets out the fundamental principles and standards of behaviour that the members of those professional bodies are expected to follow.

HMRC acknowledges that this guidance is an acceptable basis for dealings between HMRC and members of those professional bodies.

PCRT includes 5 fundamental principles (integrity, objectivity, professional competence, confidentiality and professional behaviour), and a new tax planning standard. The new tax planning standard says that advisers must not create, encourage or promote tax planning arrangements or structures that:

  • set out to achieve results that are contrary to the clear intention of Parliament in enacting relevant legislation
  • are highly artificial or highly contrived and seek to exploit shortcomings within the relevant legislation

Persons that conduct their affairs in accordance with the PCRT are most unlikely to become subject to POTAS.

5.11 Conditions that may be imposed by a conduct notice

There is no requirement in the legislation for the conditions imposed by a conduct notice to have any connection with the threshold condition or conditions that a person met, or is treated as meeting. The purposes for which conditions may be imposed by a conduct notice are to ensure that the person:

  • supplies adequate information to its clients (section 238(3)(a)) about relevant proposals and arrangements that it intends to promote
  • provides adequate information (section 234(3)(b)) about relevant proposals to intermediaries
  • does not fail to meet its obligations under specified disclosure provisions
  • does not discourage others from meeting obligations to disclose information to HMRC of a description specified in a notice
  • does not enter into agreements with other persons in relation to arrangements that impose restrictive contractual terms of the sort described in paragraphs 11(2) or (3) of Schedule 34, or both of the sort described in paragraph 11(4) and the sort described in paragraph 11(5) of Schedule 34 (Appendix 1)
  • does not promote arrangements that rely on one or more contrived or abnormal steps to produce either a tax advantage or the avoidance or reduction of a liability to pay NICs. The term ‘contrived or abnormal steps’ is also used in the GAAR legislation at section 207((2)(b) of the Finance Act 2013 (see the guidance in paragraph C5.8 of the GAAR guidance and the illustrative examples in Part D)
  • does not fail to comply with any stop notice that has taken effect in accordance with paragraph 12 Schedule 34 (see Appendix)
  • provides such information or documents to HMRC that are required for the purposes of determining whether and to what extent the recipient is complying with the condition imposed by the conduct notice

Section 238 does not specify the actual conditions that can be imposed in a conduct notice. The Authorised Officer has discretion to specify conditions for any of the purposes listed above as long as they meet the safeguards (see next paragraph) and HMRC’s POTAS governance is followed.

Although there is no right of appeal against the issue of a conduct notice, there are important safeguards. These are:

  • the Authorised Officer will give the promoter an opportunity to make representations on the proposed terms of the conduct notice before finalising its terms (section 238(2), usually in writing and called an opportunity letter. The officer must consider any comments made, taking into account the purpose of the legislation
  • the notice may include only conditions that are reasonable and proportionate for the purposes listed above (section 238(3)), there should be reasonable evidence of the behaviours or actions described in that section; terms should be chosen to address the poor conduct of the person to whom the notice will be given

For example, the person may:

  • promote arrangements that have very little chance of working but without letting clients have an adequate assessment of risks
  • misrepresent to clients HMRC’s position or the outcome, or relevance, of court decisions
  • rely on failing to disclose relevant information to HMRC to achieve the tax advantage for their clients
  • provide misleading descriptions in marketing material

When the First-tier Tribunal is considering an application by an Authorised Officer to approve the issue of a monitoring notice, the statutory procedures explicitly entitle the promoter to make representations asking the Tribunal to refuse approval on the basis that the condition the promoter has breached was not reasonably imposed in the conduct notice (section 243(3)).

Find out more about when a conduct notice comes into effect, the duration of the conduct notice and the powers to amend or withdraw it.

5.12 Definitions relating to the conditions that may be imposed by a conduct notice

Specific definitions are provided for several of the terms used in section 238 of the Finance Act 2014. These are provided below.

Adequate information

Adequate information to be provided to clients or to intermediaries includes:

  • adequate description of the proposed arrangements
  • adequate assessment of the risk that the arrangements may fail, for example as a minimum by referring clients to 10 things you need to know about tax avoidance
  • not creating a false impression that HMRC has, whether formally or informally, considered, approved or expressed an opinion on the arrangements, for instance, by suggesting that the allocation of a reference number under the DOTAS rules signifies HMRC’s acceptance that the proposed arrangements will be effective

Adequate for these purposes means what a client or intermediary might reasonably expect to enable them to make well-informed decisions given the complexity or novelty of the particular arrangements or proposal. It is not possible to be prescriptive in guidance about what may be adequate to meet the reasonable expectations of a client or intermediary in every circumstance.

See section 38(3)(a) and (b), section 238(4) and section 239.

The information provided must take into account the level of tax understanding of the recipient, so that a more detailed description of the arrangements and more focus on clear and prominent explanation of risk may be needed for a recipient with little relevant tax knowledge.

This does not mean that the promoter must provide all information a client might request, if the request is completely unreasonable. However, it would be reasonable to expect a promoter to share the assumptions on which legal opinion is based, for example. The Authorised officer, or a person nominated by them, will be available to discuss with a promoter what information would be adequate.

Client

A person is a client of a promoter if one or more of the following events takes place while a conduct notice is in effect. The promoter:

  • makes a firm approach to that person with a view to the promoter making a relevant proposal available for implementation by that person or anyone else
  • makes a relevant proposal available for implementation by that person
  • takes part in the organisation or management of relevant arrangements entered into by that person

See section section 238(3)(a) and section 239(3) to (5).

Promoting a relevant proposal or relevant arrangements

A person promotes a relevant proposal or relevant arrangements, if it:

  • takes part in designing the proposal or the arrangements
  • takes part in organising or managing the arrangements
  • makes a firm approach to a person in relation to the proposal with a view to making it available for implementation by that person or anyone else
  • makes the proposal available to anyone for implementation

See section section 238(3)(f) and 239(4) and (5)).

Specified disclosure provisions

Section 238(5) describes specified disclosure provisions for the purposes of section 238(3)(c). These are:

  • the DOTAS obligation on a promoter to provide information to HMRC in accordance with: section 308 (DOTAS guidance paragraph 13.2), section 312 (DOTAS guidance paragraph 16.2) and section 313ZA and 313ZB
  • the obligation to provide information and documents to HMRC in accordance with Part 1 Schedule 36 of the Finance Act 2008 (see CH20150 onwards of HMRC’s Compliance Handbook) for the purpose of checking a person’s tax position

These disclosure obligations also include those relevant to National Insurance contributions. DOTAS applies in relation to NICs by virtue of the National Insurance Contributions (Application of [Part 7] of the FA 2004 Regulations 2012. See also, SI2012/1868.

The regulations which correspond with sections 308, 312, 313ZA and 313ZB of FA 2004 are regulations 8, 13, 16 and 16A respectively.

Section 110ZA of the Social Security Administration Act 1992 and s104ZA of the Social Security Administration (Northern Ireland) Act 1992 provides that Part 1 of Schedule 36 also applies for the purpose of checking a person’s liability to pay relevant contributions.

A conduct notice may therefore include a condition that the person, to whom it is given, complies with an obligation to provide information and documents that are reasonably required for the purpose of checking a person’s position as regards relevant contributions.

5.13 Conduct notices: Amendment and withdrawal

Section 240 provides an Authorised Officer with powers to amend or withdraw a conduct notice.

An Authorised Officer may amend a conduct notice at any time during the period in which the conduct notice has effect. An amendment may add conditions to the notice or remove them. If an Authorised Officer proposes to add conditions to the notice the promoter must be given an opportunity to comment on the proposed conditions before the amendment is made.

An Authorised Officer may also withdraw a notice if the officer thinks it is no longer necessary for it to continue. This may be appropriate where the promoter has complied fully with the conditions imposed in the notice and there are no other causes for concern.

The promoter is free to ask an Authorised Officer to withdraw a conduct notice at any time. Such a request should be supported by evidence that the promoter has complied fully with the conditions imposed in the notice. The request should also set out how they’ll demonstrate it is not necessary for the conduct notice to continue to have effect because the behaviours that led to the issue of the conduct notice and the inclusion of conditions imposed under the notice will not recur.

The promoter has no right of appeal against a decision by an Authorised Officer not to withdraw a conduct notice.

The Authorised Officer also has the power to reissue a conduct notice rather than amend an existing one. This ensures that where there are disagreements over the contents of a conduct notice, or a Tribunal directs that the contents should be changed, and the changes are substantial, that any question over whether the changes represent ‘amendments’ or a new conduct notice do not arise. It also ensures that no time is lost from the duration of the conduct notice where such disagreements are taking place.

The duration of a reissued conduct notice is determined as if it were a new conduct notice, unless the original conduct notice which it has replaced was entering its’ final year. In those circumstances the reissued conduct notice will expire on the same date as the original conduct notice.

5.14 Conduct Notices – Duration

The length of a conduct notice is determined by the ‘relevant period’. The relevant period is calculated in accordance with the table in the legislation (see s241(4A) FA14) and takes account of both the number of threshold conditions met, and whether they are significant or ordinary conditions.

When calculating the relevant period, the meeting of certain threshold conditions is regarded as significant where:

(a) those threshold conditions are automatically significant within POTAS namely: (i) para 2 deliberate tax defaulters (ii) para 3 breach of Banking Code of Practice (iii) para 4 dishonest tax agents (iv) para 6 persons charged with certain offences (v) para 7 opinion notice of GAAR Advisory Panel (b) meeting any of the defeated arrangements conditions where the Authorised Officer has decided the meeting of that condition is significant.

If a condition is not significant, it is an ordinary condition.

The durations for the relevant period

Condition Duration
1 Ordinary Condition 2 Years
2 Ordinary Conditions 4 Years
3 or more Ordinary Conditions 5 Years
1 Significant Condition 3 Years
1 Significant Condition + one or more other conditions 5 Years

When issuing a conduct notice the Authorised Officer will notify the recipient of the relevant period and the conditions that were taken into account when setting the relevant period.

Example: Promoter A is issued a conduct notice with a commencement date of 1 February 2022. The Authorised Officer determines that he has met the Schedule 36 threshold condition, and the GAAR Advisory Panel threshold condition. The GAAR condition is automatically regarded as significant in calculating the relevant period. The Schedule 36 condition is an ordinary condition. The relevant period (1 significant and 1 ordinary condition) is 5 years and the conduct notice will expire on 31 January 2027.

If the Authorised Officer becomes aware that, when the conduct notice was issued, there were further conditions met which were not part of the calculation of the relevant period, he can recalculate the relevant period.

If the Authorised Officer recalculates the relevant period, they must notify the person to whom the conduct notice was sent that it has been recalculated, what additional conditions were taken into account, and the new date on which the conduct notice will end.

Where an Authorised Officer suspends the operation of a conduct notice, the time for which it is suspended is not taken into account as part of the relevant period. The Authorised Officer must also tell the person to whom the conduct notice was issued that it has been suspended.

Once the Authorised Officer decides that the conduct notice can resume, they must let the recipient of the notice know as soon as practicable that it has resumed, the number of days for which it was suspended and the new end date once the period of suspension is accounted for.

Example: Promoter A has been issued a conduct notice with a duration of 5 years, commencing on 1 February 2022 and ending on 31 January 2027. Promoter A believes the Authorised Officer made an error when considering the issue of the conduct notice and seeks a judicial review of the decision. As part of the judicial review process Promoter A says he will seek interim relief to have the effects of the conduct notice suspended unless the Authorised Officer agrees to do so.

The Authorised Officer considers that in the circumstances it is reasonable to suspend the operation of the conduct notice and informs Promoter A that he has suspended its operation.

Six months later, one day before the hearing of the Judicial review claim, Promoter A drops his claim.

The authorised officer writes to A to let them know the conduct notice has resumed operation, that it was suspended for 6 months, and that as a result the relevant period has been recalculated and will now end on 31 July 2027.

5.15 Conduct Notices – Transferees

Prior to Finance Act 2021 where a conduct notice was given to an entity, it was not possible to transfer that conduct notice to another entity.

For example, company A is operating a promotion business, it meets a threshold condition and is issued a conduct notice. A immediately transfers its entire business to company B, and A becomes dormant. B carries on the promotion business exactly as A had. The conduct notice could not be transferred to B. It may have been possible to attribute the meeting of the threshold condition by A to B (see POTAS guidance 12.1+), but HMRC would still be obliged to carry out fresh enquiries and information gathering into B to establish whether a conduct notice could be issued to B.

Finance Act 201 introduced s239A which changed this position where there has been a transfer that falls within case 4 of new schedule 33A – Transfer of a promotion business.

If an Authorised Officer becomes aware that a person (A) who has been given a conduct notice has made a transfer to another person (B) that falls within case 4 of schedule 33A, the Authorised Officer can give person B a conduct notice.

Ordinarily where an Authorised Officer is proposing to issue a conduct notice to a person, that person must be given an opportunity to comment on the proposed terms of the conduct notice before it can be issued (see 5.2 above).

Where the conduct notice is issued as a result of a relevant transfer under Sch33A this requirement is modified if the proposed terms of the conduct notice to be given to B:

  • are the same as those in the conduct notice which was given to A, there is no requirement for the Authorised Officer to give B the opportunity to comment on those terms
  • differ from those in the conduct notice given to A, then B must be given the opportunity to comment, but only in respect of those proposed conditions which are different

Additionally, where a person is issued a conduct notice under s239A and they consider they were not a person to whom a relevant transfer was made, so that Schedule 33A does not apply, they may make representations to that effect.

If after considering those representations the Authorised Officer considers there was no relevant transfer such that Schedule 33A does not apply, the conduct notice must be withdrawn.

6. Monitoring notices

In the small number of cases in which a person carrying on a business as a promoter fails to comply with one or more conditions in a conduct notice given to them, an Authorised Officer may seek approval from the First-tier Tribunal for the issue of a monitoring notice to that promoter.

A monitoring notice imposes significant new obligations on the promoter and can only be issued if approval is given by the First-tier Tribunal. A promoter is entitled to make representations to the tribunal and to appeal against any decision by the tribunal to approve the issue of a monitoring notice.

A person carrying on business as a promoter that is subject to a monitoring notice is referred to as a monitored promoter in the legislation (section 244(5) of the Finance Act 2014)) and in this guidance. The guidance is organised as follows:

Once a conduct notice has expired or been withdrawn there will be no conditions placed on the conduct of a promoter unless a monitoring notice has effect. However, if the promoter again meets a threshold condition (Appendices 1 and 4) an Authorised Officer will consider whether a new conduct notice must be given.

Additionally, in a period of 6 years from the date that the conduct notice ceases to have effect, an Authorised Officer may determine that there was, either a:

  • breach of the conduct conditions
  • supply of false or misleading documents or information in relation to the notice

If, the officer could not reasonably have been expected to make that determination at the time that the conduct notice was still active, they have a period of 12 months from the date of making that determination to apply to the Tribunal to issue a monitoring notice.

6.1 Monitoring notices: Applications to the Tribunal

Ordinarily for an Authorised Officer to issue a monitoring notice, there must be a conduct notice in place at the time the application is made to the tribunal.

Indeed where the conduct notice is in place and the Authorised Officer becomes aware of a breach of a condition in the notice, they are obliged to seek approval for a monitoring notice from the Tribunal (subject to a potential exception for minor breaches in certain circumstances (see guidance above 5.2).

The Authorised Officer has 12 months from the day they identify the failure, to apply to the Tribunal for approval to issue a monitoring notice, where the conduct notice is still active and the Authorised Officer determines there has been a:

  • breach of a condition in the conduct notice
  • supply of false or misleading documents or information in relation to the notice

If it becomes apparent after the conduct notice has expired that conditions within the conduct notice were not met, or false or misleading documents were supplied in relation to the conduct notice, a monitoring notice can still be pursued in certain circumstances.

Where the conduct notice has ceased to have effect, if in a period of 6 years from the date it ceases to have effect an Authorised Officer may determine that there was a:

  • breach of the conduct notice conditions
  • supply of false or misleading documents or information in relation to the notice.

If the Authorised Officer could not reasonably have made that determination whilst the conduct notice was still active, then they has 12 months from making that decision to apply to the Tribunal for approval to issue a monitoring notice.

The ability to pursue a monitoring notice in circumstances where the conduct notice has expired was brought in by Finance Act 2021, and these amendments take effect from the date of Royal Assent (10 June 2021). As a result no action can be taken in respect of conduct notices which expired prior to that date.

There is no obligation on the Authorised Officer to seek a monitoring notice under these circumstances, whether or not he decides to pursue one is his decision, though if he does decide a monitoring notice is required he must still seek Tribunal approval to issue it.

Ordinarily the AO would seek a monitoring notice. However, circumstances can change considerably in a 6 year period, the permissive rather than obligatory nature of the change reflects the fact that there may be occasional circumstances where being obliged to seek a monitoring notice would be undesirable, for example where the:

  • promoting entity has become dormant
  • promoting entity had changed its behaviour and ceased any form of promoting but was still operative in a different business

Thirdly, the amendment provides for a similar secondary period to that outlined above in relation to situations involving a relevant transfer within Sch33A. The Authorised Officer can apply to the Tribunal for approval to issue a monitoring notice to the person to whom the relevant transfer was made. From any point when the conduct notice has effect until a 6 year period beginning with the date the conduct notice ended, the Authorised Officer decides:

  • there has been:
    • a breach of a condition in the conduct notice
    • false or misleading documents or information have been supplied in relation to the conduct notice
  • the Authorised Officer discovers that the subject of the conduct notice has made a relevant transfer under Sch 33A to another person
  • the Authorised Officer could not reasonably have been expected to either give, or apply to give, the subject of the conduct notice a monitoring notice before the transfer took place

In these instances the Authorised Officer can apply to the Tribunal for approval to issue a monitoring notice to the person to whom the relevant transfer was made.

Any such application by the Authorised Officer has to be made within 12 months of the date the Authorised Officer decides the conditions were breached or false or misleading information or documents were supplied. Again there is no obligation on the Authorised Officer to apply for a monitoring notice, but he can do so.

In either of the cases involving the 6-year limit, the application to the Tribunal can be made either by the Authorised Officer, or an officer of HMRC with the approval of the Authorised Officer.

Example: Promoter A was given a conduct notice on 1 January 2022. Only one ordinary threshold condition was met, so the conduct notice was due to expire on 31 December 2023.

On 1 June 2024 a former employee of Promoter A gives the Authorised Officer evidence which shows that Promoter A had provided false documents to misrepresent their compliance with the conditions of the conduct notice.

The employee also informs the Authorised Officer that Promoter A transferred the whole promotion business to another company, B, on 30 December 2023, and immediately ceased business.

The Authorised Officer determines that:

  • false or misleading information has been supplied relating to the conduct notice on A
  • there has been a relevant transfer to B
  • since the relevant transfer took place on 30 December 2023, and the false documents were only uncovered on 1 June 2024, they could not have known that A was in breach of the conduct notice before the transfer took place
  • they could not have been reasonably expected to either issue or apply to issue a monitoring notice to A before the transfer took place
  • they are within the 6 year period which ends on 31 December 2029

The Authorised Officer therefore has until 31 May 2025 to apply to the Tribunal for approval to issue a monitoring notice to B.

6.2 Monitoring a notice for failure to meet a condition in a conduct notice

If an Authorised Officer becomes aware that a promoter has breached the terms of a conduct notice, the Authorised Officer must apply to the tribunal to consider approving a monitoring notice, unless (section 242(3)):

  • the officer considers that the promoter’s failure to comply with the condition or conditions is minor and the conditions with which the promoter has not complied are imposed for the purposes of ensuring adequate information is provided to clients (section 238(3)(a)) and intermediaries (section 238(3)(b)) and the promoter does not fail to comply with disclosure obligations (section 238(3)(c))
  • the conduct notice is provisional at this time (section 242(6)), but the Authorised Officer may consider the promoter’s failure at a later time when the conduct notice becomes no longer provisional (section 242(7))

The promoter’s failure to comply with any conditions imposed by a conduct notice other than those imposed for the purposes listed above is not to be regarded as minor under any circumstances. Full details about the purposes for which it is or may be reasonable to impose conditions under a conduct notice.

When making representations to the tribunal the promoter can ask the tribunal to agree that it was unreasonable to include a condition or conditions in the conduct notice. If the tribunal agrees, it will not approve the issue of a monitoring notice for a failure by the promoter to comply with conditions that were not reasonably imposed.

Whether a failure to comply with a condition imposed under section 238(3)(a) to (c) is a minor failure is a matter for the discretion of the Authorised Officer. The officer will take into account whether the failure was:

  • deliberate or inadvertent
  • repeated
  • no more than a failure to miss a deadline by a few days
  • unlikely to result in any significant risk of tax loss

It is unlikely that an officer would consider a promoter failing to properly explain to clients or intermediaries that the proposed arrangements might fail, or giving a false impression that HMRC has approved them, as a minor matter (see paragraph 4.12).

The actions to take if the Authorised Officer decides to apply to the tribunal for approval to issue a monitoring notice are set out below.

6.3 Applying to the tribunal for approval of a monitoring notice

An Authorised Officer who wishes to apply to the First-tier Tribunal for approval to issue a monitoring notice must carry out the following steps:

  • include a copy of the draft monitoring notice with the application to the tribunal (section 242(2) of the Finance Act 2014); the next paragraph provides guidance on how to draft a monitoring notice
  • give notice to the promoter about the application to the tribunal at the time the application is made, stating which conditions the officer considers the promoter has failed to comply with and what reasons the officer has for reaching that conclusion (section 242(4) and (5))

The promoter must have been given a reasonable opportunity to make representations to the Tribunal. In practice this requirement can be met by sending the promoter a copy of the draft monitoring notice at the time it is sent to the tribunal.

6.4 The content of a monitoring notice

Section 244 of the Finance Act 2014 requires that any monitoring notice must include the following:

  • an explanation of the effect of the monitoring notice (section 244(2)(a)). It is important that the promoter is aware of the implications of being a monitored promoter
  • the date from which the monitoring notice will take effect, which cannot be earlier than the date on which the notice is given to the promoter (section 244(2) and (4)); the date should be left blank in any draft notice sent to the tribunal
  • a list of the conditions in the conduct notice that the officer considers have not been met and the reasons for that conclusion (section 244(3)(a))
  • an explanation of the right to request withdrawal of the monitoring notice (section 244(2)(b) and section 245)

The monitoring notice will take effect from the date specified in the notice whether or not there is an appeal against the approval by the tribunal to the issue of the notice. References in this guidance to the date from which the monitoring notice takes effect are always to the date specified in the notice. A draft notice is not relevant for this purpose.

For example, a draft notice is given to a promoter in June 2015 before an application is made to the tribunal. In August 2015 the tribunal agrees to the issue of a monitoring notice and a monitoring notice is given to the promoter on 15 September 2015. The notice cannot take effect before 15 September 2015.

Unlike in the case of a conduct notice there is no requirement to set a termination date for a monitoring notice. It will have effect indefinitely until:

When considering whether the notice remains necessary in a case when the monitored promoter has not asked for it to be withdrawn, an Authorised Officer must take into account the same matters as when the promoter has asked for it to be withdrawn, that is whether:

  • during the period in which the monitoring notice has had effect, the promoter has engaged in behaviour of a sort that could be regulated by imposing conditions in a conduct notice whether or not a threshold condition has been breached
  • it is likely that the promoter will engage in such behaviour in future
  • the promoter has complied, or failed to comply, with all of the obligations imposed on it as a monitored promoter since the monitoring notice took effect (section 245(5))

The requirements for the issue of a monitoring notice are modified where a monitoring notice is given to a promoter who was formerly a partner in a partnership that was itself a monitored promoter.

All monitoring notices should explain the effects of the notice.

6.5 Proceedings of the First-tier Tribunal

Once an Authorised Officer has applied to the First-tier Tribunal to approve the issue of a monitoring notice the tribunal has discretion to determine how that application should be dealt with.

Section 243 of the Finance Act 2014 requires that:

  • the tribunal must be satisfied that the officer would be justified in issuing a monitoring notice (section 243(1)(a))
  • the promoter must have been given a reasonable opportunity to make representations to the tribunal (section 243(1)(b))

The tribunal is entitled to consider all of the circumstances of the case and will need to be satisfied on the balance of the evidence that the issue of a monitoring notice is reasonable, justified and proportionate, taking into account the purpose of the legislation and the behaviour of the promoter.

The tribunal will also consider how the promoter should be permitted to make representations. This could involve a hearing, with each side represented, or merely representations on paper (see HMRC’s Appeals reviews and tribunals guidance 7520).

Given the commercial implications for a promoter it may be that some will apply for hearings to be held in private. The tribunal may agree to that request if it considers it appropriate (see HMRC’s Appeals reviews and tribunals guidance 8610).

If the tribunal determines that it was not reasonable to include in the conduct notice any of the conditions, with which the promoter has since failed to comply, the tribunal will not approve the issue of a monitoring notice. However, if the tribunal is satisfied that the promoter has failed to comply with more than one condition in the conduct notice, and it was reasonable to impose at least one of the conditions with which the promoter has failed to comply, the tribunal may approve the issue of a monitoring notice.

Example 1

A conduct notice imposes 5 conditions on a promoter, who fails to comply with only one of them. The tribunal agrees that the condition with which the promoter has failed to comply should not have been imposed. So it refuses to approve the issue of a monitoring notice.

Example 2

A conduct notice imposes 5 conditions on a promoter, who fails to comply with 4 of them. The tribunal agrees that one of those 4 should not have been imposed, but having considered all of the circumstances it approves the issue of a monitoring notice because of the failure to comply with the other 3 conditions.

The tribunal also has authority to amend the draft monitoring notice. If the tribunal has determined that one or more of the conditions in the conduct notice were not reasonably imposed it will amend the monitoring notice to remove those conditions from the list of conditions with which the promoter has failed to comply. This is a significant protection for the promoter because HMRC may publish all of the conditions in the conduct notice with which the promoter has failed to comply and which accordingly the promoter has to notify to its clients.

If the tribunal does not approve the issue of a monitoring notice the existing conduct notice will continue to have effect until the termination date, or until it is withdrawn. HMRC will not take any action to ensure compliance with any conditions in a conduct notice that the tribunal has decided were not reasonably imposed. If the tribunal considered that none of the conditions in the conduct notice were reasonably imposed HMRC will withdraw it.

A promoter is entitled to appeal against the tribunal’s decision to approve the issue of a monitoring notice.

6.6 Appeal rights

A decision of the First-tier Tribunal in relation to an application for approval to issue a monitoring notice is final unless either the promoter or HMRC asks the tribunal:

  • to set aside or remake its decision, or part of its decision, (see HMRC’s Appeals reviews and tribunals guidance 8970)
  • for permission to appeal against the decision to the Upper-tier Tribunal, (see HMRC’s Appeals reviews and tribunals guidance 8990 and 9000)

The Upper-tier Tribunal can be approached directly if the tribunal does not grant permission to appeal. Any appeal must be on a point of law. There may in due course be a further appeal against any decision of the Upper-tier Tribunal (see HMRC’s Appeals reviews and tribunals guidance 10010).

If the First-tier Tribunal approves the issue of a monitoring notice an Authorised Officer will arrange for the notice to be issued without delay (section 244(1) of the Finance Act 2014). Many of the obligations imposed on a monitored promoter will come into effect as soon as the monitoring notice takes effect, regardless of whether there is an appeal. Some aspects of the monitored promoter regime are deferred until the end of the period in which an appeal could be brought or, if there is an appeal, until the appeal is settled. These are the aspects that would lead to a promoter being publicly identified:

The period in which an appeal against approval given by the First-tier Tribunal could be brought is referred to as the ‘appeal period’ and consists of:

  • the period of 56 days from the date on which the tribunal provides its reasoned decision, plus
  • if permission is refused by the First-tier Tribunal, the period of one month from the date of refusal within which a person may petition the Upper Tribunal directly for permission to appeal, plus
  • if the Upper Tribunal grants permission to appeal, the further period of one month from the date on which permission is granted within which a notice of appeal must be filed

So the appeal period may be 4 months or more where the Upper Tribunal grants permission for an appeal.

There is a possibility that the promoter will be publicly identified in any event unless the tribunal or Court agree to hold hearings in private and to anonymise decisions. That is entirely a matter for the tribunal or Court to consider.

If the promoter’s appeal is successful the monitoring notice is treated as never having had effect. The existing conduct notice will continue to have effect until the termination date, or until it is withdrawn.

HMRC will not take any action to ensure compliance with any conditions in a conduct notice that the courts have decided were not reasonably imposed. If the courts considered that none of the conditions in the conduct notice were reasonably imposed HMRC will withdraw it.

6.7 The regime that applies to monitored promoters

Once a monitoring notice takes effect in relation to a promoter it will have far-reaching implications, which aim to ensure that clients and potential clients are aware of the promoter’s status, that HMRC has all of the information and tools it needs to tackle avoidance arrangements promoted by the promoter and that the promoter is encouraged to change its behaviour.

There are significant financial penalties if the promoter fails to comply with obligations that apply to monitored promoters. Some aspects of the monitored promoter regime do not take effect until the promoter’s appeal rights are exhausted. The key aspects of the monitored promoter regime are as follows.

Publicity and notification

Information powers

Tools

These powers will typically only apply during the period in which the monitoring notice has effect. When considering whether and when to withdraw a monitoring notice an Authorised Officer should take into account whether any of these powers continues to be needed.

For example, although a promoter may have ceased promoting avoidance arrangements there may be a continuing need for information about clients who have made use of arrangements that were promoted during the period in which the monitoring notice has effect.

Schedule 36 modifies the monitoring notice regime for partnerships. Where a monitoring notice has applied to a partnership an Authorised Officer may issue a monitoring notice to a departing partner without reapplying to the tribunal.

6.8 Publication by HMRC of information about a monitored promoter

A key principle of the regime that applies to monitored promoters is that clients, potential clients and intermediaries should be aware of the promoter’s status as a monitored promoter. For that reason there are several ways in which information about a monitored promoter may be published. None of these can be used until the promoter’s appeal rights against the initial tribunal decision authorising the issue of a monitoring notice have been exhausted.

Section 248 of the Finance Act 2014 permits HMRC to publish information about a monitored promoter, which HMRC will do unless there are compelling reasons not to do so.

The information that HMRC may publish is:

  • the promoter’s name, including any name under which it carries on a business, or any previous name under which it has done so
  • the promoter’s business address, or registered office address if it is a company
  • the nature of the promoter’s business
  • any other information that helps to make clear the promoter’s identity
  • a statement of the conditions in the conduct notice that the promoter has failed to comply with; this should be clear from the approval given by the First-tier Tribunal

The manner of publication is left to the discretion of the Authorised Officer, but as a general rule HMRC will publish the information on its website with due prominence. In considering how the information is published HMRC will take into account the need to make sure that clients and potential clients are able to find out about the promoter’s status.

If HMRC publishes information about the nature of a monitored promoter’s business it will typically consist of summary information about the types of avoidance arrangements that the promoter has been known to promote.

Where a decision of the First-tier Tribunal or the higher courts in relation to arrangements promoted by that promoter discloses the promoter’s name, HMRC may also make reference to that decision in discussing the nature of the promoter’s business.

The power to publish other information about a promoter is limited to what an Authorised Officer considers it appropriate to publish to make clear the identity of the promoter (section 248(2)(d)). There is no power to publish information for any other purpose. Publication must not take place before the end of the appeal period.

If the monitoring notice is withdrawn HMRC will publish the fact of withdrawal in the same way and with the same prominence as it published information about the promoter being a monitored promoter.

6.9 Publication of information by a monitored promoter

A monitored promoter is required by section 249 of the Finance Act 2014 to provide certain information to existing and new clients.

The monitored promoter must:

  • give notice to existing and new clients that it is a monitored promoter and which conditions in a conduct notice it has failed to meet (section 249(1))
  • publish the same information on its website and any other websites promoting or providing information about the promoter’s activities, together with its promoter reference number (PRN)

When publishing the required information about the monitoring notice, the terms of the conduct notice that it breached and its reference number on the required websites, the required information must:

  • appear in a prominent position
  • if in writing, be legible
  • if in audio-visual format, be both clearly audible and visible
  • not be concealed in any way
  • be included or referenced in any promotional material and
  • not be presented in a way that promotes the activity of tax avoidance

The publications and correspondence in which the monitored promoter must include the required information are any:

  • publication or correspondence containing information about arrangements offered or promoted by the promoter (except when promoter is writing to HMRC)
  • publication or correspondence which is shown, given or sent to existing, new or prospective clients or existing, new or prospective intermediaries in relation to any arrangements (that is, not only in relation to monitored arrangements and monitored proposals
  • correspondence concerning any arrangements with a professional body (see Appendix 1), to which the monitored promoter belongs or used to belong or of which the promoter is a prospective member
  • correspondence with a regulatory authority concerning the promoter’s conduct in respect of any arrangements (see Appendix 1, threshold condition 9))

The obligations imposed by section 249 do not apply until the end of 10 days following the end of the appeal period. The end of the appeal period is modified where the monitoring notice is a replacement monitoring notice for a monitoring notice that had been issued to a partnership. It will be the later of the:

  • end of the appeal period for the original monitoring notice
  • date on which the replacement monitoring notice takes effect (section 249(12))

The notice to clients is to be given to:

  • existing clients – any person who has been a client of the promoter at any time in the period between the date on which the conduct notice took effect and the date on which the monitoring notice takes effect
  • new clients – any person who becomes a client of the promoter while the monitoring notice has effect

See below for the definition of ‘client’ for this purpose.

The obligation to give notice to any person who was a client when the monitoring notice takes effect applies even where that person has ceased to be a client by the end of the appeal period.

In relation to persons who become clients of the promoter during the period in which it is a monitored promoter the obligations must be met within 10 days of the person first becoming a client, if that is later than the deadline for meeting the obligations that would otherwise apply.

Example 1

The First-tier Tribunal releases its decision to approve the issue of a monitoring notice on 12 July 2016. Any appeal by the promoter against that decision must be made within 56 days of that date, by 6 September 2016 (regulation 39 SI2009/273). No appeal is made.

The promoter must meet its obligations to provide information to its existing clients by the end of 16 September 2016. The promoter obtains a new client on 5 November 2016 and must meet its obligations to provide information to that client by 15 November 2016.

The definition of client for this purpose is at section 249(7) and (8). A person is a client of a monitored promoter at the time the monitoring notice takes effect if, during the period between the date the conduct notice took effect and the date the monitoring notice took effect, the promoter:

  • made a firm approach to that person in order to make a relevant proposal available for implementation by that person or any other person
  • made a relevant proposal available for implementation by that person
  • took part in the organisation or management of relevant arrangements entered into by that person

The conduct notice referred to above is the conduct notice referred to in the monitoring notice. The effect of this definition is that a person may be treated as a client of the promoter at the time the monitoring notice takes effect even though the relevant actions by the promoter took place during the earlier period in which the conduct notice had effect and there was no longer a business relationship between that person and the promoter at the time the monitoring notice took effect.

Example 2

A promoter is given a conduct notice that takes effect from 20 July 2014. In January 2015 the promoter makes a firm approach to a person with a view to that person implementing arrangements that the promoter has developed. Nothing comes of it and the promoter has no contact with that person after March 2015.

In November 2015 the First-tier Tribunal approves the issue of a monitoring notice to that promoter and it is issued by an Authorised Officer on 25 November 2015 to take effect on that date. The clients of the promoter are treated as including the person to whom it made a firm approach in January 2015.

A person is a new client of the promoter if the promoter takes any of the 3 relevant actions listed above in relation to that person at any time during the period in which the monitoring notice has effect.

6.10 Monitoring notices – transferees

If an Authorised Officer becomes aware that a person (A) who has been given a monitoring notice has made a transfer that falls within case 4 of Sch 33A to another person (B), the Authorised Officer may give B a monitoring notice. There is no requirement for the Authorised Officer to seek Tribunal approval to transfer the monitoring notice to B, since the Tribunal will already have considered the position in respect of A, and B can make representations that he was not party to a relevant transfer.

The monitoring notice must explain:

  • its effect and the date from which it takes effect
  • the right to request withdrawal of the monitoring notice
  • which conditions of the applicable conduct notice the recipient of the initial monitoring notice failed to comply with

The provisions in respect of monitoring notices apply to the notice given to B in the same way as they would apply to the initial monitoring notice given to A ( See Monitoring notices, with one exception.

Currently where approval to issue a monitoring notice is sought from the Tribunal the person to whom it is to be issued has to be carrying on a business as a promoter at the time of the application. It would therefore be possible to frustrate the legislation by winding up the business or making it dormant as soon as a condition of the conduct notice is breached. As a result, the point at which the test of carrying on a business as a promoter is in these cases carried out is at the time the breach of the conduct notice condition occurs.

If person B considers that the business transfer on which the Authorised Officer relied to give them a monitoring notice was not an applicable transfer within case 4, they may make representations to the Authorised Officer to that effect.

If the Authorised Officer agrees with B that the transfer in question was not one on which the Authorised Officer was entitled to rely to give the monitoring notice to B, then the Authorised Officer must withdraw the monitoring notice.

6.11 Allocation of promoter reference numbers

The promoter reference number (PRN) plays an important role in the controls that are placed on the activities of a monitored promoter. It ensures that HMRC will be made aware that a person has made use of arrangements promoted by the promoter, so that effective counteraction can be taken.

The relevant steps needed to ensure that outcome are set out below.

  1. At the end of the appeal period HMRC allocates a unique PRN to each monitored promoter, or to the intermediaries of that promoter if it is not resident in the UK (section 250 of the Finance Act 2014).
  2. The promoter must provide the PRN to its clients (section 251).
  3. The clients must provide the PRN to other clients that they know about and that may not have received the PRN (section 252).
  4. Intermediaries who have received a PRN must provide it to clients (section 252).
  5. Clients must provide the PRN to HMRC in their tax returns or as set out in regulations.

Penalties may apply where there is a failure by promoters, intermediaries or clients to meet any of the obligations placed on them in relation to PRNs.

The PRN is not allocated and notified to the promoter until the end of the appeal period.

The end of the appeal period is modified where the monitoring notice is a replacement monitoring notice for a monitoring notice that had been issued to a partnership. It will be the later of:

  • the end of the appeal period for the original monitoring notice, and
  • the date on which the replacement monitoring notice takes effect (section 250(6))

The rules for issuing PRNs are modified where the monitored promoter is not resident in the UK. Section 250(2)(b) requires the PRN to be provided to any person that HMRC knows is an intermediary in relation to any relevant proposal of the promoter. The intermediary is then required to pass the PRN on to clients.

6.12 Duty of promoter to provide the PRN to intermediaries and clients

Once a monitored promoter receives a promoter reference number (PRN) from HMRC it is obliged by section 251 of the Finance Act 2014 to provide that PRN to its intermediaries and clients.

A person becomes a client of a monitored promoter if the promoter performs relevant actions in relation to that person, as listed in section 251(3)):

  • making a firm approach to that person in order to make a relevant proposal available for implementation by that person or any other person
  • making a relevant proposal available for implementation by that person
  • taking part in the organisation or management of relevant arrangements entered into by that person

The PRN must be provided to 3 classes of clients, in this guidance, called:

  • existing clients (section 251(2)(a))
  • new clients (section 251(2)(b))
  • some former clients (section 251(2)(c))

A person is regarded as an existing client for the purposes of section 251(2)(a) if one of the relevant actions listed above takes place during the period between the date on which the monitoring notice takes effect and the date on which the promoter received the PRN. The promoter must provide the PRN to these clients within 30 days of receiving it (section 251(6)(a)).

A person is regarded as a new client for the purposes of section 251(2)(b) if one of the relevant actions listed above takes place during the period in which the promoter is a monitored promoter, but after the date on which the promoter received the PRN. The promoter must provide the PRN to new clients within 30 days after the date on which the earliest relevant action takes place (section 251(6)(b)).

A person is regarded as a former client for the purposes of section 251(2)(c) if the promoter could reasonably be expected to know that they have entered into certain transactions described in section 251(4). The transactions:

  • must be transactions that form part of relevant arrangements
  • must enable, or be likely to enable, the person to obtain a tax advantage during the period in which the monitoring notice has effect
  • must be relevant arrangements in relation to which the monitored promoter is a promoter, or must implement a relevant proposal in relation to which the monitored promoter is a promoter

The transactions in section 251(4) must have occurred during the period beginning with the date on which the conduct notice took effect and ending with the date the monitoring notice took effect (because otherwise they would be treated as an existing or new client instead).

The conduct notice here is the conduct notice referred to in the monitoring notice. The promoter must provide the PRN to these clients within 30 days of receiving it, or within 30 days of the date on which the promoter first became aware that the former client has entered into transactions that form part of relevant arrangements, if that is later (section 251(6)(c)).

Although the definition of a former client includes events that took place before the promoter became a monitored promoter those events are only relevant if the resulting tax advantage is obtained during the period that the promoter is a monitored promoter.

The promoter is not required to provide the PRN to former clients who have implemented arrangements that were intended to lead to tax advantages before the period in which the promoter became a monitored promoter.

Example

A conduct notice is issued to a promoter on 23 July 2014. One of the conditions imposed by the conduct notice is that the promoter must stop promoting particular arrangements that rely on contrived or abnormal steps to create a capital loss in circumstances in which there is no commercial loss. The promoter makes such arrangements available to a client, who enters into the transactions necessary to create the loss between 13 and 15 October 2014. The promoter has no subsequent dealings with that client.

As a result of the promoter continuing to promote capital loss arrangements the First-tier Tribunal approves the issue of a monitoring notice on 7 November 2014 and an Authorised Officer issues a monitoring notice to the promoter on 14 November 2014.

The appeal period expires on 2 January 2015, 56 days from the date on which the tribunal gave approval (regulation 39 SI2009/273). HMRC provided a PRN to the promoter on 9 January 2015 and the promoter must pass the PRN on to its former client by 8 February 2015.

Although the transaction entered into by that client took place before the promoter became a monitored promoter the intended tax advantage is that the client will be able to use the allowable loss against chargeable gains made in 2014-15 and in later years if the loss is not used in full in that year. The promoter was a monitored promoter during 2014-15 and so the tax advantage arose during a period in which the promoter was a monitored promoter.

The monitored promoter must also pass the PRN to relevant intermediaries (section 251(2)(d)). A relevant intermediary is any person that is an intermediary in relation to a relevant proposal at any time during the period in which the promoter is a monitored promoter. The monitored promoter must pass the PRN on to any relevant intermediary within 30 days of the later of:

  • the date the monitored promoter received the PRN
  • the date the monitored promoter first became aware that the person was a relevant intermediary

Where the monitoring notice is a replacement monitoring notice the promoter is not required to provide the PRN again to former clients.

6.13 Duties of intermediaries who receive PRNs

Where a monitoring notice is given to a promoter that is not resident in the United Kingdom any promoter reference number (PRN) is to be given not only to the promoter but also to any intermediary of the promoter of which HMRC is aware. The intermediary is then obliged by section 252 of the Finance Act 2014 to pass the PRN on to clients, and those it can reasonably be expected to know will become clients, of the monitored promoter within thirty days of receiving it.

The obligation placed on an intermediary that has received a PRN extends to 3 classes of persons. These are persons:

  • who the intermediary might reasonably be expected to know have become, or are likely to have become, clients of the monitored promoter during the period in which the monitoring notice has effect (section 252(2) and (3))
  • to whom the intermediary, as part of its business, has provided information about a relevant proposal of the monitored promoter during the period in which the monitoring notice has effect (section 252(4)(a))
  • who the intermediary might reasonably be expected to know have entered into, or are likely to have entered into, transactions during the period in which the monitoring notice has effect that are part of relevant arrangements promoted by the monitored promoter (section 252(4)(b))

In order to comply with this obligation an intermediary must be able to determine who might be clients of the promoter. For this purpose a person is a client of the monitored promoter if the promoter has done any of the following in relation to that person:

  • made a firm approach to that person in order to make a relevant proposal available for implementation by that person or any other person
  • made a relevant proposal available for implementation by that person
  • taken part in the organisation or management of relevant arrangements entered into by that person (section 252(3))

The intermediary does not need to pass on the PRN to any person that it reasonably believes has already been given the PRN by someone else (section 252(5)). The intermediary cannot simply assume that another person must have been given the PRN, but must take reasonable steps to establish that fact, for example by seeking verbal or written confirmation.

The intermediary has no ongoing obligations in relation to the PRN. For example it is not required to pass on the PRN to persons that it becomes aware have become new clients of the promoter more than thirty days after the intermediary has received the PRN.

An intermediary may however be required to make quarterly returns to HMRC providing information about clients.

6.14 Duties of clients who receive PRNs

Clients of monitored promoters who receive a promoter reference number (PRN) have 2 responsibilities to:

  • pass the PRN on to other clients of the promoter (section 252(2) of the Finance Act 2014)
  • report the PRN to HMRC in their tax returns or in whatever other form and manner is required (section 253)

Section 252(2) requires a person that receives a PRN in accordance with section 251 to pass that PRN on within 30 days of receiving it to any other person who they might reasonably be expected to know has become, or is likely to have become, a client of the monitored promoter during the period in which the monitoring notice had effect.

The definition of client for this purpose is at section 252(3). Clients have no ongoing responsibility to pass on the PRN, for example to persons who become new clients of the monitored promoter after the 30 day period from receiving the PRN has expired.

Section 253 sets out the duty of clients to notify the PRN to HMRC if the client expects to obtain a tax advantage from any arrangements of the monitored promoter into which the client has entered. This covers the reporting obligations for each of the taxes in relation to which there may be a tax advantage.

The report to HMRC is to be made in one of three ways:

  • in or with a tax return (section 253(2)(a))
  • in a separate report in a form prescribed by HMRC (section 253(2)(b))
  • in a claim that is not contained in a tax return (section 253(5))

6.15 Report of PRN by client who is required to make a tax return

Where the client is required to make one or more of the following tax returns for a period in which a tax advantage is expected to arise from arrangements promoted by the monitored promoter the report must be made in that return or returns, or with that return or returns. If the expected tax advantage relates to more than one tax year, the PRN must be reported for every tax year in which a tax advantage is expected to arise.

The relevant returns are:

  • a personal return for Income Tax and Capital Gains Tax under section 8 of the Taxes Management Act 1970
  • a trustee’s return for Income Tax and Capital Gains Tax under section 8A of the Taxes Management Act 1970
  • a partnership return for Income Tax and Corporation Tax under section 12AA of the Taxes Management Act 1970
  • a company tax return under paragraph 3 Schedule 18 of the Finance Act 1998
  • a return for the Annual Tax on Enveloped Dwellings under sections 159 or 160 of the Finance Act 2013 (section 253(6))
  • statutory returns relating to relevant contributions

Where a client is required to make a tax return, the PRN must be notified in or with that return. There are however exceptions from this general rule for Inheritance Tax, Stamp Duty Land Tax, Stamp Duty Reserve Tax or Petroleum Revenue Tax, for which the report to HMRC must always be made in a separate report.

If the tax return is not made by the filing date, or by any other date by which it is required by law to be submitted, then the PRN must be notified to HMRC in a separate report (section 253(3)) no more than 5 working days after the return was required to be submitted. ‘Working days’ exclude weekends, Christmas Day, Good Friday and Bank Holidays.

6.16 Report of PRN by client other than in a tax return

A separate report of the PRN to HMRC must be made on form AAG4 (PRN) in the following circumstances:

  • if the client is not required to make a tax return *if the client has been required to make a tax return but has not done so by the filing date or other statutory deadline
  • if the tax advantage relates to one or more of the following taxes (section 253(4)): inheritance tax, stamp duty land tax, stamp duty reserve tax, petroleum revenue tax

When reporting the PRN to HMRC outside a return, the person must also use form AAG4 (PRN) and include the following information:

  • the person’s full name and address
  • the PRN
  • the type of tax in respect of which the person expects to obtain an advantage
  • the person’s unique identifier
  • the relevant date of the transactions
  • a declaration that the information provided is correct and complete to the best of the knowledge and belief of the person making the report

The report must be signed, include the full name of the person signing the report and include the date on which it is made.

The form for making reports outside a return is prescribed in Schedule 1 to The Finance Act 2014 (High Risk Promoters Prescribed Information) Regulations 2015. The form is available on GOV.UK.

6.17 Unique identifier

The unique identifier for an individual making a report is the individual’s national insurance number or unique tax reference number.

The unique identifier for a trust or company making a report is its unique tax reference number.

For inheritance tax, the unique identifier is the unique tax reference number and any inheritance tax reference previously allocated by HMRC to the person making the report.

For annual tax on enveloped dwellings, the following information must be provided instead of a unique identifier:

  • the title number or numbers of the dwelling associated with the relevant arrangements
  • the full address of the dwelling including the post code (the information provided must be sufficient to identify the property concerned)

For stamp duty land tax, the following information must be provided instead of a unique identifier:

The unique transaction reference number (if a return has been submitted at the time the prescribed information is provided):

  • the title number or numbers of the land associated with the relevant arrangements
  • the full address or situation of the land including, where available, the post code (the information provided must be sufficient that the land can be uniquely identified)

For stamp duty reserve tax transactions, a full description of the shares or securities associated with the relevant arrangements must be provided instead of a unique identifier. This should include:

  • the number of shares or securities
  • the class of shares
  • the name of the company or other body to which the shares relate
  • their nominal value
  • the consideration paid

Where, for stamp duty reserve tax there are transactions authorised by different arrangements under regulation 4A of the Stamp Duty Reserve Tax Regulations 1986, the unique identifier is the unique transaction reference provided by the reporting system under the authorised arrangements (Finance Act 2014 (High Risk Promoters Prescribed Information) Regulations 2015, paragraph 4(1)(a)).

6.18 Relevant date of the transactions

The relevant date of the transactions is as follows, in respect of:

  • Income Tax or Capital Gains Tax is the last day of the tax year in which the relevant arrangements enable or seek to enable a tax advantage to be obtained
  • Corporation Tax in relation to companies that are partners in a partnership is the last day of the tax year in which the relevant arrangements enable or seek to enable a tax advantage to be obtained
  • Corporation Tax in relation to companies that are not members of a partnership and have an accounting period, is the last day of the accounting period in which the relevant arrangements enable or seek to enable a tax advantage to be obtained
  • Corporation Tax in relation to companies that are not members of a partnership and do not have an accounting period is the date on which the first transaction forming part of the arrangements took place
  • Annual Tax on Enveloped Dwellings is the final day of the chargeable period, in which the relevant arrangements enable or seek to enable a tax advantage to be obtained
  • Inheritance Tax is the date of the first transaction forming part of the arrangements
  • Stamp Duty Land Tax is the effective date of the land transaction forming part of the arrangements enabling a tax advantage to be obtained
  • Stamp Duty Reserve Tax is the date of the transaction forming part of the arrangements enabling a tax advantage to be obtained
  • Petroleum Revenue Tax is the final day of a chargeable period within which tax advantage may arise

6.19 Time by when report outside a return must be made

If the report must be made outside a tax return by virtue of a return being made after the filing date, the PRN must be notified to HMRC on form AAG4 (PRN) (section 253(3)), no more than 5 working days after the return was required to be submitted. ‘Working days’ exclude weekends, Christmas Day, Good Friday and Bank Holidays.

An individual, partner or trustee must report the PRN to HMRC by the next 31 January following the end of the tax year in which a tax advantage may arise.

A company with an accounting period must report the PRN to HMRC not later than 12 months after the end of each accounting period in which a tax advantage may arise.

A company without an accounting period must report the PRN to HMRC within 24 months of the date of the first transaction forming part of the arrangements and annually thereafter when a tax advantage arises.

Annual Tax on Enveloped Dwellings

The person must report the PRN to HMRC no more than thirty days from the start of the chargeable period in which the person is or would have been within the charge, for each period in which a tax advantage may arise.

Inheritance tax

The person must report the PRN within 6 months after the end of the month in which the first transaction under the arrangements was entered into.

Stamp duty land tax

The person must report the PRN within thirty days from the effective date of each land transaction forming part of the relevant arrangements within which a tax advantage may arise.

Stamp Duty Reserve Tax transactions

Under regulation 4 of the Stamp Duty Reserve Tax Regulations 1986, the person must report the PRN no later than when the notice of the charge to tax occurred or would have occurred but for the arrangements.

For Stamp Duty Reserve Tax transactions authorised by different arrangements under regulation 4A of the Stamp Duty Reserve Tax Regulations, the person must report the PRN no later than the 7th day after the month in which the charge to tax occurred or would have occurred but for the arrangements.

Petroleum Revenue Tax

The PRN must be submitted no later than 7 days from the end of a chargeable period in which a tax advantage may arise.

6.20 Withdrawal of monitoring notices

At any time more than 12 months after the end of the appeal period a monitored promoter may ask an Authorised Officer to withdraw the monitoring notice (section 245 of the Finance Act 2014). The promoter is entitled to appeal against any refusal of that request, see section 247.

The appeal period ends:

  • at the end of the period permitted for an appeal against the decision of the First-tier Tribunal to approve the issue of a monitoring notice, see HMRC’s Appeals reviews and tribunals guidance G8900 onwards
  • if there is an appeal, when that appeal is finally disposed of, whether it is determined or withdrawn (section 245(2))

Any request to withdraw a monitoring notice must be made in writing (section 245(3)) to an Authorised Officer. If such a request is received it will be considered by that Authorised Officer, who must decide whether or not to agree to the request within 30 days from the date on which it was received (section 245(4)). The Authorised Officer who considers the request does not have to be the same officer as the one who issued the monitoring notice.

The Authorised Officer’s response to a request to withdraw a monitoring notice must meet the requirements of section 246.

In deciding whether or not to agree to withdraw the monitoring notice the Authorised Officer must take the following into account whether:

  • during the period in which the monitoring notice has had effect, the promoter has engaged in behaviour of a sort that could be regulated by imposing conditions in a conduct notice
  • it is likely that the promoter will engage in such behaviour in future
  • the promoter has complied, or failed to comply, with all of the obligations imposed on it (including any obligations connected with any stop notice the person is subject to) as a monitored promoter since the monitoring notice took effect (section 245(5))

In deciding whether a monitored promoter may engage in future in behaviour that could be regulated by the issue of a conduct notice an Authorised Officer must make a reasonable exercise of judgement based on evidence of past behaviour and any undertakings that might be given.

An Authorised Officer may also decide to withdraw a monitoring notice without having received a request to do so from the promoter (section 245(6)) if he or she considers that it is no longer necessary, taking into account the promoter’s behaviour and likely future behaviour in the same way.

In considering whether to withdraw a monitoring notice, or in deciding from what date the monitoring notice should be withdrawn, the Authorised Officer should consider whether there is a continuing need to make use of the powers available in the monitored promoter regime.

If an Authorised Officer decides to withdraw a monitoring notice, whether on a request from the promoter or otherwise, the officer will consider whether or not to give the promoter a conduct notice (section 245(7). If such a notice is given, it is referred to as a follow-on conduct notice (section 245(7) and (8)) and takes effect immediately after the date on which the monitoring notice ceases to have effect (section 45(8)). A follow-on conduct notice can include any of the conditions that can be imposed by a conduct notice.

The circumstances in which a request may be made to withdraw a monitoring notice, or to agree to that withdrawal, are modified if the monitoring notice is a replacement monitoring notice. The end of the appeal period will be the later of the:

  • end of the appeal period for the original monitoring notice
  • date on which the replacement monitoring notice takes effect (section 245(9)(a))

The period that the Authorised Officer needs to take into account begins at the time that the original monitoring notice took effect (section 245(9)(b)).

6.21 How to notify a decision that a monitoring notice is, or is not, being withdrawn

The response of an Authorised Officer to a request by a promoter in accordance with section 245(1) of the Finance Act 2014 for the withdrawal of a monitoring notice must meet certain requirements set out in section 246.

If the Authorised Officer agrees to withdraw the monitoring notice the notification sent to the promoter must:

  • specify the date from which the monitoring notice will cease to have effect
  • tell the promoter whether or not a follow-on conduct notice will be given (section 246(2))

The date on which the monitoring notice is to cease to have effect is to be as early as is reasonably practicable, taking account of whether there is any continuing need to make use of information powers before the monitoring notice is withdrawn.

Delaying the withdrawal of a monitoring notice should be exceptional but might be appropriate, for example, where a promoter has agreed to cease behaviours of the sort that the regime is aimed at but is currently promoting or managing arrangements in relation to which HMRC has a continuing requirement for information. If the Authorised Officer refuses to withdraw the monitoring notice the notification sent to the promoter must explain:

In either case either an Authorised Officer or another person with the approval of an Authorised Officer can notify the promoter of the required information. If the response is to be made by a person other than an Authorised Officer the response and particularly the reasons given for any refusal to withdraw the monitoring notice must be reviewed and approved by an Authorised Officer before release.

Where a person other than an Authorised Officer notifies the promoter, the notice must include the name of the Authorised Officer who has made the determination and, if the Authorised Officer has refused to withdraw the monitoring notice, it must also let the promoter know to what address any appeal should be sent.

6.22 Appeal against refusal to withdraw a monitoring notice

A promoter has a right to appeal against any refusal by an Authorised Officer to agree to withdraw a monitoring notice (section 247 of the Finance Act 2014).

The notice of appeal must be given to the Authorised Officer who made the decision not to withdraw the monitoring notice, within 30 days of the date on which the notice of refusal was given (section 247(2)). If the promoter does not notify the appeal to the tribunal within the time allowed, then, unless an application to file an appeal out of time is made (see HMRC’s Appeals reviews and tribunals guidance ART8240), the appeal is treated as settled by an agreement under the Taxes Management Act 1970, section 49 (ARTG2010).

The notice of appeal must be in writing. It must state the grounds on which the appeal is being made (section 247(3)).

The provisions in Part 5 of the Taxes Management Act 1970 apply to these appeals (section 247(5)). So, for example, a promoter can ask for a review of the Authorised Officer’s decision, see ARTG2000 onwards.

If an appeal is notified to the First-tier Tribunal the tribunal may decide that the monitoring notice should cease to have effect or may confirm the refusal of the Authorised Officer to withdraw the notice. The decision of the tribunal may also be subject to appeal.

7. Schedule 33A FA14 – Promotion structures

7.1 Overview

The objective of the POTAS regime is to change the behaviour of promoters of avoidance schemes who fail to meet their statutory obligations, and to deter the development and use of avoidance schemes by influencing the behaviour of promoters, their intermediaries and clients.

HMRC has had considerable success in targeting promoters and those who facilitate the implementation or marketing of avoidance schemes, both through using the POTAS legislation, and through other activity.

However, some promoters organise and structure their promotion business in ways which seek to frustrate the application of POTAS – by:

  • fragmentation – splitting aspects of the promotion activity across a number of entities so that no one entity is carrying out activity of a nature which will meet the definition of promoter
  • non-residence – the promoter itself is based in a non-UK jurisdiction with UK based intermediaries marketing or managing the schemes on its behalf. In some instances the UK intermediaries will serve as little more than a UK address for clients to route through to the offshore promoter – this is done with the aim that, by keeping the promoter offshore, HMRC’s POTAS activities are made that much more difficult
  • manipulation of entities – causing companies to become dormant or insolvent, or individuals entering into Individual Voluntary Arrangements (IVAs) with the aim of frustrating the application of POTAS, whilst potentially transferring elements of the business to new entities
  • transfers of business – whether wholly or in part, formally or informally, transferring the promotion business to new entities, or parts to different entities

The new Schedule 33A FA14 creates 4 cases to address these 4 categories. Where a person meets the criteria to fall within one or more of the cases, they are then a member of a ‘promotion structure’.

Where a person is a member of a promotion structure they will be treated as a promoter for the purposes of POTAS, that includes being treated as if they are carrying on a business as a promoter, even if viewing their activities in isolation that would not be the case.

The effect is that any person who is a member of a promotion structure can be the subject of POTAS sanctions including potentially receiving a conduct or monitoring notice, being required to provide certain information, being issued with a stop notice, and potentially being liable to POTAS penalties.

7.2 Schedule 33A: Case 1 – Multiple entity promoter

This case is aimed primarily at instances where the ‘underlying’ promoter has sought to fragment its promotion business so that no one person or entity carries out individually activities that would cause it to be classed as a promoter.

There are 2 tests which have to be met for a person to come within case 1:

The first test

The first test is that A (that is, the person in respect of whom the test is being applied) and one or more other persons between them carry out activities that, if carried out by a single person, would mean that person met the definition of promoter. For example, where A does not itself carry out activities that would cause it to be a promoter, A would be a promoter under case 1 if a relevant proposal is made available for implementation by one or more other persons who are closely related to A (see the second test).

The second test

The second test is that each of the persons carrying out the activities must be ‘closely related’ to at least one of the other persons.

The test of whether two or more persons are closely related is similar to a test of control or influence but is broader than that.

There are four sub-tests, any one of which needs to be met for persons to be closely related. Each of the sub-tests can apply to test either whether there is a direct relationship between two persons, or an indirect relationship between them (Sch33A (2)(2) and (3)):

First sub-test

The first sub-test looks at whether one person can ensure that the other acts in accordance with their wishes, or whether a third person can ensure that both of the persons whose relationship is subject to the test act in accordance with the third person’s wishes. This test would apply if A owns all the shares in B, or a third person owns all the shares in each of A and B. However, the test is also intended to apply to a much wider range of factual circumstances (see example).

Second sub-test

The second sub-test looks at whether one entity typically acts in accordance with the other’s wishes (or the two entities in respect of whom the test is being applied both typically act in accordance with a third person’s wishes).

Third sub-test

The third sub-test looks at whether it would be reasonable to expect that one entity would act in accordance with the other’s wishes (or that both entities would act in accordance with a third person’s wishes).

Fourth sub-test

The fourth sub-test looks at whether one entity has a 50% investment in the other (or whether a third party has a 50% investment in both of them).

Example:

Promoter A is based offshore and has a new relevant proposal which he wishes to make available to clients. A is aware that clients are wary of dealing with offshore entities and prefer to deal with UK based companies.

A establishes companies X and Y. Each company’s shares are held in separate trusts with a separate director being appointed to each by A. X and Y are both UK companies.

A splits the necessary parts of the process for making the relevant proposal available for implementation between X and Y anticipating that as a result, neither will meet the definition of promoter in s235(2) FA14, so neither will be caught by POTAS.

In reality whilst there is no obvious immediate connection between the two UK entities and A, or each other, A is effectively acting as a shadow director through the two directors he has appointed. As such it is reasonable to expect that X and Y will act in accordance with A’s wishes, and the evidence suggests that they typically do so.

Under the promotion structure legislation, when looking at this arrangement, an Authorised Officer would be able to consider all the activities of both X and Y, as both X and Y meet the closely related test through the second and third sub-tests.

X and Y are closely related (under the second and third sub-tests) and between them carry out activities that if carried out by a single person would make that person a promoter. Consequently, each is a promoter in relation to the proposal (see section 283(4)(a) FA 14), and, if one or more entities in the structure take any steps to market the proposal, each will be treated as carrying on business as a promoter.

As indicated in the example, the purpose of the multiple entity case is to address situations where the promoter has sought to fragment their business by getting more than one person to carry out various acts in connection with relevant arrangements/proposals. The relationship tests are very widely drawn and are designed to capture any possible circumstance where an underlying promoter has organised the structure through which it operates to achieve the twin objectives of being able to pull the strings of the various entities involved while keeping them formally separate, both from one another, and from the underlying promoter, in order to escape counteraction by HMRC.

Prior to amendment, it may have been impossible to identify any one person that was alone carrying on business as a promoter and who was therefore a person in relation to whom HMRC could act under the POTAS regime.

Under the multiple entity rules, providing the persons involved in the promotion of relevant proposals or arrangements are ‘closely related’ under one or more of the relevant tests, HMRC will be able to look at the combined activity of the persons to decide whether the totality of that activity adds up to the promotion of relevant proposals/arrangements by one or more persons carrying on business as a promoter.

7.3 Schedule 33A: Case 2 – Acting for a non-resident promoter

This case is designed to address the situation where the promoter is situated in a non-UK jurisdiction, but operates through UK based intermediaries.

A number of promoters are non-resident, basing themselves in a variety of territories around the world, calculating that being offshore makes it that much more difficult for HMRC to address their activities. Often, clients are unwilling to contract with an offshore entity and prefer to deal with UK based persons, as such non-resident promoters commonly operate through UK based persons, even if such persons essentially provide nothing more than a simple route through to the end promoter’s products.

Case 2 is designed to bring within the definition of promoter, those persons carrying out in the UK activities facilitating the promotion of the non-resident promoter’s products in the UK.

Inevitably there exists the potential for some overlap with case 1. The cases are not mutually exclusive and, given the result in either case is much the same, that simply ensures that where entities combine to contribute to the process of promoting relevant proposals and arrangements, there is a broader scope to bring them within POTAS.

The test here has 2 parts.

The first part must be met in all cases. It requires that a UK person acts under the instruction or guidance of another person who is resident outside the UK and carries on business as a promoter.

The second part will be met if one or both of these 2 sub-tests are met, the:

  • first sub-test will be met if the UK person carries out certain defined activities under the instruction or guidance of the non-resident promoter – those activities are:
    • being a promoter
    • facilitating any activity which would make another person a promoter
  • second sub-test will be met if the UK person receives any reward or benefit that derives from the non-resident person’s promotion activities, regardless of whether the payment or reward comes directly from the non-resident person

For the purposes of applying the second part of the case 2 test, a person would be a promoter if they meet the description of promoter in relation to the relevant proposal or arrangements (see sections 235(2) and (3) FA 14); and, for the relevant sub-test to apply would not need to be carrying on a business as a promoter.

Example:

A Ltd is a promoter registered in the British Virgin Islands (BVI). A Ltd has devised a new avoidance scheme which it wishes to sell to UK based clients, however A Ltd is aware that UK based clients are likely to want to deal with a UK based entity rather than a company based in the BVI.

A Ltd engages the services of X Partners a UK based firm of accountants.

A Ltd directs X Partners on the forms the clients need to sign, provides a list of potential clients and instructs X to pay the fees from each client into A Ltd’s bank account.

X Partners receive sums of money from Z solicitors, with the amounts being 10% of each client’s fees paid to A Ltd.

The first condition is met since A Ltd is carrying on a business as a promoter and is resident outside the UK.

The second condition is also met under both limbs:

(a) The activity X carries out under the instruction of A Ltd causes X to meet the definition of promoter in terms of making a relevant proposal available for implementation by another person; in the alternative they are enabling the promotion of the proposal by A Ltd.

(b) Secondly, X is clearly receiving a reward derived from A Ltd, in connection with A’s promotion business, even though the funds come from Z solicitors.

X Partners will come within case 2 of Schedule 33A; they will be classed as members of a promotion structure and can consequently be treated as carrying on a business as promoters for POTAS purposes.

7.4 Schedule 33A: Case 3 – Control of another promoter

Since the introduction of the POTAS legislation, some promoters have been shown to use company structures and what might be termed ‘phoenixism’ to try to put themselves outside of the reach of POTAS.

It is not uncommon to see frequent corporate ‘reorganisations’ with existing promoter companies wound up, or left dormant, with the promotion business itself being moved on to a succession of new companies.

This can potentially leave threshold breaches stranded in defunct companies with HMRC having to continually chase new companies for information to establish that they are promoting. It can also potentially mean conduct notices placed on companies which quickly cease operating only for essentially the same promotion activities to continue elsewhere.

Case 3 is designed to target the individuals behind the corporate structures in these sorts of cases. It aims to bring them within the promotion structures definition so that they, personally, are promoters for the purposes of POTAS. This enables threshold breaches in the circumstances outlined above to be attributed through the individual who controls the structure to the successive entities established to carry on the relevant activities. This ensures that POTAS cannot be sidestepped through the use of phoenixism.

The test is again a 2 part test:

  • The first stage is a test of control or significant influence, in that A must be an individual who has control of, or significant influence over B, a body corporate or partnership which carries on business as a promoter (Para 13A/Sch34 FA14).
  • The second stage is that A must meet one of 2 conditions, the personal condition or the corporate condition, to meet the: *personal condition, at a time after A first controlled or had significant influence over B, A must have been the subject of one of the procedures listed, which are mainly linked to A’s insolvency, such as – being disqualified as a director, being made bankrupt, being the subject of an individual voluntary arrangement, or a debt relief order (see para 4(2), Sch33A for the detailed list)
    • corporate condition, A must, at any time, have controlled or had significant influence over a body corporate or partnership (other than B) that carried on a business as a promoter and had become insolvent, or, in the case of a body corporate, dormant (see paras 4(4) and (5) Schedule 33A)

Example: A owns all the shares in X Ltd, a company which promotes relevant arrangements.

X Ltd fails to notify HMRC of the arrangements under DOTAS and subsequently the tribunal determines that it should have done so.

HMRC inform X Ltd that it has met a POTAS threshold condition and that the Authorised Officer is considering giving the company a conduct notice.

X Ltd immediately ceases trading, becoming dormant. A newly incorporated company (Little X Ltd) that A wholly owns immediately begins promoting the same relevant arrangements.

Here A meets the control test since he owns all the shares in Little X Ltd (B). He also meets the corporate condition test, since he controlled a body corporate other than B (X Ltd) which carried on business as a promoter and subsequently became dormant. A is therefore within Schedule 33A case 3 and is a member of a promotion structure, and as such is treated as carrying on a business as a promoter for POTAS purposes, regardless of whether he also carries on promotion activities in a personal capacity. By operation of section 283(4)(c) FA 14, Little X Ltd’s promotion activities will also be A’s promotion activities.

7.5 Schedule 33A: Case 4 – Transfer of promotion business

Another method promoters use in attempts to sidestep or put themselves beyond the reach of POTAS is to transfer the promotion business, in whole or part, to different entities or to nominee individuals.

This aims to frustrate the POTAS process by changing the identity of the person who formally owns the business, thereby ensuring the POTAS process has to start again from scratch.

Case 4 will have the effect that the person to whom the business has been transferred will be a member of a promotion structure and therefore immediately fall to be treated as carrying on a business as a promoter.

The test for case 4 is simply that a person will fall within the case if there has been either a relevant transfer to:

  • that person
  • a body corporate or partnership which that person controls or has significant influence over

A relevant transfer includes either the transfer of the whole business of a person carrying on business as a promoter, or the transfer of any part of such a business that relates to the promotion of relevant arrangements or proposals.

‘Transfer’ is further defined to mean any transfer in substance, whether or not the transfer is formal, or for consideration, and whether or not the transfer is direct.

Additional Consequences of being a member of a promotion structure

In addition to the consequences outlined regarding Case 4, where a person falls within one of the 4 cases there are a number of additional consequences specific to the case within which that person falls.

7.6 Schedule 33A: Case 1 – Multiple entity promoter - conduct notices

Where a threshold condition has been breached and an authorised officer is required to consider the issue of a conduct notice to a person who is a member of a multiple entity promotion structure the AO must find that the meeting of the threshold condition is significant. In practice this means that the meeting of any threshold condition by a person who falls within case 1 is treated as significant.

The same is also true if the conduct notice is being considered as a result of a defeat of promoted arrangements (s237A FA14). If a multiple entity promoter meets one of the conditions in s237A (11), (12) or (13), then the AO must regard the meeting of that condition as significant.

In certain cases, even though an authorised officer must treat the breach of a threshold condition as significant, the officer is not required to issue a conduct notice if they determine that it is inappropriate to do so having regard to the impact that the promoter’s activities are likely to have on the collection of tax.

This means that where a multiple entity promoter has met a threshold condition, they must be issued with a conduct notice unless (in certain cases) the AO considers it inappropriate given the likely impact of that person’s activities on the collection of tax.

7.7 Schedule 33A: Case 2 – Acting under the instruction or guidance of a non-resident promoter – monitoring notices

Any person falling within case 2 (acting under the instruction or guidance of a non-resident promoter) in relation to a promoter who becomes subject to a monitoring notice is brought within the class of ‘relevant persons’ who HMRC must notify of the promoter reference number allocated to the promoter. 

Separately, the monitored promoter is also required to notify the promoter reference number to any person falling within case 2 (s251 FA14). 

Persons falling within the case are required to notify others of the promoter reference number. 

Within 30 days of being notified of a promoter reference number, such persons must provide the number to any person: 

  • to whom they have communicated information about a monitored promoter’s relevant proposal in the period since the monitoring notice took effect,
  • who the person falling within case 2 might reasonably be expected to know has, or is likely to have, entered into transactions forming part of relevant arrangements in relation to which the monitored promoter is a promoter, since the monitoring notice took effect

Any person who falls within case 2 is also brought within the definition of relevant person for s258 FA14.  

This means that where a non-resident promoter has failed to comply with a duty to provide information about a monitored proposal or arrangement then HMRC can issue a notice to any person who falls within case 2, requiring them to provide the information that the non-resident promoter has failed to supply, so long as the officer giving the notice reasonably believes the person capable of providing the information. 

In addition, an Authorised Officer (or another officer with an Authorised Officer’s approval) can issue a notice to a person who falls within case 2 requiring them to provide certain information about each person who is one of their clients in relation to a proposal that is a monitored proposal in relation to the overseas promoter under whose instruction or guidance they act.

7.8 Schedule 33A: Cases 3 and 4 – Control of another promoter or transfer of a promotion business

Ordinarily where an individual meets a threshold condition, the meeting of the condition can be attributed, under paragraph 13B Schedule 34 FA 14, to a company or partnership the individual controls, but only if the threshold condition is one of the listed ‘relevant threshold conditions’ .

However, if the individual is a member of a promotion structure under either case 3 (control of another promoter), or case 4 (transfer of a promotion business), where an individual breaches a threshold condition the breach can be attributed to the relevant company or partnership, regardless of whether the condition is a relevant threshold condition.

7.9 Schedule 33A: All cases

The interpretation provisions have been amended so that any reference within POTAS to a person’s activities as a promoter also include in respect of :

  • case 1, activities carried out by the person and other persons by virtue of which the person falls within the case
  • case 2, activities carried out under the instruction or guidance of a person who carries on business as a promoter
  • cases 3 and 4, activities of the body corporate or partnership that the person controls

8. Information powers

Where a monitoring notice has effect in relation to a promoter that promoter is referred to in this guidance as a monitored promoter. Monitored promoters, intermediaries and clients are subject to obligations in sections 254 to 273 of the Finance Act 2014 to provide information and documents. The aim is to make sure HMRC has all of the information it needs to tackle avoidance proposals and arrangements promoted by the promoter.

Section 272A introduced by Finance 2021, also provides a more general information power in respect of POTAS which is linked into the powers at Schedule 36 FA 2008. This new information power is covered in a separate section at the end of this chapter.

The information powers cover:

The information powers cover both the production of documents as well as the provision of information. Penalties may be due where the information or documents are not provided. There is a criminal offence of concealing, destroying or disposing of documents.

The information powers apply on or after the date on which a monitoring notice takes effect and regardless of whether there is an appeal against the decision of the tribunal to approve the issue of the monitoring notice. The information powers cease to apply if the monitoring notice is withdrawn. The promoter may then be subject to other information powers, for example if a follow-on conduct notice is given.

Most of the information powers apply only to any monitored proposal or to monitored arrangements. These terms are defined in section 254 of the Finance Act 2014. These are relevant proposals or relevant arrangements that the monitored promoter begins to promote during the period in which the monitoring notice has effect.

8.1 Information powers: monitored proposals and monitored arrangements

Section 254 defines the terms ‘monitored proposal’ and ‘monitored arrangements’. The terms are used to limit the application of some of the information powers to proposals or arrangements that are promoted by a monitored promoter for the first time during the period in which the monitoring notice has effect or which first give rise to an asserted tax advantage during that period.

Monitored proposal

A relevant proposal promoted by the monitored promoter is a monitored proposal if one of the following events takes place on or after the date on which a monitoring notice takes effect and during the period in which the monitoring notice has effect (section 254(1)) the promoter first :

  • makes a firm approach to another person in relation to that relevant proposal
  • makes the relevant proposal available for implementation by any other person
  • becomes aware that any person has entered into any transaction that forms part of arrangements that implement a proposal

The limitation to the first such event means that a relevant proposal will not be a monitored proposal if the first time each of these events took place predates the monitoring notice taking effect. Thus a monitored promoter may be continuing to promote relevant proposals which are not monitored proposals.

Example 1

A promoter designs a relevant proposal aimed at individuals that includes a subscription for shares in a company. Before the proposal has been marketed or otherwise promoted a monitoring notice is issued to the promoter with effect from 2 November 2015. In each of the following examples the proposal will be a monitored proposal:

Example 1A

On 16 November 2015 the promoter holds the first in a series of seminars attended by potential clients, during the course of which the working of the arrangements is described and the tax advantages are explained with a view to one or more of those attending entering transactions as part of the proposed arrangements.

Example 1B

On 7 December 2015 the promoter for the first time provides an individual with a set of completed documents to sign that will implement the proposal.

Example 1C

On 14 December 2015 the promoter hears from an intermediary that a person has implemented the arrangements. Acting as the promoter’s agent, in August 2015 that intermediary had provided proposal documents for completion. That person had completed and signed the documents, returning them in October 2015, and implemented the arrangements. The 14 December is the first time the promoter has heard that someone has implemented the arrangements. If the promoter had first heard before 2 November 2015 that the person had implemented the arrangements, this would not be a monitored proposal.

Monitored arrangements

Relevant arrangements promoted by the monitored promoter are monitored arrangements of that promoter if, on or after the date on which a monitoring notice takes effect, one of the following circumstances arise:

  • the arrangements implement a monitored proposal (see section 254(1)(a) to (c))
  • the monitored promoter takes part in designing, organising or managing the arrangements (section 254(2)(b))
  • the arrangements enable or are likely to enable the user to obtain a tax advantage (section 254(2)(c))

Example 2

During 2015 a promoter designed an avoidance proposal that is intended to provide users with losses that they can set against their income in 2015 to 2016. The promoter intends that the tax advantage will arise in March 2016. During January 2016, the promoter will promote the arrangements, and make them available for implementation. On 4 January 2016, the promoter is issued with a monitoring notice that takes effect on 4 January 2016. The arrangements will be monitored arrangements, for the following reasons the:

  • tax advantage is obtained after 4 January 2016 (section 254(2)(c))
  • first occasion on which the promoter takes part in managing the arrangements was on or after 4 January 2016 (section 254(2)(b)) • promoter first became aware that a person had entered into a transaction forming part of the arrangements after 4 January 2016 (section 254(2)(a)(iii))

Example 2A

Even if all of the transactional documents were completed for all persons entering into the arrangements before the monitoring notice came into effect in January 2016, the arrangements will be monitored arrangements because the tax advantage is obtained in March 2016 (section 254(2)(c)).

8.2 Information powers: power to obtain information and documents from a monitored promoter or intermediary of a monitored promoter

Section 255 of the Finance Act 2014 provides a power to obtain information and documents from a monitored promoter or from certain intermediaries in order to resolve the liabilities of persons who have implemented relevant arrangements promoted by the promoter. All references to tax and to checking a person’s tax position in sections 255 and 256 and in this paragraph and paragraph 6.3 of this guidance also include relevant contributions and the checking of a person’s position as regards relevant contributions respectively.

An information notice will be issued in writing by an Authorised Officer, or by a person nominated by an Authorised Officer. The notice should explain as clearly as possible the information or the documents that the promoter or intermediary must produce. A notice given under section 255 requires the promoter or intermediary to provide information or documents that are reasonably needed for the purposes described below.

The person who receives the notice must provide the information or documents required within 10 days of the date on which the notice was given, unless the notice specifies a longer period. Officers may wish to specify a longer period if the information and documents required are extensive and it can reasonably be assumed that it would take more than 10 days to comply.

In most cases the promoter or intermediary should first be asked informally to provide the information or documents. If the information or documents requested relate solely to the person to whom a notice would be issued and this person does not provide the material requested within the time HMRC would expect to have given the person to comply with a formal notice, it will normally be appropriate for HMRC to issue a formal notice. It may however be appropriate not to make an informal request for information or documents where giving that opportunity might prejudice the assessment or collection of tax.

In such cases an officer may choose to issue a notice under section 255 without advance notice to the monitored promoter, or may apply directly to the tribunal in accordance with section 256(5) without giving advance notice.

A notice can be issued to:

The notice must request information and/or documents relating to monitored proposals or monitored arrangements for one of the following purposes:

  • considering the consequences of implementing the arrangements for the persons who implement it
  • checking the tax position of any person who the officer reasonably believes has entered into transactions to implement the arrangements

The 2 types of notice are intended for different purposes.

When an officer requests information or documents concerning the tax consequences for any person who might implement the monitored proposal, the officer is trying to understand how the monitored proposal is intended to work, so that appropriate counteraction can be put in place. Here the names of those implementing the proposal may not be known, or there may not yet be any users.

An officer who is checking the tax position of a person will be carrying out an investigation or enquiry into that person’s tax liability, the nature of which will depend on the tax in question. The paragraph covering Relevant proposal and relevant arrangements lists the taxes that may be relevant. Section 255(6) provides a very broad definition of tax position to include:

  • past, present and future liability
  • penalties and other amounts in connection with tax, such as interest
  • any claims, elections, applications and notices in connection with a person’s tax liability
  • deductions or repayments of tax, or sums representing tax such as PAYE liability
  • the withholding of any part of another person’s income for the purpose of PAYE (defined at section 683 of the Income Tax (Earnings and Pensions) Act 2003)

The notice can relate to a person’s tax position at any time or for any period. So, for example, it need not relate to the tax position of a specific person in a particular year.

A notice can be issued to a promoter or intermediary to check the tax position of a company that has ceased to exist. So, for example, the fact that a company that took part in arrangements no longer exists does not prevent the issue of a notice to a promoter for information relating to that company.

A notice can be issued in relation to the tax position of a person who has died, but no notice intended to check the tax position of a person who has died can be issued more than 4 years after the person’s death (section 255(8)).

If a notice under section 255 is given to a monitored promoter who is not resident in the UK and that promoter fails to comply, a notice may instead be given to certain intermediaries or clients.

In some cases approval must be obtained from the First-tier Tribunal before a notice is given to a person.

The use of information powers is subject to:

8.3 Information powers: approval of the tribunal is needed in certain cases

In general, information notices can be given under section 255 without approval from the First-Tier tribunal.

Section 256 of the Finance Act 2014 provides that prior approval is required from the First-Tier tribunal for the use of the power in section 255 where the information or documents specified in the notice do not relate wholly to:

  • either the person to whom the notice is given, whether this person is a monitored promoter or intermediary,
  • or any undertaking for which the monitored promoter or intermediary is a parent undertaking

The terms ‘undertaking’ and ‘parent undertaking’ are drawn from the Companies Act 2006 (section 256(6)). They will most commonly mean a parent company and its subsidiaries.

In practice this means that it should be possible to issue a notice to obtain information and documents to understand the intended consequences of avoidance arrangements, particularly where the arrangements do not yet have any known users, without prior approval from the tribunal. But if the arrangements are to be implemented by special purpose vehicles that are not controlled by the monitored promoter or the intermediary, approval will be needed from the tribunal before giving a notice requesting information or documents that relate to some extent to the special purpose vehicles.

Approval of the tribunal will always be needed when the notice, which is issued to a monitored promoter or relevant intermediary, requires them to provide information or documents that relate to the tax position of a user of the arrangements, because such information does not relate wholly to the person receiving the notice.

An application to the tribunal may be made without giving notice to the monitored promoter or intermediary who is affected by it (section 256(2)). The application to the tribunal must be made by an Authorised Officer or by a person nominated by an Authorised Officer. In general, the following conditions must be met before the tribunal can approve the giving of the notice:

  • the person to whom the notice is to be given has been told that the information and documents are required
  • that person has been given a reasonable opportunity to make representations relating to the required information and documents
  • the tribunal has been given a summary of those representations

Where these conditions are met, the tribunal may approve the notice if it is satisfied that in the circumstances the giving of the notice is justified.

In most cases an application to the tribunal will only be made after the monitored promoter or intermediary has been told that the information or documents are required and so will have had an opportunity either to make representations about the required information or documents or alternatively to provide them to HMRC before the Authorised Officer applies to the tribunal.

The requirements to give the monitored promoter or relevant intermediary advance notice and to provide the tribunal with a summary of any representations they have made do not apply if the tribunal is satisfied that to do so might prejudice the assessment or collection of tax. This will be exceptional and might apply where, for example, there is a real risk that a promoter may destroy key documents, liquidate companies, or leave the UK.

If the tribunal approves the giving of an information notice that notice should state that approval has been given.

Any decision by the tribunal to approve the giving of an information notice is final (section 256(7)). The giving of approval cannot be challenged on appeal. Nor can the monitored promoter or intermediary appeal against the notice itself.

Any decision by the tribunal to refuse approval is also final. If the tribunal refuses to approve the giving of the notice it will be asked to explain why. A renewed application that meets the tribunal’s objections may then be made if appropriate by an Authorised Officer, or by a person nominated by an Authorised Officer.

8.4 Information notices: ongoing duty to provide information

Section 257 of the Finance Act 2014 permits an Authorised Officer, or an officer nominated by an Authorised Officer, to issue a notice to a monitored promoter to provide information and documents on an ongoing basis about monitored arrangements or monitored proposals that the promoter is promoting.

The information and documents to be provided are specified in regulations (The Finance Act 2014 (High Risk Promoters Prescribed Information) Regulations 2015). The aim will be to ensure that HMRC has all of the information and documents it needs to ensure that it understands how arrangements are intended to work and what tax advantages are expected to flow.

The information and documents required by information notices given under section 257 will relate to all monitored proposals and monitored arrangements of the monitored promoter:

  • at the time of the notice
  • after that time but during the period in which the monitoring notice has effect

The notice will specify the time within which the monitored promoter must provide information and documents in relation to arrangements being promoted at the time of the notice.

The notice will also specify separately the times by which a monitored promoter must provide information and documents relating to monitored proposals and monitored arrangements in relation to which the monitored promoter becomes a promoter only after the notice has effect.

In relation to each monitored proposal or arrangements, this will typically give the promoter a set number of days from the first date on which such a proposal becomes a monitored proposal or the first date on which such arrangements become monitored arrangements within which it must comply with the notice.

A notice cannot be given after the date on which the monitoring notice is withdrawn. An existing notice will also cease to have effect after that date in relation to any proposals or arrangements in relation to which the promoter first became a promoter after the monitoring notice is withdrawn.

The notice will continue to have effect in relation to any information or documents that relate to monitored proposals or monitored arrangements promoted during the period in which the monitoring notice had effect. This is to ensure there is no unintended incentive for a monitored promoter to delay providing information that is the subject of an information notice.

This information power will be used together with the power to obtain ongoing information about clients in section 259. The aim is to ensure that HMRC has information about both the arrangements being promoted by the monitored promoter and the clients who are making use of those arrangements.

If a notice under section 257 is given to a monitored promoter who is not resident in the UK and that promoter fails to comply, a notice may instead be given to certain intermediaries or clients.

The use of information powers is subject to:

8.5 Ongoing duty to provide information following HMRC notice: prescribed documents and information

In relation to all monitored proposals and monitored arrangements, section 257 provides that HMRC may give a monitored promoter a notice that requires that person to give HMRC the following information:

  • the name or names used by the monitored promoter
  • a summary description of the monitored proposals and monitored arrangements and of how they are intended to result in a tax advantage
  • a detailed description of each part of the monitored proposals and monitored arrangements and of how they are intended to result in a tax advantage and a list of all other taxes in respect of which it is expected to obtain a tax advantage
  • the legislation that the monitored promoter claims provide the basis for the tax advantage intended to result from the monitored proposals and monitored arrangements
  • any DOTAS reference numbers allocated by HMRC
  • if any of the monitored proposals and monitored arrangements have not been notified to HMRC, an explanation as to why they were not notified
  • the names and addresses of third parties providing any funding or who will provide any funding the arrangements will require, the level of any funding and the date on which they agreed to provide the funding
  • the name and address of any persons consulted, including any legal advisers (this does not include any details of the promoter’s employees)
  • the name and address of any other person involved in planning, organising or operating the monitored proposals and monitored arrangements and detailed information about their involvement and role (again this does not extend to the promoter’s employees)
  • a list of each and every fee paid, or to be paid, by clients for the use of or participation in the monitored proposals and monitored arrangements, including full details of what each fee is or will be charged for

The information in the last 4 points may help HMRC to identify persons that might be enablers. An enabler is any person who, in the course of a business, enables abusive tax arrangements that are defeated. Enablers may be liable to a penalty (see Schedule 16 to the Finance (No. 2) Act 2017) with effect from 16 November 2017. Find out more about tax avoidance enablers.

The prescribed documents that a monitored promoter must provide to HMRC in relation to monitored arrangements and monitored proposals after receiving a notice under section 257 are documents produced in writing or by electronic means within one of the following descriptions:

  • standard letters and templates of documents to be sent to clients regarding the monitored proposals and monitored arrangements
  • documentation designed or intended to be used in the operation of the monitored proposals and monitored arrangements
  • copies of all documents used to market, promote or advertise the monitored proposals and monitored arrangements
  • all correspondence concerning the arrangements, between the promoter and a client, prospective client or other person involved in the monitored proposals and monitored arrangements
  • all correspondence between the promoter and any other person concerning the monitored proposals and monitored arrangements or matters related to them
  • any agreement signed or otherwise entered into by each client in respect of the monitored proposals and monitored arrangements

8.6 Example of ongoing duty to provide information following HMRC notice

Example

A person is issued with a monitoring notice that takes effect on 2 February 2015. On 2 March 2015 the person is issued with an information notice under section 257 that requires, among other things, production of copies of all marketing literature or presentation material provided to or used in presentations to clients or intermediaries. The notice requires those documents in relation to current monitored proposals or monitored arrangements to be provided by 16 March 2015.

At that time the person was marketing 7 avoidance proposals. One of these was a monitored proposal, because the person’s first firm approach to a client in respect of that proposal was made on 5 February 2015. 3 others are monitored arrangements because at least one of the clients who have entered into the transactions that make up those arrangements expects to obtain a tax advantage by 4 April 2015.

The notice would require the person to supply the documents specified in the notice for the proposal and the 3 sets of arrangements by 16 March 2015. There is no obligation to provide information about the other proposals, even though the person is still promoting them, because they are not monitored proposals or monitored arrangements.

The notice also requires the person (monitored promoter) to supply copies of marketing literature for future monitored proposals or monitored arrangements within 10 days of that literature being prepared.

The monitoring notice is withdrawn on 7 November 2016. At that time the person had been working on the design of a new proposal but had not begun to market it. This took place while the monitoring notice had effect, making the proposal a monitored proposal and so the section 257 information notice applies to that proposal. The person must provide the marketing literature for that proposal and any arrangements that implement it within 10 days of it being produced, even though the person is not a monitored promoter at that time.

8.7 Information notices: non-resident monitored promoters

Information notices under section 255 or section 257 may be given to a monitored promoter who is not resident in the United Kingdom. If that monitored promoter fails to comply with the notice, or with any part of that notice. Section 258 permits a notice to be given to certain intermediaries or clients requiring them to provide any information that the monitored promoter has failed to provide.

A notice under section 258 may be given by an Authorised Officer, or by a person nominated by an Authorised Officer. It can only require the provision of information. There is no power to use a section 258 notice to require intermediaries and clients of a non-resident monitored promoter to provide documents to HMRC. The information that can be required is limited to any part of the information required in section 255 or section 257 notices that has not been provided. The notice will:

  • specify or describe the information that the monitored promoter has failed to supply
  • require that the information should be provided by the recipient of the notice
  • specify the date by which the information must be provided

The information required should be provided within 10 days of the notice being given, unless the officer who has given the notice has specified a longer period (section 258(7)). A longer period may be permitted where it would be unduly onerous to provide all of the information requested within 10 days.

The issue of a notice under section 258 where information required under section 255 has not been provided does not require prior approval by the tribunal. Where necessary, approval to the original notice issued to the monitored promoter will already have been given.

An information notice under section 258 should only be given to a person that the officer giving the notice reasonably believes will be able to provide the information required (section 258(6)).

If the information required relates to a monitored proposal an information notice under section 258 may be issued to:

  • any person who is an intermediary in relation to that monitored proposal
  • any person to whom the monitored promoter has made a firm approach in relation to that monitored proposal with a view to it being implemented by another person
  • any person who has implemented the proposal (if the officer issuing the notice is not aware of any such persons)

If the information relates to monitored arrangements an information notice under section 258 may be issued to any person who has entered into transactions that form part of the arrangements.

The use of information powers is subject to:

The use of the information power in section 258 is also restricted in some cases where it relates to advice given by a tax adviser.

A person may be liable to penalties in relation to an information notice under section 258 in addition to the monitored promoter being liable to penalties in relation to earlier notices under section 255 or section 257 in respect of the same information.

8.8 Information notices: ongoing duty of monitored promoter to provide client returns

Section 259 of the Finance Act 2014 provides for a notice to be given to a monitored promoter requiring specified information about clients to be provided to HMRC on a quarterly basis during the period for which the monitoring notice has effect.

The notice will be given by an Authorised Officer or by a person nominated by that Authorised Officer. It is expected that the issue of a notice under section259 will be a routine part of the regime to which a monitored promoter is subject and that it will be issued at the same time as, or soon after, the issue of the monitoring notice.

Information prescribed in regulations (the Finance Act 2014 (High Risk Promoters Prescribed Information) Regulations 2015 required in response to a section 259 notice must be provided for each relevant period:

  • the name and address of each person who is a client of the monitored promoter during that period
  • for clients who are individuals, their national insurance number and unique tax reference number
  • for clients which are trusts, partnerships or companies, the unique tax reference number identifying the client
  • confirmation whether or not the client has told the monitored promoter that they have neither a national insurance number nor unique tax reference number
  • the date or dates on which the monitored promoter made a firm approach or made a proposal available for the client to implement and took part in the organisation or management of the arrangements
  • the date or dates on which the client entered into transactions forming part of avoidance arrangements promoted by the monitored promoter
  • the date on which the client informed the monitored promoter of their national insurance number or unique tax reference number or if they had no such number the date on which the client informed the monitored promoter of this fact
  • whether the client was a direct client of the monitored promoter or was acting through an intermediary and the name and address of the intermediary, if the client was acting through an intermediary
  • fees or commissions paid or payable by the client to the intermediary in respect of the arrangements
  • where the fees or commissions are contingent on the arrangements working, the basis for calculating the fees or commissions

Section 259 can only be used to obtain information from monitored promoters about their clients, but in many cases the person who enters into the transactions will not be the client. For example, the client may be an employer but the employees may be the users of the arrangements.

Section 261 provides an additional power to obtain information about any persons other than clients that an officer suspects have been party to transactions that implement avoidance arrangements.

The relevant periods for which client information must be provided under section 259 are:

  • the calendar quarter during which the section 259 notice was issued, but not including any date before the monitoring notice was issued
  • if the section 259 notice was issued after the end of the calendar quarter during which the monitoring notice took effect, the period beginning with the date the monitoring notice took effect and ending on the day before the start of the calendar quarter in which the section 259 notice was issued
  • each succeeding calendar quarter after the end of that quarter up to and including the calendar quarter during which the monitoring notice ceases to have effect but not including any days after the notice ceases to have effect (section 259(3))

A calendar quarter is a period of 3 months beginning on 1 January, 1 April, 1 July or 1 October (section 283(1)).

Where a monitored promoter is required by a notice under section 259 to make client returns those returns must be made:

  • within 30 days of the end of the relevant period, or if longer
  • within 30 days from the giving of the section 259 notice (section 259(4))

Example 1

A promoter is issued with a monitoring notice on 8 June 2015 and with a section 259 notice on 22 June 2015. The relevant periods for which the promoter must make returns and the time limit for making the returns are:

  • 8 June 2015 to 30 June 2015, time limit 30 July 2015
  • 1 July 2015 to 30 September 2015, time limit 30 October 2015

and every quarter after that until the monitoring notice is withdrawn.

Example 2

A promoter is issued with a monitoring notice on 21 September 2015 and with a section 259 notice on 5 October 2015. The relevant periods for which the promoter must make returns and the time limit for making the returns are:

  • 21 September 2015 to 30 September 2015, time limit 4 November 2015
  • 1 October 2015 to 31 December 2015, time limit 30 January 2016

and every quarter after that until the monitoring notice is withdrawn.

In this example the return deadline is extended because the time limit that would otherwise apply for the first relevant period (30 October 2015) is less than 30 days after the date on which the section 259 notice was issued.

The definition of client for the purpose of section 259 is set out below but it is subject to an important exception. The monitored promoter does not need to report details of any client in a return for a relevant period where:

  • the promoter has provided information for that client in a return under section 259 for an earlier relevant period
  • the information provided remains accurate (section 259(8))

Thus, for the most part, returns can be limited to information about new clients. However, HMRC would need to be told where an existing client has changed its name or address, if the monitored promoter has access to that information, or where new information about that client needs to be reported.

For example, if the information to be provided includes information about avoidance arrangements that the client has implemented, the return for a period will need to include information about new arrangements entered into in that period by existing clients. A person will be a client of a monitored promoter in a relevant period if during the relevant period the promoter:

  • made a firm approach to that person with a view to the promoter making a relevant proposal available for implementation by that person or any other person
  • made the proposal available for implementation by that person
  • took part in the organisation or management of relevant arrangements entered into by that person

A person will also be a client of a monitored promoter during a relevant period if during that relevant period the person enters into transactions that form part of relevant arrangements and those transactions are:

  • intended to give rise to a tax advantage, or to the avoidance or reduction of liability to pay relevant contributions for the person in that period or a later period
  • relevant arrangements of the promoter, or implement a relevant proposal of the promoter

As a result, the information that must be included in returns under section 259 is not limited to information in relation to monitored proposals or monitored arrangements. Returns under section 259 will relate to all persons who are clients in relation to relevant proposals or arrangements that have been or are being promoted by the monitored promoter, including where they were promoted by the monitored promoter before the monitoring notice has effect.

Where a monitoring notice is a replacement monitoring notice the obligation to provide client returns is removed in relation to a client who has used relevant arrangements if the promoter reasonably believes that information about that client in relation to the arrangements has been provided under the original monitoring notice.

The use of information powers is subject to:

8.9 Information notices: ongoing duty of intermediary to provide client returns

The obligation on monitored promoters in section 259 of the Finance Act 2014 to provide quarterly returns providing information about clients is supported by a similar but narrower obligation on intermediaries in section 260. An intermediary may be given a notice requiring it to make quarterly returns to HMRC.

The notice must be given by an Authorised Officer or by a person nominated by that Authorised Officer. Before issuing a notice under section 260 the officer must consider whether adequate information about clients is being obtained under section 259.

The notice is given to a person that is an intermediary. It can relate to a monitored proposal of a monitored promoter.

Information prescribed in the Finance Act 2014 (High Risk Promoters Prescribed Information) Regulations must be provided for each relevant period:

  • the name and address of each person who is a client of the intermediary during that period
  • the national insurance number or unique tax reference identifying the client or both, if the intermediary knows them
  • the name and address and PRN for the monitored promoter of monitored proposals specified in the notice
  • the name and address of any other intermediary from or to which the client has been referred in relation to monitored proposals specified in the notice
  • the date on which the intermediary communicated information in the course of a business to the client about a monitored proposal with a view to the client or any other person entering into transactions forming part of that monitored proposal
  • fees or commissions paid by the client to the intermediary

Section 260 can only be used to obtain information about clients of the intermediary, but in many cases the person who enters into the transactions will not be the client. For example, the client may be an employer but the employees may be the users of the arrangements.

Section 261 provides an additional power to obtain information about any persons other than clients that an officer suspects have been party to transactions that implement avoidance arrangements.

A relevant period is:

  • the calendar quarter during which the section 260 notice was issued, but not including any date before the intermediary was given the PRN of the monitored promoter
  • if the section 260 notice was issued in a later calendar quarter than the one during which the intermediary was given the promoter reference number (PRN) of the monitored promoter, the period beginning with the date the PRN was received and ending on the day before the start of the calendar quarter in which the section 260 notice was issued
  • each succeeding calendar quarter after the end of that quarter, up to and including the calendar quarter during which the monitoring notice ceases to have effect, but not including any dates after the notice ceases to have effect (section 260(3))

A calendar quarter is a period of 3 months beginning on 1 January, 1 April, 1 July or 1 October (section 283(1)).

Where an intermediary is required by a notice under section 260 to make client returns those returns must be made within 30 days:

  • of the end of the relevant period, or if longer
  • from the giving of the section 260 notice (section 260(4))

Example

An intermediary is issued with a PRN on 21 December 2015 in accordance with section 250 because the monitored promoter is not resident in the UK. On 11 January 2016 the intermediary is given a section 260 notice. The relevant periods for which the intermediary must make returns and the time limit for making the returns are:

  • 21 December 2015 to 31 December 2015, time limit 10 February 2016
  • 1 January 2016 to 31 March 2016, time limit 30 April 2016

and every quarter after that until the monitoring notice is withdrawn.

In this example the return deadline is extended because the time limit that would otherwise apply for the first relevant period (30 January 2016) is less than 30 days after the date on which the section 260 notice was issued.

The definition of client for the purpose of section 260 is set out below but it is subject to an important exception. The intermediary does not need to report details of any client in a return for a relevant period where:

  • the intermediary has provided information for that client in a return for an earlier relevant period
  • the information provided remains accurate (section 260(6))

Thus, for the most part, returns can be limited to information about new clients. HMRC would also need to be told where an existing client has changed its name or address, if the intermediary has access to that information, or where new information about that client needs to be reported.

For example, if the information to be provided includes information about avoidance arrangements that the client has implemented, the return for a period will need to include information about new arrangements entered into in that period by existing clients. A person is a client of an intermediary for a relevant period if:

  • the intermediary, in the course of its business, has communicated information to that person during the relevant period about a monitored proposal
  • the communication was made with a view to that person, or any other person, entering into transactions forming part of the arrangements that implement that proposal

The obligation on an intermediary to provide quarterly client returns is narrower than that applying to monitored promoters. It only applies to the extent that the intermediary is an intermediary of the monitored promoter in relation to monitored proposals.

The use of information powers is subject to:

8.10 Information powers: information about persons who have taken part in avoidance arrangements

Section 261 of the Finance Act 2014 supplements section 259 and section 260. It provides for HMRC to issue information notices to monitored promoters and intermediaries relating to persons for whom information has not yet been provided under those provisions but who are, or are likely to have been party to a particular relevant proposal or arrangements of the monitored promoter.

An Authorised Officer may issue a notice under section 261 to:

  • a monitored promoter who has provided information under section 259
  • an intermediary who has provided information under section 260

This will normally be where HMRC suspects that the information returned under section 259 or section 260 is incomplete or inaccurate.

Example

HMRC compares the information returned with information from other sources and concludes that some but not all clients have been disclosed, or the person about whom information is provided is not the client who is taking part in the avoidance arrangements.

Example

Clients of payroll-related arrangements may also include:

  • a director or employees of the company that is named as the client using the arrangements
  • an employer whose employees are named as the clients using the arrangements
  • a trustee of a trust or settlement of which the beneficiaries are disclosed clients under the arrangements
  • a group company where another group company is the disclosed client under the arrangements

Where an Authorised Officer suspects the existence of such third parties the officer may issue a notice under section 261 to the monitored promoter or intermediary requiring information about any person who is:

  • likely to be or to have been a party to the transactions that implement a relevant proposal
  • party to a transaction that forms part or all of relevant arrangements (section 261(2))

Where the section 261 notice is issued to a monitored promoter, the promoter is required to provide the same information about parties to the transactions that it is required to provide about clients when complying with a notice under section 259. The promoter must also explain why this information was not provided when complying with the section 259 notice.

Where the section 261 notice is issued to an intermediary, the intermediary is required to provide the same information about parties to the transactions, which it is required to provide about clients when complying with a notice under section 260 and to explain why this information was not provided when complying with the requirements of the section 260 notice. The intermediary must also report the date on which the persons were party to transactions implementing the proposal or forming part of the arrangements.

The notice does not need to specify the persons about whom information is requested. The officer may well not be aware of the existence or names of all of those persons. The notice will apply to all persons that the monitored promoter or intermediary might reasonably be expected to know were party to those transactions.

The recipient of the notice must comply with it within 10 days, or such longer time as the officer permits (section 261(4)). A longer time should be permitted where the officer considers that it would be unduly onerous to provide the information requested within 10 days. The recipient does not need to provide information that has already been provided in accordance with section 259 or section 260.

The use of information powers is subject to:

Where there is a failure to provide client information, or that information is inaccurate, HMRC may in addition to giving a section 251 notice seek to impose penalties in accordance with Schedule 35.

8.11 Information powers: duty of monitored promoter to provide HMRC with its address

Section 263 of the Finance Act 2014 requires a monitored promoter to provide its address to an Authorised Officer within 30 days of the end of each calendar quarter during which a monitoring notice has effect. For a monitored promoter that is a company or a limited liability partnership this would be the registered office. For any other monitored promoter it would be the business address, or any other address at which the promoter would expect to be contacted.

This obligation applies to all monitored promoters and is not dependent on an Authorised Officer issuing a notice requiring the promoter to provide the information.

A calendar quarter is a period of 3 months beginning on 1 January, 1 April, 1 July or 1 October (section 283(1)). So, for example, if a monitoring notice has effect in relation to a promoter on 30 June 2016 the promoter has to provide its address to an Authorised Officer by 30 July 2016. If the notice still has effect on 30 September 2016 the promoter has to provide its address again on 30 October 2016.

8.12 Information powers: application to tribunal for order requiring the production of information or documents

Various sanctions are available where a person fails to comply in full with an information notice given to them in accordance with POTAS. In most cases the appropriate sanction will be to charge penalties under Schedule 35 of the Finance Act 2014. However, in some circumstances an application to the First-tier Tribunal for an order requiring the production of information or documents (section 264) can be made.

Section 264 should be used when a financial penalty is not considered to be enough by itself to encourage compliance. It may also be used to obtain further evidence where an Authorised Officer believes that the person has failed to comply with an information notice. The tribunal can make use of additional powers available to the courts to compel the production of the information or documents.

The powers in section 264 can be used where any person has been given a notice under one of the provisions below and has provided information or produced documents as required by the notice, but an Authorised Officer suspects that they have not provided all of the information or documents required. The person concerned could be a monitored promoter, an intermediary or a client of a monitored promoter.

The provisions are:

An Authorised Officer, or an officer nominated by an Authorised Officer, may apply to the First-tier Tribunal for an order requiring the person to:

  • provide specified information about its clients
  • provide specified information, or information of a specified description, about a monitored proposal or monitored arrangements
  • produce specified documents relating to a monitored proposal or monitored arrangements (section 264(2))

Example

A promoter provides HMRC with a description of a monitored arrangement but does not provide the name of the bank facilitating the arrangement through a loan. HMRC applies to the Tribunal for an order requiring the promoter to supply that specified information.

If the tribunal is satisfied that the information or documents are required under the relevant information provision, or will help to support or explain information required under the relevant provision, it may make an order requiring their provision. This requirement is treated as being part of the person’s existing obligation under the relevant provision.

The information or documents must be provided within 10 days of the date on which the order was given. An Authorised Officer may direct that a longer period should be given if that seems appropriate. Authorised officers may wish to specify a longer period if the information and documents required are extensive and it can reasonably be assumed that it would take more than 10 days to comply.

8.13 Information notices: duty of client or intermediary to provide information to a monitored promoter

Section 265 of the Finance Act 2014 requires clients and certain intermediaries of a monitored promoter to provide information to that promoter. This obligation applies where the client or intermediary has received a promoter reference number (PRN) and must be met within 10 days of receiving the PRN.

This obligation applies to:

The information that must be provided by the client or intermediary is their:

  • National Insurance number
  • unique tax reference number provided by HMRC

If the client or intermediary does not have either of those numbers they must tell that to the monitored promoter within 10 days. The numbers do not need to be provided to the promoter where the client or intermediary has already provided them.

8.14 Information notices: appeals against information notices

A person that is given notice to produce information or documents may appeal against that notice, or against any requirement in the notice, in accordance with section 266 of the Finance Act 2014. The person concerned could be a monitored promoter, an intermediary or a client.

The right of appeal relates to notices under:

There is no right of appeal against a notice under section 255 that has been issued with the approval of the First-tier Tribunal under section 256 (section 266(3)(b)).

There is no right of appeal against a notice that requires a person to produce information or documents that are part of statutory records that a person is required to keep under the Taxes Acts or any other tax legislation (section 266(3)(a) and (4)) (CH21700). A person is entitled to appeal against a requirement to produce statutory records if the period for which they must be kept has expired - section 266(5).

A notice of appeal must be in writing and must be sent within 30 days of the date on which the notice was given, to the officer who gave the notice (section 266(6)). It must state the grounds on which the appeal is being made (section 266(7)).

The provisions in Part 5 of the Taxes Management Act 1970 apply to these appeals (section 266(11)). So, for example, a person can ask for a review of the officer’s decision to issue the notice or to include a particular requirement in a notice, see HMRC’s Appeals reviews and tribunals guidance ARTG2000 onwards.

If the person does not notify the appeal to the tribunal within the time allowed and subject to the rules relating to late notifications (ARTG8240) the appeal is treated as settled by agreement (ARTG2010).

If an appeal is notified to the First-tier Tribunal the tribunal may:

  • confirm the notice or confirm the disputed requirement
  • vary the notice or vary the disputed requirement
  • set aside the notice or set aside the disputed requirement (section 266(8))

The decision of the tribunal on the appeal is final (section 266(10)).

8.15 Information notices: how information and documents are to be provided

Where a person is required to produce a document:

  • the Commissioners may specify that the document should be produced for inspection at a place agreed between the person and an officer, or at a place specified by an officer (section 267((2))
  • subject to certain exceptions, a copy of the document will satisfy the requirement (section 268)

In specifying a place at which a document may be produced for inspection the officer must be reasonable and must not specify a place that is used solely as a dwelling.

A copy of the document will not be enough to meet the requirement where:

  • regulations require the original document to be provided (section 268(1))
  • the notice requires the person to produce the original document (section 268(2)(a))

In other cases, a copy of the document will be enough to meet the requirement on condition that the:

  • copy must be an exact copy of the original, with no amendments, corrections or deletions (other than redacting information which is subject to legal professional privilege)
  • original document must be retained as required
  • person required to produce the copy document must not alter the original document or allow it to be altered

Where the copy document is provided in respect of a notice issued under section 255 or section 257, the original must be retained until the monitoring notice or replacement monitoring notice is withdrawn.

Where the copy document is provided in respect of a notice issued under section 262, the original must be retained until the conduct notice or replacement conduct notice is withdrawn or expires.

After having examined the copy document an Authorised Officer may decide that it is necessary to see the original document. If so, the Authorised Officer, or an officer nominated by the Authorised Officer, will make a request for the original in writing to the person who was required to produce the copy. That person must then produce the document at a time and location and within a time limit reasonably required by the officer (section 268(3)).

8.16 Information notices: information or documents that do not need to be provided

The POTAS information powers are subject to safeguards to ensure that they are proportionate and do not infringe a person’s rights. These are similar to the safeguards that apply to the information powers in Schedule 36 of the Finance Act 2008 (see HMRC’s Compliance Handbook CH22100).

A person is not required to produce a document that is not in their possession or power (section 270(a) of the Finance Act 2014). CH22120 explains what these terms mean.

In addition there are restrictions relating to:

An old document is a document the whole of which originates more than 6 years before the date on which a person would otherwise be required to produce it. So, for example, an information notice could be used to obtain a contract that had been first drafted more than 6 years ago, but then amended within the previous 6 years.

An information notice cannot be used to obtain:

  • information or documents that relate to a pending tax appeal (CH22160 provides guidance on the equivalent restriction in the information powers in Schedule 36)
  • personal records as defined in section 12 of the Police and Criminal Evidence Act 1984, or information contained in such records; however, a person can be required to produce such documents with the information that makes the documents personal records removed, or to provide information contained in such records that is not personal information, (CH22180 provides guidance on the equivalent restriction in the information powers in Schedule 36 of the Finance Act 2008)
  • journalistic material as defined in section 13 of the Police and Criminal Evidence Act 1984, which consists of material acquired or created for the purpose of journalism (CH22220 provides guidance on the equivalent restriction in the Schedule 36 FA 2008 information powers)
  • information to which a claim to legal professional privilege or, in Scotland, confidentiality of communications, could be maintained (CH22240 provides guidance on the equivalent restriction in the information powers in Schedule 36 FA 2008)

8.17 Information notices: restriction for tax advisers’ papers

There is an additional restriction in the information powers in relation to advice given by a tax adviser. This restriction applies solely where a monitored promoter is not resident in the UK and a notice under section 258(4) or (5) of the Finance Act 2014 has been issued to:

  • a person that has implemented a monitored proposal
  • any person who has entered into a transaction that forms part of monitored arrangements and that person is a tax adviser; a tax adviser is a person that has been appointed to give tax advice about the tax affairs of another person (whether appointed directly by that person or by another tax adviser of that person) (section 272(5))

The tax adviser is not required to:

  • provide information about relevant communications
  • produce documents that are the property of the tax adviser and consist of relevant communications (section 272(2))

Relevant communications are defined at section 272(5) and are described in the guidance on the equivalent provision in Schedule 36 of the Finance Act 2008 in HMRC’s Compliance Handbook (CH22320).

The restriction for relevant communications does not apply to information or documents that the tax adviser has assisted a person in preparing for, or delivering to, HMRC while acting as a tax accountant (section 272(3)).

This restriction also does not apply where the notice under section 258 has been given to an intermediary.

The restriction will apply for relevant communications that have already been provided to, or produced for, an officer of HMRC, so that these cannot be required under section 258.

Example

A tax adviser has prepared the tax return of their client who has used arrangements provided by a monitored promoter. In preparing the return the tax adviser and his client prepared a schedule of transactions between his client and the other parties in the monitored arrangement that enabled the tax adviser to identify the impact of the tax advantage on his client’s return and advise his client accordingly. This document has not been provided to HMRC as part of the tax return.

The schedule is a relevant communication within section 272(2) but it has not been provided to HMRC as part of the client’s tax return. The schedule could be subject to an information notice under section 258(4) or (5).

8.18 Information notices: restriction on duty of confidentiality

One of the aims of the POTAS regime in relation to monitored promoters is to prevent lack of co-operation and unwillingness to provide information being used to frustrate HMRC’s attempts to tackle avoidance arrangements.

Some promoters impose confidentiality requirements on their clients and on intermediaries which could stop or delay HMRC finding out about a monitored promoter and the relevant proposals or arrangements that person is promoting.

Section 273 of the Finance Act 2014 ensures that attempts by monitored promoters to impose confidentiality on clients or intermediaries in their dealings with HMRC will not be effective. Clients and intermediaries must be freely able to disclose information and documents to HMRC.

No duty of confidentiality, nor any other restriction on disclosure, prevent the voluntary disclosure of information or documents to HMRC by a client or intermediary about:

A client is a person in relation to whom the monitored promoter:

  • has made a firm approach with a view to making a relevant proposal available for implementation by that person or any other person
  • has made a relevant proposal available for implementation by that person
  • has taken part in the organisation or management of relevant arrangements entered into by that person (section 273(2))

An intermediary here is a person that is an intermediary in relation to a relevant proposal of the monitored promoter.

The definitions of client and intermediary here are not specific about when the events that create the relationship with the promoter are to have taken place. The client might have become a client and become subject to an attempt to impose confidentiality before the promoter became a monitored promoter. And the arrangements about which the client or intermediary voluntarily discloses information or documents need not be the arrangements that has created the relationship with the promoter.

So, for example, a client may have received a firm approach from a promoter about particular arrangements but may wish to make a voluntary disclosure about that and other arrangements of the promoter of which the client is aware.

This does not require any person to disclose privileged information to HMRC.

8.19 Information Powers: Section 272A – Application of Schedule 36 FA 2008 powers

S272A introduced in Finance Act 2021 connects POTAS information and inspection powers to Schedule 36 FA 2008. S272A introduces the concept of the ‘relevant person’ and ‘relevant purpose’ in respect of which the Schedule 36 powers can be used.

Schedule 36 FA 2008 applies for a relevant purpose in relation to a relevant person as it applies for the purpose of checking the tax position of a person as if:

  • any provisions in Schedule 36 which have no application in respect of POTAS provisions are omitted (Paragraph 25 of Schedule 36, which offers protection to tax advisors in respect of information notices, is omitted where a tax advisor is suspected of being a relevant person carrying out a relevant purpose)
  • reference to ‘the or a taxpayer’ in Schedule 36 are to ‘the or a relevant person’
  • reference to prejudice to the assessment of collection of tax in Schedule 36 include prejudice to the fulfilment of a relevant purpose
  • reference to ‘business documents’ in Schedule 36 include any documents (or copies of documents) in connection with any relevant proposals or relevant arrangements
  • references to pending appeal relating to tax in Schedule 36 are to a pending appeal by a relevant person
  • penalties in Schedule 36 apply to POTAS third party information power failures (note that POTAS specific penalties apply to first party information power failures)

Meaning of a relevant person

A person is a ‘relevant person’ if an officer of HMRC suspects that the person carries on, or carried on, a business as a promoter (or is treated as doing so) in relation to a scheme and the:

  • officer suspects that the person has met a threshold condition
  • officer suspects that the person could be given a defeat notice
  • officer suspects that the person promotes a scheme of a description that the officer suspects could be specified in a stop notice
  • person is, or was, subject to a stop notice, conduct notice or monitoring notice
  • person is either the transferor or transferee in respect of a relevant transfer under S33A.

Meaning of a relevant purpose

A ‘relevant purpose’ in relation to a relevant person is one that is for any of the following purposes:

  • determining whether the relevant person carries on, or carried on (or is treated as carrying on, or having carried on) a business as a promoter in relation to a scheme,
  • determining whether the relevant person has met a threshold condition,
  • determining whether the relevant person could be given a defeat notice,
  • determining whether the person has provided false or misleading information or documents in relation to a stop notice, conduct notice or monitoring notice,
  • determining whether a scheme that an officer suspects is promoted by the relevant person is of a description that could be specified in a stop notice,
  • enabling HMRC to understand the operations of a scheme that an officer suspects is promoted by a relevant person,
  • identifying any other person who has a connection with the relevant person that results, directly or otherwise, in the relevant person being a member of a promotion structure,
  • to enable HMRC to determine whether a relevant transfer has taken place for the purposes of Schedule 33A either by relevant person or to a relevant person, and the terms of that transfer,
  • monitoring compliance with any stop notice, conduct notice or monitoring notice the relevant person is subject to. This means compliance with any provisions that a person subject to a stop notice must comply with such as:
    • S236B (3)(b), S236B (4)(b) – Requirement to notify persons who are subject to a stop notice,
    • S236C (1) – Requirement to submit Quarterly Returns,
    • S236I(1) – Requirement to notify clients and intermediaries of a stop notice

Penalties

Penalties for failures to comply with an Information notice given under Schedule 36 FA 2008, as it has effect as a result of S272A, apply as follows:

  • Duty to comply with a notice under paragraph 1 of Schedule 36 FA 2008 (power to obtain information or documents from taxpayer) – up to £5,000. However, in the case of a failure to comply with a notice where the person was subject to a monitoring notice or had control or significant influence over a person who was subject to a monitoring notice at the time of the failure, the penalty is increased up to a maximum of £1,000,000,
  • Duty to comply with a notice under paragraph 2, 5 or 5A of Schedule 36 FA 2008 (Power to obtain information or documents from 3rd party) – £300.

An ongoing failure to comply with the notice may also incur daily penalties for an ongoing failure related to a notice under:

  • paragraph 1 of Schedule 36 FA 2008 daily penalties of up to £10,000 where the maximum initial penalty was £1,000,000 and £600 in all other cases
  • paragraphs 2, 5 or 5A daily penalties of up to £600

9. Penalties

Schedule 35 of the Finance Act 2014 provides for penalties for failure to comply with the duties imposed by POTAS.

The provisions that are subject to penalties, together with the maximum amount of penalty, are listed below. Where a failure continues after an initial penalty has been imposed, a continuing daily penalty may apply.

The penalties that apply to inaccuracies in information or documents are described in paragraph 7.4. There is a power to increase the maximum amount of any penalty by regulation.

A person will generally not be liable to a penalty under Schedule 35 if they took reasonable care, or had a reasonable excuse, but in some cases the standard for this defence is modified.

Paragraphs 6 and 7 of Schedule 35 impose penalties for concealing, destroying or disposing of a document that has been or may be required to be produced by certain information notices. Where the documents that have been concealed, destroyed or disposed of are, or are to be, required by a notice under section 255 approved by the tribunal under section 256 there are additional sanctions.

9.1 Penalties: maximum penalties for failure to comply

Paragraph 2 Schedule 35 of the Finance Act 2014 lists the maximum penalties that may be imposed for failure to comply with the provisions of Part 5 of the Finance Act 2014 (POTAS). They are also shown on the following table.

Legislation Obligation Maximum penalty
section 249(1) Duty of monitored promoter to tell clients £5,000 see note 1
section 249(3) Duty of monitored promoter to publicise monitoring notice £1,000,000
section 249(10) Duty of monitored promoter to include information in publications and correspondence £1,000,000
section 251 Duty of monitored promoter to pass promoter reference number (PRN) to clients and intermediaries £5,000 see note 1
section 252 Duty of intermediaries and clients to pass PRN to other clients (paragraphs 5.11 and 5.12 £5,000 see note 1
section 253 Duty of clients to report the PRN to HMRC Variable amount see note 2
section 255 Duty of monitored promoter or intermediary to provide information and documents £1,000,000
section 257 Ongoing duty of monitored promoter to provide information and documents £1,000,000
section 258 Duty of intermediary or client of non-resident promoter to provide info £1,000,000
section 259 Ongoing duty of monitored promoter to provide information about clients £5,000 see note 1
section 260 Ongoing duty of intermediary of monitored promoter to provide information about clients £5,000 see note 1
section 261 Duty of monitored promoter or intermediary to provide information about persons who have taken part in avoidance arrangements £10,000
section 263 Ongoing duty of monitored promoter to provide HMRC with its address £5,000
section 265 Duty of client or intermediary to provide information to monitored promoter £5,000

Note 1

In each of these cases the maximum penalty that can be imposed is for each person to whom the failure relates (paragraph 2(2) Schedule 35). For example, if a monitored promoter has 500 clients and it fails to meet its obligation under section 260 to pass the PRN to its clients, the maximum penalty of £5,000 will be multiplied by the number of clients to whom the promoter has failed to pass the PRN. In this example the maximum penalty could be 500 x £5,000 = £2,500,000.

Note 2

The maximum amount of the penalty that can be imposed on a client that has failed to report the PRN to HMRC depends on how often the client has failed to do so. The maximum is:

  • £10,000 where there have been two or more previous failures in the 3 year period ending with the date of the latest failure to report
  • £7,500 where there has been one previous failure to report during that period
  • £5,000 where there have been no previous failures to report during that period (paragraph 2(3) Schedule 35)

Note 3

Penalties in respect of stop notices and the information powers at s272A are detailed in the relevant sections in this guidance (chapter 4 and chapter 8 respectively).

Example

A client is a serial user of avoidance arrangements, making use of one or more arrangements each year. He consistently fails to report PRNs he has received from monitored promoters:

  • In 2015 to 2016 he makes use of arrangements intended to result in a tax advantage in that year, but does not include in his return the PRN he has been given. This is the first such failure and he is liable to a penalty up to a maximum of £5,000
  • In 2016 to 2017 he again uses the same arrangements, but again does not include in his return the PRN he has been given. This is the 2nd failure within 3 years and he is liable to a penalty up to a maximum of £7,500
  • In 2017 to 2018 he uses the same arrangements for a third time, but again does not include in his return the PRN he has been given. This is the third failure within 3 years and he is liable to a penalty up to a maximum of £10,000

For:

9.2 Penalties: changes to the maximum amount of a penalty

Paragraph 5 of Schedule 35 of the Finance Act 2014 provides a power to change the maximum amount of any penalty in Schedule 35 by regulation.

The power can only be used where inflation or deflation has changed the value of the penalty amount either:

  • since the legislation was enacted
  • since any previous regulations have been made under this power

The amount of the change will be whatever amount seems to be justified by the change in the value of the penalty. This power can be used to increase or to decrease the maximum amounts and it applies to the following penalties:

9.3 Penalties: ongoing daily penalties in relation to information duties

Paragraph 3 Schedule 35 of the Finance Act 2014 provides for ongoing daily penalties for continuing failure to comply with an information duty after an initial penalty has been imposed in accordance with paragraph 2. See paragraph 7.1 for more information.

An information duty is defined by paragraph 1 Schedule 35 of the Finance Act 2014 as an obligation to provide information or produce documents under one of the following provisions:

The amount of the ongoing daily penalty is not to exceed the relevant sum for each day on which the failure continued after the day on which the initial penalty was imposed. The relevant sum is £10,000 where the maximum penalty for the initial failure was set at £1,000,000, this applies to:

It is £600 in any other case.

For:

The daily penalty not to exceed £600 is the only penalty within Schedule 35 for which the amount is set by an officer of HMRC rather than by the First-tier Tribunal. The amount that may be set is determined in accordance with section 100 of the Taxes Management Act 1970 as the amount the officer considers to be correct or appropriate.

9.4 Penalties: inaccurate information or documents

Paragraph 4 Schedule 35 of the Finance Act 2014 provides for a penalty if in complying with an information duty a person provides inaccurate information or produces a document that contains an inaccuracy.

One of the following conditions must be met before a penalty can be charged:

  • the inaccuracy was careless or deliberate
  • the person knew about the inaccuracy when the information or document was provided but did not tell HMRC about it at that time
  • the person discovered the inaccuracy at some later date but did not take reasonable steps to tell HMRC about it at that time

An inaccuracy is careless if it results from the person failing to take reasonable care. There is detailed guidance about the meaning of reasonable care in HMRC’s Compliance Handbook, starting at CH81120.

A monitored promoter cannot rely on legal advice as evidence of reasonable care if the:

  • advice was not based on a full and accurate description of the facts
  • conclusions in the advice were unreasonable (paragraph 4(4) of Schedule 35)

This means that, when challenging the charging of penalties, monitored promoters cannot rely on legal advice that is not based on a realistic view of the facts, that reaches unreasonable conclusions, or that is subject to caveats that render it irrelevant.

An intermediary or client of a non-resident promoter cannot rely on legal advice provided or procured by that promoter as evidence of having taken reasonable care in complying with an information notice under section 258 (paragraph 4(5) of Schedule 35).

These limitations to the defence of reasonable care should not be taken to imply that in other circumstances it will be enough to demonstrate that legal advice has been obtained in order to establish a defence of reasonable care.

This does not prevent the client or intermediary arguing they have a reasonable excuse. For example a client may argue that they have a reasonable excuse for not providing a document within the time required under an information notice because they unexpectedly had to be admitted to hospital and complied with the obligation as soon as possible after returning home.

The amount of the penalty for providing inaccurate information or documents containing one or more inaccuracies is not to exceed:

The same maximum penalty applies regardless of the number of inaccuracies in the information or a document provided (paragraph 4(9)).

For:

9.5 Penalties: assessment, appeal and interest payable

Paragraph 10 Schedule 35 of the Finance Act 2014 applies the provisions of Part 10 TMA 1970 as machinery for the assessment of penalties. The power given by section 100 of the Taxes Management Act 1970 to an officer of HMRC authorised to impose a penalty and to determine the amount of a penalty is dis-applied for penalties under Schedule 35 except for ongoing daily penalties for which the maximum penalty is set at £600 of this guidance) (paragraph 10(b) of Schedule 35). So in order to charge a penalty under any other part of Schedule 35 an Authorised Officer must institute proceedings before the First-tier Tribunal in accordance with section100C of the Taxes Management Act .

Where an Authorised Officer has determined the amount of an ongoing daily penalty the amount charged is to be paid within 30 days of the date of issue of the notice of determination (section100A) of the Taxes Management Act). There is a right of appeal against a penalty determination in accordance with section 100B of the Taxes Management Act. If the penalty payment is made late interest will be payable (paragraph 11 Schedule 35 of the Finance Act 2014).

Where penalty proceedings are instituted before the First-tier Tribunal the tribunal has discretion to determine whether to impose a penalty and to determine the amount of that penalty in any case. When the tribunal is setting the amount of a penalty for failure to comply with the requirements of Part 5 it must take into account the considerations set out in paragraph 2(4) Schedule 35 of the Finance Act 2014. These are intended to ensure that the amount of penalty acts as a deterrent to future failures.

The tribunal must take into account:

  • that it is desirable to set the penalty at a level that seems likely to deter that person, or other persons, from similar failures to comply in future
  • where the failure is: a failure under section 255 by a monitored promoter or intermediary to provide information or documents; a failure under section 257 by a monitored promoter to meet an ongoing obligation to provide information or documents the amount of fees received, or likely to have been received by that person in relation to the monitored proposal or arrangements to which the information notice relates
  • where the failure is a failure under section 258 by an intermediary or client of a non-resident promoter the amount of the tax advantage intended to be gained from the arrangements that were implemented

In these cases, subject to the maximum amount of penalty that may be charged, it is expected that the tribunal will determine penalties in a larger amount where:

  • there is a very large amount of fee income
  • the intended tax advantage is very large

Where the tribunal has determined the amount of a penalty, the amount charged is treated as if it is tax that is due and payable (section 100C(3) TMA). There is a right of appeal against a penalty determination on a point of law, but also in relation to the amount of the penalty imposed (section100C(4) TMA). The Upper Tribunal then has discretion to confirm the penalty, set it aside, or to increase or decrease the amount (section 100C(5) TMA). If the penalty payment is made late, interest will be payable as if the penalty payment was a payment of tax (paragraph 11 Schedule 35 of the Finance Act 2014).

In some cases, penalties may not be charged.

9.6 Penalties: cases in which penalties may not be charged

Schedule 35 of the Finance Act 2014 removes liability to a penalty in some cases.

Reasonable excuse

Paragraph 9 of Schedule 35 provides that no penalty arises if the person has a reasonable excuse for a failure. There is detailed guidance about what may constitute a reasonable excuse in HMRC’s Compliance Handbook, starting at CH61500.

However, the following do not constitute a reasonable excuse:

  • an insufficiency of funds, unless it results from events that are outside the person’s control
  • relying on another person to do something, unless reasonable care has been taken to ensure that the other person did what they were required to do
  • failure to rectify an issue for which the person had a reasonable excuse, without unreasonable delay
  • reliance on legal advice by a monitored promoter, if the advice was not based on a full and accurate description of the facts, or the conclusions in the advice were unreasonable
  • reliance by an intermediary or client of a non-resident monitored promoter who fails to comply with section 258 on legal advice given or procured by that monitored promoter.

The rule that a monitored promoter (or intermediary or client of a non-resident monitored promoter) cannot rely on legal advice in certain circumstances prevents monitored promoters from claiming to have relied on legal advice, but refusing to release that advice because of legal professional privilege.

These provisions do not require the production of privileged information or documents, but when considering whether or not the promoter has a reasonable excuse in any penalty proceedings the Tribunal will need to consider if the legal advice is based on a realistic view of the facts and reaches a reasonable conclusion. Consequently, undisclosed legal advice cannot be used as a defence against penalties.

Extension of time

If the failure is a failure to meet a deadline, no penalty will be due if the person has been given a longer deadline by an officer of HMRC and has met that longer deadline (paragraph 8 Schedule 35 of the Finance Act 2014).

Conviction on same facts

No penalty will be due under Schedule 35 where the person concerned has been convicted of an offence in relation to the failure that has given rise to that penalty (paragraph 12 Schedule 35 of the Finance Act 2014). This is to prevent 2 sanctions applying for the same offence.

Other penalty on same facts

Paragraph 13 Schedule 35 of the Finance Act 2014 prevents a double charge to penalties for the same failure by a client.

In some cases in which we receive a return that is incorrect because it is incomplete, we may return it for completion. If the return is incomplete because a client has failed to disclose a PRN, penalties under Schedule 35 will be appropriate.

9.7 Penalties: offence of concealing, destroying or disposing of documents

If a monitored promoter, a promoter subject to a conduct notice or, in certain cases, an intermediary of a monitored promoter, is required to produce a document, or is likely to be required to produce a document, and conceals, destroys or disposes of that document, that person is treated by paragraphs 6 and 7 Schedule 35 of the Finance Act 2014 as having failed to comply with the obligation to produce the document.

Paragraph 6 applies to the following:

Once any of those duties have been imposed the promoter or intermediary must not:

If the promoter or intermediary does so they will be treated as having failed to comply with the requirement to produce the document and will be subject to penalties as a result (paragraph 6(4)). An alternative criminal sanction is available if the document was required under section 255 and the notice was subject to approval by the First-tier Tribunal.

There are 2 exceptions. The promoter or intermediary is permitted to conceal, destroy or dispose of such a document if:

  • the requirement to produce the document has been complied with, unless an officer of HMRC has told the promoter or intermediary in writing that the document must continue to be available for inspection (paragraph 6(2))
  • the promoter or intermediary has produced a copy of the document and a period of 6 months has passed from the date on which the copy was produced, unless an officer of HMRC has within that period made a request in writing for the original document (paragraph 6(3) of Schedule 35)

If the document concerned was subject to a requirement to produce under more than one of the listed provisions then:

  • if one of the provisions was section 255 the monitored promoter or intermediary will be treated as only having failed to comply with section 255
  • if the provisions are section 257 and section 262 the promoter will be treated as only having failed to comply with section 257 (paragraph 6(5) of Schedule 35)

The purpose of this priority rule is partly to ensure that a single offence only attracts a single penalty, but also to ensure that:

Paragraph 6 of Schedule 35 is extended by paragraph 7 to cover the case in which no information notice has been issued but the promoter or intermediary has been informed in writing that they will, or are likely to, receive such a notice that will, or is likely to, require production of that document under one or more of the 3 information powers referred to above.

The promoter or intermediary is not permitted to conceal, destroy or dispose of that document, or to arrange for someone else to do so. If the promoter or intermediary does so they will be treated as having failed to comply with the requirement to produce the document. The same priority order as in paragraph 6 is followed where more than one information power applies.

The ban on the promoter or intermediary concealing, destroying or disposing of such a document expires if 6 months have passed since the person has been told about the likely issue of an information notice and no such notice has been issued (paragraph 7(2)(a)). And paragraph 7 will not apply if a notice is issued under section 255, section 257 or section 262, because paragraph 6 will apply instead (paragraph 7(2)(b)). There may, of course, be other reasons why the document should not be destroyed, for example if it is part of statutory records.

9.8 Penalties: offence of concealing, destroying or disposing of documents required under a section 255 of the Finance Act 2014 notice approved by tribunal

Where the requirement to produce a document is imposed on a monitored promoter or an intermediary of that promoter under section 255 of the Finance Act 2014 and the information notice has been approved by the tribunal there is an alternative criminal sanction to that imposed by paragraphs 6 and 7 Schedule 35 that is imposed in priority by section 278 to section 280.

Section 278 applies if:

In these circumstances the monitored promoter or intermediary is guilty of an offence that is subject to the sanctions in section 280.

Thus if a monitored promoter or intermediary conceals, destroys or disposes of documents they are required to produce under section 255 penalties may be charged under Schedule 35 by virtue of paragraph. However, if the giving of the section 255 notice was approved by the tribunal the greater sanction of section 280 applies instead.

There are 2 exceptions in which the concealing, destroying or disposing of a document will not be an offence under section 280. The monitored promoter or intermediary is permitted to conceal, destroy or dispose of such a document if:

  • the requirement to produce the document has been complied with, unless an officer of HMRC has told the promoter or intermediary in writing that the document must continue to be available for inspection (section 278(2))
  • the promoter or intermediary has produced a copy of the document and a period of 6 months has passed from the date on which the copy was produced, unless within that period an officer of HMRC has made a request in writing for the original document (section 278(3))

The offence described in section 278 is extended by section 279 to cover the case in which:

  • an officer of HMRC has told the monitored promoter or intermediary in writing that a document is, or is likely to be, subject to a notice under section 255
  • the officer is to seek approval for that notice from the First-tier Tribunal
  • the monitored promoter or intermediary then conceals, destroys or disposes of the document or arranges for someone else to do so

In these circumstances also the monitored promoter or intermediary is guilty of an offence that is subject to the sanctions in section 280.

The ban on the promoter or intermediary concealing, destroying or disposing of such a document expires if 6 months have passed since the person has been told about the likely issue of an information notice and no such notice has been issued (section 279(2)). There may, of course, be other reasons why the document should not be destroyed, for example if it is part of statutory records.

If a monitored promoter or an intermediary commits an offence under section 278 or section 279 they may be liable under section 280:

  • on summary conviction to a fine in England or Wales, or a fine not exceeding the statutory maximum in Scotland or Northern Ireland
  • on conviction or indictment to a term of imprisonment not exceeding 2 years, or to a fine, or both, see HMRC’s Compliance Handbook, CH27200.

The amount of the fine that may be imposed in England or Wales on summary conviction is limited to the statutory maximum in cases in which the offence is committed before s85(1) of the Legal Aid, Sentencing and Punishment or Offenders Act 2012 (LASPO) came into force (12 March 2015). For offences committed after that date, the penalty on summary conviction in England or Wales is unlimited, but the penalty on summary conviction in Northern Ireland and Scotland remains at the statutory maximum.

Paragraph 12 Schedule 35 ensures that a person cannot be liable to a penalty under Schedule 35 in respect of any action for which that person has been convicted of an offence. So where a monitored promoter is convicted in accordance with section 280 the promoter cannot also be liable for a financial penalty under paragraphs 6 and 7 Schedule 35.

10. Extended time limit for assessment

Where a client of a monitored promoter is required by s253](https://www.legislation.gov.uk/ukpga/2014/26/section/253) of the Finance Act 2014 to provide a promoter reference number (PRN) to HMRC in a return or otherwise, but fails to do so, there is an extended time limit for assessing each of the taxes to which Part 5 applies. The taxes are listed in section 283(1) and 3.3.

The extended time limit provisions for each tax are described as follows:

10.1 Extended time limit: Income Tax and Capital Gains Tax

Section 277(1) of the Finance Act 2014 extends section 36(1A) of the Taxes Management Act 1970 by introducing a new category to which the 20 year assessing time limit for income tax and capital gains tax applies. It applies where there is a loss of income tax or capital gains tax attributable to arrangements that are intended to give rise to a tax advantage, in respect of which the person is required to notify a promoter reference number to HMRC, and the person fails to notify HMRC of that number.

The assessing time limit will be 20 years from the end of the year of assessment to which the loss of tax relates, see HMRC’s Compliance Handbook CH53600.

10.2 Extended time limit: Corporation Tax

Section 277(4) of the Finance Act 2014 extends paragraph 46 of Schedule 18 of the Finance Act 1998 by introducing a new category to which the 20 year assessing time limit for corporation tax applies.

This is at paragraph 46(2A)(d). It applies where there is a loss of corporation tax, including corporation tax on chargeable gains, attributable to arrangements that are intended to give rise to a tax advantage, in respect of which a person is required to notify a promoter reference number to HMRC and fails to do so.

The assessing time limit is 20 years from the end of the accounting period to which the loss of tax relates, see HMRC’s Compliance Handbook CTM95100.

10.3 Extended time limit: Stamp Duty Land Tax

Section 277(5) of the Finance Act 2014 extends paragraph 31 of Schedule 10 of the Finance Act 2003 by introducing a new category to which the 20 year assessing time limit for stamp duty land tax applies. This is at paragraph 31(2A)(d) and it applies where there is a loss of stamp duty land tax attributable to arrangements that are intended to give rise to a tax advantage, in respect of which a person is required to notify a promoter reference number to HMRC and fails to do so.

10.4 Extended time limit: Stamp Duty Reserve Tax

The 20 year extended time limit for stamp duty reserve tax will be made by amending the Stamp Duty Reserve Tax Regulations (SI 1711/1986).

10.5 Extended time limit: Annual Tax on Enveloped Dwellings

Section 277(6) of the Finance Act 2014 extends paragraph 25 of Schedule 33 of the Finance Act 2013 by introducing a new category to which the 20 year assessing time limit for the annual tax on enveloped dwellings applies. This is at paragraph 25(4)(d) and it applies where there is a loss of tax attributable arrangements that were expected to give rise to a tax advantage, in respect of which a person is required to notify a promoter reference number to HMRC and fails to do so.

The assessing time limit is 20 years from the end of the chargeable period to which the loss of tax relates.

10.6 Extended time limit: Petroleum Revenue Tax

Section 277(2) of the Finance Act 2014 extends paragraph 12B of Schedule 2 of the Oil Taxation Act 1975 by introducing a new category to which the 20 year assessing time limit for petroleum revenue tax applies. This is at paragraph 12B(2A) and it applies where a relevant situation is brought about by arrangements that were expected to give rise to a tax advantage and there is a failure by a participator, or by a person acting on behalf of a participator, to notify a promoter reference number to HMRC.

An assessment, or an amendment of an assessment, may be made on the participator at any time up to 20 years from the end of the chargeable period to which the tax advantage relates.

10.7 Extended time limit: Inheritance Tax

Where an Inheritance Tax account has been delivered and there is a loss of inheritance tax attributable to arrangements in respect of which a person was obliged to report a promoter reference number to HMRC the time limit in section 240 of the Inheritance Tax Act 1984 for proceedings to recover the underpayment is extended by section 277(3) of the Finance Act 2014 to 20 years from the latest of:

  • the date on which the original payment of inheritance tax was made and accepted
  • if the inheritance tax was paid in instalments, the date on which the last instalment was paid and accepted
  • the date on which the original payment of inheritance tax, or the last instalment, was due

the Inheritance Tax Manual provides guidance on time limits for liability (IHTM30462).

11. Partnerships

Schedule 36 of the Finance Act 2014 modifies the regime to ensure it applies to persons carrying on business in partnership. The additional provisions are needed because a partnership will in some cases not be a person and because the partners of a partnership may change over time.

The key modifications made by Schedule 36 are:

  • a partnership is deemed to be a person for the purpose of Part 5
  • the responsibilities and liability of partners are defined and the roles of representative partner and nominated partner created to meet responsibilities of the partnership
  • a conduct notice that is given to a partnership will impose requirements on current and future partners
  • where a partnership is subject to a conduct notice that notice will continue to apply to a partner who leaves the partnership and continues as a promoter but no longer in partnership
  • where a partnership is subject to a monitoring notice that notice will continue to apply to a partner who leaves the partnership but continues to carry on a business as a promoter but no longer in partnership

Schedule 36 refers to the ‘members’ of a partnership in describing the persons who are partners. This guidance refers to ‘partners’ because that is the term used in other HMRC guidance, such as the Business Income Manual (BIM82000 onwards).

11.1 Partnerships: partnership treated as a person

Paragraph 1 Schedule 36 treats persons who are carrying on business in partnership as a person for the purposes of Part 5. The Business Income manual provide guidance on the meaning of partnership and of carrying on a business in partnership (see BIM82001 onwards).

Paragraph 1(2) excludes from the definition of partnership any body of persons that is a legal person distinct and separate from its members, for example:

  • a limited liability partnership (see BIM82100)
  • a Scottish partnership (see BIM82035)

The rules in Schedule 36, which apply to partnerships as defined by the Partnership Act 1890, do not apply to limited liability partnerships or Scottish partnerships.

However, the rules for determining whether the meeting of a threshold condition by one person can be attributed to another or whether a defeat in relation to one person can be attributed to another, apply to limited liability partnerships and to Scottish partnerships, by virtue of paragraphs 13A(2) (see paragraphs 13A to 13D of Schedule 34 and paragraphs 17 to 19 and 20 to 22 of Schedule 34A). When applying those rules, note must be taken of the following:

  • a limited liability partnership is a body corporate, and so a relevant body (Schedule 34 paragraph 13A(2))
  • a Scottish partnership is a relevant body, but not a body corporate (Schedule 34 paragraph 13A(2))

Paragraph 2 Schedule 36 treats a partnership as the same person despite changes in the partners making up the partnership, as long as at least one person who was a partner before the change remains a partner after the change. For example, A, B and C carry on a business in partnership as A Promoters. B and C leave the partnership and A carries on the business with new partners D, E and F. The partnership is treated for Schedule 36 as the same person throughout.

Because the partnership is treated as the same person, despite changes in partners, it is treated as having:

  • done anything that was done in their capacity as partners by the persons who were partners at the time
  • failed to do anything that the persons who were partners at the time failed to do in that capacity

This is limited by paragraph 3(3), which only permits action to be taken at a later time in relation to an action or omission by a partner at an earlier time if at least one person who was a partner at the earlier time, remains a partner at the later time.

For example, a partnership meets a threshold condition because of a criminal offence committed by a partner acting in that capacity (see Appendix 1). Two years later, when an Authorised Officer is considering whether to issue a conduct notice, that partner and all of the other persons who were partners at the time the offence was committed, have left the partnership. The partnership is no longer regarded as having met that threshold condition.

In considering whether the actions of a partner are to be attributed to a partnership, for example in considering whether the partnership has met a threshold condition, it is important to consider in what capacity the partner was acting. For example, if inaction by a partner acting on behalf of the partnership results in the partnership failing to comply with DOTAS obligations (see Appendix 1) the partnership has met a threshold condition.

By contrast, if a partner commits a relevant criminal offence (see Appendix 1) but acting in a private capacity and not as a partner, the partnership is not treated as meeting a threshold condition by reason of that offence.

Similarly any action or inaction by a person who is an employee of a partnership will only result in the partnership meeting a threshold condition if the person was acting as an employee of the partnership.

11.2 Partnerships: responsibility of partners

Paragraphs 15 to 17 Schedule 36 of the Finance Act 2014 define the responsibility of partners for the compliance of the partnership with the requirements of Part 5. These are founded on the principle of joint and several liability (see the Business Income Manual BIM82001) but also permit certain things to be done on behalf of the partnership by a representative or nominated partner.

Where a conduct notice, monitoring notice or information notice is given to a partnership, it has effect in relation to all of the persons who are partners at the time when the notice is issued. These partners are referred to as the ‘responsible partners’ (paragraph 15(1)). Anything that is required to be done by the responsible partners is to be done by all of the responsible partners (paragraph 15(3)), unless they put forward a ‘nominated partner’ to act on their behalf, see below.

A person that has ceased to be a partner at the time a notice is given is not a responsible partner for the purpose of that notice, even though the notice may relate to something that happened while that person was a partner (paragraph 15(2)). However, the person who has ceased to be a member of a partnership may still be liable for penalties in respect of things that were done or not done while that person was a responsible partner.

Where POTAS confers any rights on a person, for example a right of appeal against a decision of the First-tier Tribunal to approve the issue of a monitoring notice, that right is to be exercised by all of the persons who were responsible partners at the time, unless there is a nominated partner (see below).

For example, if a partnership had 6 responsible partners when a monitoring notice was issued to the partnership and there is no nominated partner any appeal must be made by all 6 of those partners acting together, including any partners who have since left the partnership (paragraph 15(4)).

Where the partnership is liable to a penalty under Schedule 35, or to interest on such a penalty, the persons who were the responsible partners at the time at which the event took place that gave rise to the liability are jointly and severally liable for payment (paragraph 16), including any who have since ceased to be partners. This means that partners:

  • are not liable for penalties (or interest on penalties) in relation to acts or omissions that took place before they became a partner
  • are only liable for ongoing daily penalties or for interest on such penalties, from the day on which they became a partner

Example

A partnership that is subject to a monitoring notice receives an information notice under section 255 on 8 February 2016.

The partnership is given until 18 February 2016 to comply, but fails to do so. At a hearing on 16 June 2016 the First-tier Tribunal imposes a penalty of £250,000 for the failure.

The partnership continues to fail to comply and on 6 October 2016 the tribunal imposes a further penalty of £5,000 per day for each day since 16 June 2016 for the further failure to comply. A new partner who joins the partnership after 18 February 2016 is not liable for the initial penalty of £250,000 but is jointly and severally liable for the ongoing daily penalties, together with any interest.

A majority of the responsible partners may nominate a person to act as the ‘nominated partner’. That nominated partner will act as the representative of the partnership for the purpose of POTAS and so can carry out any obligation that would otherwise be carried out by all of the responsible partners. The nomination takes effect once an Authorised Officer has been notified, and it can be revoked by giving notice to an Authorised Officer (paragraph 18 of Schedule 36).

Instead of giving notices to every partner, an officer of HMRC may give a notice to a representative partner. This could be the nominated partner, or if no-one has been nominated, a partner designated by an Authorised Officer. If an Authorised Officer wishes to designate a partner as representative partner, or to revoke a nomination, they must do so by notifying the partnership.

11.3 Partnerships: conduct notices and defeat notices

Schedule 36 of the Finance Act 2014 modifies how conduct notices apply in the case of a partnership. This can result in a conduct notice being given to:

  • a partnership where a controlling partner or managing partner (see Appendix 3) of the partnership has met a threshold condition
  • a person that has left a partnership (that was subject to a conduct notice) and that person is carrying on all or part of the business that was formerly carried on by the partnership
  • a former controlling partner of a partnership (that was subject to a conduct notice) and that partner has left the partnership and is carrying on a different business as a promoter

A conduct notice given to a partnership must state that it is a partnership conduct notice (paragraph 5(1)). The conditions imposed by a conduct notice can apply to any person who is a partner when the conduct notice is issued and to any person who becomes a partner at a later date and during the period in which the conduct notice has effect (paragraph 5(2)). For this reason a partnership that is subject to a conduct notice should inform HMRC whenever partners join or leave the partnership.

A defeat notice that is given to a partnership must state that it is a partnership defeat notice (paragraph 4A). Read more about defeat notices.

Paragraph 7 provides for a conduct notice to apply to a former partner who is carrying on the promoter business formerly carried on by the partnership. This is extended by paragraph 10, with some modifications, to deal with the case in which a former partner carries on part of the business of the partnership.

Paragraph 7 applies where:

  • one or more persons have ceased to be partners in a partnership
  • immediately before they ceased to be partners the partnership was subject to a defeat notice or a conduct notice
  • immediately after that time a former partner is carrying on the business of the partnership but no longer in partnership (e.g. as a sole trader)

The former partner who is carrying on the business of the partnership on their own automatically continues to be subject to the defeat notice or the conduct notice that formerly applied to the partnership. There is no change in the duration of that conduct notice.

Example 1

A and B are in partnership as Z Promoters. Z Promoters is subject to a conduct notice. B leaves the partnership and A carries on the business of Z Promoters. The conduct notice that had applied to the business as a partnership now applies automatically to the business carried on by A

Paragraph 10 provides for cases in which a former partner carries on part of the former partnership business either as a sole trader or in a different partnership. In this case the original conduct notice is not automatically applied to the new business. Paragraph 10 applies where:

  • one or more partners leave a partnership
  • immediately before that time the partnership was subject to a conduct notice
  • the departing partner or partners continue to carry on part but not the whole of the partnership business either as a sole trader or in a partnership

A part of the business must have some connection with the business that was previously carried on. For example, the partnership business may have been operated through a series of regional branches and the departing partners may take over one or more of those branches. Or the partnership business might have had a number of different elements, such as the design of relevant proposals, their marketing, management of relevant arrangements and maintaining client relationships.

Departing partners may take over some elements of the business but not others. By contrast, where departing partners only take over fittings or similar assets and begin to carry on a wholly different business they will not have taken on part of the partnership business. Whether or not a conduct notice must be given to the new business will depend on the facts. If the wholly different business is carried on as a promoter paragraph 8 may apply, see below.

An Authorised Officer may give the departing partners:

  • a conduct notice if there is a single partner now carrying on that part of the business (paragraph 10(3)(a)), or
  • a partnership conduct notice if the former partner is now carrying on that part of the business in partnership (paragraph 10(4)(a))

These are referred to as ‘replacement conduct notices’ (paragraph 11(1)). A replacement conduct notice cannot be given after the date on which the original conduct notice expires (paragraph 10(6)) and, if given earlier, it will expire on that date and the notice must state that it will do so (paragraph 12).

Where a replacement conduct notice is a partnership conduct notice it will cease to have effect if all of the persons who were partners of the former partnership cease to be partners of the new partnership (paragraph 10(5)).

Example 2

A, B, C and D are in partnership as Z Promoters. Z Promoters is subject to a conduct notice that will expire on 30 November 2016. The business is split on 1 July 2015, with A and B setting up a new partnership to take on the promotion of new arrangements, while C and D service users of existing arrangements and continue as Z Promoters. A and B take on new partners E and F and trade as Z Promotions.

On 8 July 2015 an Authorised Officer issues a replacement conduct notice to Z Promotions that will expire on 30 November 2016. On 14 September 2016 A and B cease to be partners in Z Promotions. The conduct notice that applies to Z Promotions ceases to have effect on that date. If the partnership left as Z Promoters remains a promoter the existing conduct notice will continue to apply until it expires or is withdrawn.

Paragraphs 7A and 8 provide for a different scenario. They apply where a partner leaves a partnership that is subject to a defeat notice or conduct notice but commences to carry on a business as a promoter. In this case the promoter business carried on by the former partner is different from the business carried on by the partnership. Paragraphs 7A and 8 apply where:

  • a person, who was a controlling partner of a partnership when a defeat notice or a conduct notice was issued, leaves that partnership
  • the defeat notice or the conduct notice had effect at the time the partner left
  • the departing partner is carrying on a business as a promoter

In these circumstances an Authorised Officer may:

  • give the departing partner a defeat notice or a conduct notice (paragraphs 7A(2) and 8(2))
  • if the new business being carried on by that departing partner is carried on in a new partnership and the departing partner is a controlling partner of that new partnership, give the new partnership a defeat notice or a conduct notice (paragraphs 7A(3) and 8(3))

A defeat notice given under paragraph 7A is given in respect of the same relevant defeat or defeats as the original defeat notice.

These are also referred to as replacement defeat notices or conduct notices and will expire in the circumstances described above.

Example 3

A is the controlling partner of a partnership that runs Z Promoters. Z Promoters is subject to a conduct notice that expires on 31 December 2016. On 1 January 2016 A leaves Z Promoters to set up a business in his own name as a promoter. On 8 January 2016 an Authorised Officer issues A with a conduct notice in relation to the business carried on in his own name. The conduct notice will expire on 31 December 2016. If the partnership left as Z Promoters remains a promoter the existing conduct notice will continue to apply until it expires or is withdrawn.

11.4 Partnerships: monitoring notices

Schedule 36 of the Finance Act 2014 modifies how monitoring notices apply in the case of a partnership. A monitoring notice that is given to a partnership must state that it is a partnership monitoring notice (paragraph 6 of Schedule 36).

Where a monitored promoter is a partnership the information that HMRC can publish in accordance with section 248 is information about the partnership and not information about individual partners (paragraph 14 of Schedule 36). A monitored promoter that is a partnership should tell HMRC whenever a partner joins or an existing partner leaves.

There are 3 circumstances in which a monitoring notice can be issued to a partner who is leaving a partnership that has been subject to a monitoring notice. These are where:

  • a person has left a partnership and is carrying on the business that was formerly carried on by the partnership (paragraph 7 of Schedule 36)
  • a person has left a partnership and is carrying on part of the business that was formerly carried on by the partnership (paragraph 10)
  • a former controlling partner of a partnership has left the partnership and is carrying on a new business as a promoter (paragraph 9)

Paragraph 7 provides for a monitoring notice to apply to a former partner who is carrying on the promoter business formerly carried on by the partnership. This is extended by paragraph 10, with some modifications, to deal with the case in which a former partner carries on part of the business of the partnership.

The former partner who is carrying on the business of the partnership automatically continues to be subject to the monitoring notice that formerly applied to the partnership.

Example 1

A and B are in partnership as Z Promoters. Z Promoters is subject to a monitoring notice. B leaves the partnership and A carries on the business of Z Promoters. The monitoring notice that had applied to the business as a partnership now applies automatically to the business carried on by A as Z Promoters.

An Authorised Officer may give the departing partners:

  • a monitoring notice if there is a single partner now carrying on that part of the business (paragraph 10(3)(b))
  • a partnership monitoring notice if the former partner is now carrying on that part of the business in a new partnership (paragraph 10(4)(b))

These are referred to as ‘replacement monitoring notices’ (paragraph 11(1)).

Where a replacement monitoring notice is a partnership monitoring notice it will cease to have effect if all of the persons who were partners of the former partnership cease to be partners of the new partnership (paragraph 10(5)).

Example 2

A, B, C and D are in partnership as Z Promoters. Z Promoters is subject to a monitoring notice. The business is split on 1 April 2016, with A and B setting up a new partnership to take on the promotion of new arrangements, while C and D service users of existing arrangements and continue as Z Promoters. A and B take on new partners E and F and trade as Z Promotions.

An Authorised Officer issues a replacement monitoring notice to Z Promotions on 8 April 2016. On 14 September 2016 A and B cease to be partners in Z Promotions. The monitoring notice that applies to Z Promotions ceases to have effect on that date.

Paragraph 9 provides for a different scenario. It applies where a partner leaves a partnership that is subject to a monitoring notice and carries on business as a promoter. In this case the promoter business carried on by the former partner is different from the business carried on by the partnership.

Paragraph 9 applies where:

  • a person, who was a controlling partner of a partnership when a monitoring notice was issued, leaves that partnership
  • the monitoring notice had effect at the time the partner left
  • the departing partner is carrying on a business as a promoter

In these circumstances an Authorised Officer may:

  • give the departing partner a monitoring notice (paragraph 9(2) of Schedule 36)
  • if the business is being carried on by that person in a partnership and the person is a controlling partner of that partnership, give the partnership a monitoring notice (paragraph 9(3))

These are also referred to as ‘replacement monitoring notices’ (paragraph 11(1)).

Where a replacement monitoring notice is a partnership monitoring notice it will cease to have effect if the person who was a partner of the former partnership ceases to be a partner of the new partnership (paragraph 9(4) of Schedule 36).

Example 3

A is the controlling partner of a partnership that runs Z Promoters. Z Promoters is subject to a monitoring notice. On 1 January 2016 A leaves Z Promoters to expand a business in his own name as a promoter. On 8 January 2016 an Authorised Officer issues A with a monitoring notice in relation to the business carried on in his own name.

11.5 Partnerships: controlling member

Paragraph 19(2) to (5) of Schedule 36 of the Finance Act 2014 defines the term ‘controlling member’ for the purposes of Schedules 34 and 34A (Schedule 34 paragraph 9; Schedule 34A paragraph 23). The controlling member is referred to in this guidance as a controlling partner.

A controlling member of a partnership is a person that has a right to a share of:

  • more than half of the assets of the partnership
  • more than half of the income of the partnership (paragraph 19(1))

The controlling partner must be a single person. Two or more persons cannot be treated as a single controlling partner by combining their interests.

HMRC’s Business Income Manual (BIM82058) explains how to determine whether an asset is an asset of the partnership.

In testing whether a person is a controlling partner, the following interests are to be attributed to the partner:

  • if the partner is an individual, any interests or rights of any connected person
  • the interests or rights of any body corporate that is controlled by the partner (paragraph 19(2))

HMRC’s Company Taxation Manual (CTM00510) explains more about bodies corporate.

The following are connected persons of a partner who is an individual:

  • the partner’s spouse or civil partner
  • any relative of the partner, where relative means any brother, sister, ancestor or lineal descendant
  • the spouse or civil partner of a relative of the partner
  • any relative of the partner’s spouse or civil partner
  • the spouse or civil partner of any relative of the partner’s spouse or civil partner (paragraph 19(3) and (4))

HMRC’s Capital Gains Tax Manual (CG14580) explains the equivalent rule for capital gains tax.

The partner, who may be a natural or legal person, controls a body corporate if the partner has power to secure that the affairs of the body corporate are conducted in accordance with the partner’s wishes. This power may be secured by:

  • the holding of shares in the body corporate or some other body corporate
  • the possession of voting power in the body corporate or some other body corporate
  • the powers conferred by the articles of association or other document regulating the body corporate or some other body corporate (paragraph 19(5))

HMRC’s Company Taxation Manual (CTM60200) explains how these tests should be applied.

12. Appendix 1: threshold conditions

Sections 237 and 237A provide that an Authorised Officer may issue a conduct notice where one or more threshold conditions is met.

Threshold conditions 1 to 11 are set out in Schedule 34 of the Finance Act 2014. Threshold condition 12 is set out in Schedule 34A.

The person that actually meets a threshold condition does not have to be the person, or the only person, to whom a conduct notice may be given. An associated or successor body of the person that met a threshold condition may be treated as having met it.

However, the person that is treated as having met the threshold condition must be a relevant body, which had the required connection with the person that actually met the threshold condition (section 237(1A) and Schedule 34 paragraphs 13B to 13D; section 237A(2) and Schedule 34A paragraphs 20 to 22, see Appendix 3.

12.1 Threshold conditions 1 to 11

Deliberate tax defaulters

A person meets this condition if HMRC publishes information about a person as a deliberate tax defaulter in accordance with section 94 of the Finance Act 2009.

Meeting this condition is always regarded as significant for the purposes of determining whether a conduct notice must be given.

Guidance on deliberate tax defaulters is given in HMRC’s Compliance Handbook.

See Schedule 34, paragraph 2.

Breach of the Banking Code of Practice

Only a person carrying on business as a promoter is capable of meeting this condition. This condition is met if such a person is named in a report published by HMRC as a person breaching the Code of Practice on Taxation for Banks by promoting arrangements that they cannot reasonably have believed achieved a tax result intended by Parliament. Other breaches of the code are not relevant for this purpose.

The GOV.UK guidance on the Banking Code of Practice describes when a bank will be regarded as a promoter for the purpose of the code.

Meeting this condition is always regarded as significant for the purposes of determining whether a conduct notice must be given.

See Schedule 34 paragraph 3.

Dishonest tax agents

A person meets this condition if it has been given a paragraph 4 Schedule 38 FA 2012 ‘conduct notice’ as a dishonest tax agent.

See HMRC’s Compliance Handbook (CH180000) for guidance on dishonest tax agents and on conduct notices (CH182100). The condition is only met if there is no open appeal against the conduct notice, either because the time limit for an appeal has expired, or because an appeal has been made and the Tribunal has confirmed the conduct notice.

Meeting this condition is always regarded as significant for the purposes of determining whether a conduct notice must be given.

See Schedule 34 paragraph 4.

Non-compliance with avoidance disclosure requirements

A person meets this condition if it fails to comply with any of the following conditions for:

  • DOTAS purposes:
    • s310C (duty of promoter to provide updated information)
    • s312(2)(duty of promoter to notify client of reference number)
    • s312A(2) or (2A) (duty of client to notify parties of reference number)
    • s316A (duty to provide additional information)
  • the DASVOIT obligations largely mirror those in relation to DOTAS:
    • Para 11(1) (duty of promoter in relation to notifiable proposal)
    • Para 21(3) (duty of promoter to provide updated information)
    • Para 23(2) (duty of promoter to notify client of reference number)
    • Para 24(3) (duty of client to notify parties of reference number)
    • Para 27(3) (duty of promoter to provide details of clients)
    • Para 33 (duty to provide additional information)

A person fails to comply with the provisions only if one of the following conditions is met :

  • a tribunal determines that a person has failed to comply with one of the provisions listed above, the determination has not been overturned on appeal, all appeals have been determined, withdrawn or otherwise disposed of and no further appeal is possible
  • a tribunal determines that a person has failed to comply but that the person should not have any penalties imposed on them as a result because they either had a reasonable excuse for not having complied or, after the excuse had ceased they did comply without unreasonable delay after the excuse had ceased
  • the person admits the failure in writing to HMRC

National Insurance contributions

DOTAS is applied to National Insurance contributions by virtue of the National Insurance Contributions (Application of Part 7 of the Finance Act 2004) Regulations 2012. Failures of the DOTAS duties mentioned above in relation to notifiable contribution proposals or arrangements mean the threshold condition is met.

Where a person meets this threshold condition, a conduct notice may not be given by virtue of the condition being met unless an Authorised Officer has determined that the meeting of the condition is significant bearing in mind the purpose of the legislation in Part 5 of the Finance Act 2014.

See Schedule 34 paragraph 5.

Criminal offences

A person meets this condition if it has been charged with a relevant criminal offence. The relevant offences are:

  • an offence at common law of cheating in relation to the public revenue
  • in Scotland, an offence at common law of fraud or uttering
  • false accounting (section 17)(1) of the Theft Act 1968 or section 17 of the Theft Act (Northern Ireland) 1969)
  • fraudulent evasion of income tax (section106A) of the Taxes Management Act 1970)
  • false statements, Scotland (section 107) of the Taxes Management Act 1970)
  • an offence under any of the following provisions of the Customs and Excise Management Act 1979: improper importation of goods with intent to defraud or evade duty (section 50(2)); untrue declarations, etc. (section 167); counterfeiting documents, etc. (section 168); fraudulent evasion of duty (section 170); taking steps for the fraudulent evasion of duty (section 170B)
  • an offence under any of the following provisions of the Value Added Tax Act 1994: being knowingly concerned in the evasion of VAT (section 72(1)); false statement, etc. (section 72(3)); conduct involving commission of other offence under section 72 (section 72(8))
  • fraud (section 1 of the Fraud Act 2006)
  • an offence under any of the following provisions of the Commissioners for Revenue and Customs Act 2005: impersonating a Commissioner or officer of Revenue and Customs (section 30); obstruction of an officer of Revenue and Customs, etc. (section 31); assault of an officer of Revenue and Customs (section 32)
  • money laundering (regulation 45(1) of the Money Laundering Regulations 2007 (SI2007/2157))
  • possession of articles for use in fraud (section 49(1) of the Criminal Justice and Licensing (Scotland) Act 2010

The fact that a person has been charged with an offence is disregarded if the person has been acquitted, unless that acquittal is under appeal, and is disregarded if the charge has been dismissed or the proceedings discontinued.

Action can be taken in respect of this condition even though the person has not yet been convicted of the offence with which it has been charged.

It is the person charged that meets this threshold condition. For example, if the person charged is a member or employee of a company or partnership, it is that person that meets the threshold condition, and not the company, or partnership.

Meeting this condition is always regarded as significant for the purposes of determining whether a conduct notice must be given. See schedule 34 paragraph 6.

General Anti-Abuse Rule (GAAR) and enablers

This condition is met if:

  • the GAAR Advisory Panel considers that arrangements in relation to which the person is a promoter are not reasonable – the person who meets the condition in these circumstances is any person who is a promoter in relation to those arrangements
  • a person is given either a:
    • pooled arrangements opinion notice
    • bound arrangements opinion notice, in respect of arrangements that the promoter promoted, and the notices include a report or reports of the opinion of all the members of the sub-panel, or 2 or more members of the sub-panel, that the entering into or carrying out of the tax arrangements is not a reasonable course of action in relation to the relevant tax provisions
  • arrangements which the promoter has promoted are substantially the same as arrangements referred to the GAAR Advisory panel under para 26 Sch16 F(No.2)A 2017, one or more opinion notices given under para 34(3)(b) Sch16 F9No.2)A 2017 apply to the promoted arrangements for the purposes of an enablers penalty

Further guidance on the GAAR is available on GOV.UK.

See Schedule 34 paragraph 7.

Disciplinary action against a person that carries on a trade or profession that is regulated by a professional body

A person meets this condition if it carries on a trade or profession that is regulated by one of the specified professional bodies (Schedule 34 paragraph 8(3)) and is subject to certain disciplinary action. The disciplinary action may be taken by the professional body itself or by an independent body.

There are safeguards that limit the circumstances in which this condition is met. All of the following conditions must have been met.

See Schedule 34 paragraph 8.

Condition A

The person is found guilty of misconduct which is relevant to the provision of tax advice or tax related services. Misconduct is defined in regulations as conduct which a professional body describes as misconduct or conduct which is a breach of a rule or condition imposed by a professional body.

Condition B

A professional body takes action resulting in the claim of misconduct being referred to a disciplinary process or a conciliation, arbitration or settlement process (whatever the process is called) to determine how serious the misconduct is and any penalty to be imposed. The body that determines the gravity of the misconduct and the size of any penalty may be the professional body itself or an independent body.

Condition C

The penalty imposed for the misconduct takes the form of:

  • a fine or financial penalty greater than £5,000
  • one or more conditions or restrictions on the person in connection with a certificate or licence required to practice under the professional body
  • suspension, withdrawal or non-renewal of a certificate or licence required to practice under the professional body
  • suspension, expulsion or exclusion of the person from membership of the professional body either temporarily or permanently; it does not matter how this penalty is described by the body imposing it (suspension etc could, for example, take the form of removing the person from the membership register or striking them off)

In practice a person being found guilty of misconduct will in most circumstances not lead to the potential consideration of giving a conduct notice unless the misconduct relates to tax avoidance. This follows from the nature and purpose of the legislation.

Misconduct in matters that relate solely to the person’s relationship with the professional body, such as non-payment of membership fees to the body, is to be ignored for this purpose.

The professional bodies to which this condition relates are:

  • the Institute of Chartered Accountants in England and Wales
  • the Institute of Chartered Accountants of Scotland
  • the General Council of the Bar
  • the Faculty of Advocates
  • the General Council of the Bar of Northern Ireland
  • the Law Society
  • the Law Society of Scotland
  • the Law Society of Northern Ireland
  • the Association of Accounting Technicians
  • the Association of Chartered Certified Accountants
  • the Association of Taxation Technicians
  • the Chartered Institute of Taxation
  • Chartered Accountants Ireland

HMRC has a power to add to this list by prescribing other bodies with regulatory functions in relation to a trade or profession.

Disciplinary action by a regulatory authority

A person meets this condition if the Financial Services Authority [FSA] or the Financial Conduct Authority (FCA) publishes or has published a statement of misconduct by that person. A person also meets this condition if the FSA or FCA imposes or has imposed on the person one or more of the following sanctions:

  • a fine or financial penalty
  • a suspension of an approval to perform any function to which the approval relates
  • the imposition of limitations or other restrictions in relation to the performance of any function to which an approval issued by the regulatory authority relates
  • the imposition of any conditions in relation to any such approval

HMRC has a power to add to this list by prescribing other regulatory authorities, but only in relation to authorities that have functions relating to the regulation of financial institutions.

Regulated institutions are not required or expected to tell HMRC when there has been a finding of misconduct or a relevant sanction has been imposed. This is public information and HMRC will learn of misconduct as part of its normal functions. HMRC may want to find out more detail than is available publicly on some occasions but would only seek to do so in accordance with any applicable restrictions on confidentiality. The number of such cases is likely to be small.

In practice disciplinary action taken by a regulatory authority will not in most circumstances lead to consideration of giving a conduct notice unless the misconduct relates to tax avoidance. This follows from the purpose of the legislation.

**Example Promoter A has a sanction imposed for mis-selling PPI insurance. The products concerned are not designed for the purposes of avoiding tax and do not form part of any relevant arrangements. Any mis-selling that may have occurred is a matter for the appropriate sector regulators and will not be considered as the meeting of a threshold condition for the purposes of the legislation.

Misconduct in matters that relate solely to the person’s relationship with the regulatory authority, such as the non-payment of fees, is to be ignored for this purpose.

See Schedule 34 paragraph 9.

Exercise of information powers

A person meets this condition if it fails to comply with an information notice.

The relevant notices are:

  • requests for information or documents from a taxpayer (paragraph 1, Schedule 36 of the FA 2008)
  • requests for information or documents from a third party (paragraph 2, Schedule 36 of the Finance Act 2008)
  • requests for information or documents from a third party about persons whose identity is not known to the HMRC officer (paragraph 5, Schedule 36 of the Finance Act 2008)
  • requests for information or documents from a third party about persons whose identity is not known, but where it can be ascertained from information held by the officer (paragraph 5A, Schedule 36 of the Finance Act 2008).
  • requests for information or documents under the DOTAS information powers (section 308A, 310A, 313ZB, 313A, and 313B Finance Act 2004
  • requests for information or documents under the DASVOIT information powers (paras 16, 19, 28, 29 and 30 Schedule 17 to F(no.2)A 2017

The notices do not have to be in relation to a person’s activities as a promoter. The threshold condition is also met if the notices in question relate to the person’s own tax affairs.

See HMRC’s Compliance Handbook (CH23060 onwards) to find out more about information notices.

The time at which the failure to comply occurs, and so at which the threshold condition is met, is the time at which the deadline for complying with the information notice passed without the recipient of the notice complying with it.

See Schedule 34 paragraph 10.

Restrictive contractual terms

Only a person carrying on a business as a promoter that imposes certain restrictive contractual terms on a client or on any other person in relation to a relevant proposal or relevant arrangements can meet this condition.

The restrictive contractual terms are:

  • preventing or restricting a person from disclosing to HMRC information relating to avoidance arrangements (paragraph 11(2)); this may be by referring to HMRC specifically, or by referring to a wider class of persons that includes HMRC,
  • requiring a person to impose an obligation on any tax adviser to whom that person discloses information about the arrangements preventing or restricting the tax adviser from disclosing information about the arrangements to HMRC (whether or not the obligations refers to HMRC specifically) (paragraph 11(3))
  • requiring the person to meet or contribute to the costs of any proceedings relating to any arrangements promoted by the promoter, or take out insurance to insure against the costs of proceedings relating to arrangements promoted by the promoter and implemented by that person
  • requiring the person to obtain the consent of the promoter before entering into an agreement with HMRC in relation to arrangements promoted by the promoter and implemented by that person, or withdrawing or discontinuing any appeal against a decision relating to those arrangements

The normal payment of fees by a client to an adviser for the purpose of discussions or correspondence with HMRC to agree the client’s tax position is not relevant to this threshold condition. The usual case to which the condition about contributing to costs will apply is where a promoter requires a user of arrangements to contribute to a fighting fund intended to pay for a lead appeal to be litigated.

The threshold condition is only met for conditions relating to costs and to obtaining consent before reaching agreement with HMRC if the promoter imposes both conditions. If the promoter only requires a person to contribute to a fighting fund or take out insurance, or only requires a person to obtain consent before reaching agreement with HMRC, the threshold condition is not met.

Proceedings includes any process for resolving disputes, not only appeal proceedings, and includes proceedings that have not yet begun.

Where a person has met this threshold condition, a conduct notice may not be given by virtue of the condition being met unless an Authorised Officer has determined that the meeting of the condition is significant bearing in mind the purpose of the legislation in Part 5 of the Finance Act 2014.

See schedule 34 paragraph 11.

Failing to comply with the terms or obligations of a stop notice

Where a person is the recipient of a stop notice failing to comply with the terms of that stop notice, or the obligations imposed by it will meet this condition. This includes:

  • promoting a scheme of a description specified in a stop notice
  • failing to make the required quarterly return of relevant clients under s236C(1)
  • failing to comply with any obligations under schedule 36 FA2008 as it has effect as a result of s272A.

3 or more relevant proposals being defeated

A person may meet this threshold condition if they promote avoidance arrangements that are regularly defeated by HMRC.

A person meets this threshold condition if:

  • during the period of 3 years, ending at the relevant time, 3 relevant defeats have occurred in relation to that person (section 237A(11))
  • a single defeat notice has been given to that person and, during the 5 year look-forward period, 2 relevant defeats occur in relation to that person (section 237A(12))
  • a double defeat notice has been given to that person and, during the 5 year look-forward period, one relevant defeat occurs in relation to that person (section 237A(13))

See section 237A and Schedule 34A.

13. Appendix 2: relevant defeat

This section refers to Part 2 of Schedule 34A (paragraphs 2 to 16).

Threshold condition 12 is designed to identify and change the behaviour of a person carrying on a business as a promoter that promotes avoidance arrangements that are regularly defeated by HMRC.

To achieve this it is necessary to identify whether what has been defeated is separate and distinct from other arrangements promoted by that person, or whether it is similar enough to be grouped together with those other arrangements.

The legislation defines arrangements that are ‘related’. It also defines arrangements that are ‘promoted arrangements’ in relation to a person, and what constitutes a ‘relevant defeat’ where arrangements are, or are not, related.

Relevant defeats are used in connection with determining whether:

  • a person meets threshold condition 12 (section 237A)
  • a conduct notice given as a result of a person meeting that threshold condition is only provisional (section 237C)
  • a defeat notice must be issued (section 241A)

Relevant arrangements are related if they are substantially the same as other relevant arrangements (see paragraph 2(1)).

The phrase substantially the same takes its ordinary meaning. But to the extent that arrangements would not otherwise be considered to fall within that meaning, certain types of arrangements are treated for POTAS purposes as being substantially the same. These are arrangements:

  • to which the same reference number has been allocated under the Disclosure of Tax Avoidance Schemes (DOTAS) regime, or the VAT Disclosure regime (VADR), or the Disclosure of Avoidance Schemes: VAT and Other Indirect Taxes (DASVOIT) regime (see paragraph 2(3) and (4))
  • in respect of which follower notices have been given under Part 4 of the Finance Act 2014 by reference to the same judicial ruling (paragraph 2(5))
  • which are treated as equivalent arrangements for the purposes of the General Anti-Abuse Rule in Part 5 of the Finance Act 2013 (paragraph 2(6))

See paragraph 2, Schedule 34A.

These are relevant arrangements in relation to which a person (i.e. the person to which we may give a Defeat Notice or that may meet threshold condition 12) is, or has been, a promoter. When a person is a promoter in relation to relevant arrangements is defined in section 235(2) and (3).

For the purposes of paragraph 3, relevant arrangements includes arrangements involving VAT. See paragraph 3, Schedule 34A.

13.3 Relevant defeats

When relevant arrangements are defeated, that defeat may be of arrangements that fall within the meaning of related arrangements in paragraph 2, or not. Paragraph 4 deals with the defeat of single arrangements, while paragraph 5 deals with the defeat of related arrangements (“defeat” is defined in Schedule 34A, paragraphs 11 to 16, and described later in this appendix).

Relevant defeat of single arrangements (paragraph 4)

A relevant defeat of single arrangements occurs, in relation to a person, if the defeated arrangements are promoted arrangements of that person, but are not related to any other arrangements that are promoted arrangements in relation to that person.

See paragraph 4, Schedule 34A.

If Case 1, 2 or 3 applies, a relevant defeat of related arrangements occurs, in relation to a person, if:

  • the arrangements are promoted arrangements in relation to that person (referred to as ‘Set A’)
  • are related to other arrangements that are promoted arrangements in relation to that person

The ‘related arrangements’ means the arrangements in ‘set A’ that are promoted arrangements of a person and other arrangements that are promoted arrangements in relation to that person. This definition is used in paragraphs 7, 8 and 9, that describe Cases 1, 2 and 3.

See paragraph 5(3), Schedule 34A.

Meaning of defeat

Arrangements are defeated if any of Conditions A to F in paragraphs 11 to 16 is met in relation to them.

Condition A

This condition, described in paragraph 11, is met when a tax advantage is counteracted under the general anti-abuse rule (GAAR) in Part 5 of the Finance Act 2013 and the counteraction is final, i.e. can no longer be varied on appeal, or otherwise.

Condition B

This condition, described in paragraph 12, is met when a Follower Notice is given to a person under Part 4, chapter 2 of the Finance Act 2014:

  • the person has taken the necessary corrective action
  • the person has not taken corrective action, the tax advantage has been counteracted and that counteraction is final

Condition C

This condition, described in paragraph 13, is met if the arrangements have been, or should have, been, notified under the Disclosure of Tax Avoidance Schemes rules in Part 7 of the Finance Act 2004 (excluding those in respect of which a notice has been given under section 312(6) of the Finance Act A2004), the asserted tax advantage is counteracted and the counteraction is final.

Condition D

This condition, described in paragraph 14, is met when the arrangements are Disclosable VAT or other Indirect Tax arrangements, a person is a party to them and in a return claimed the relevant tax advantage, the advantage is counteracted and the counteraction is final.

Disclosable VAT or other Indirect Tax arrangements means that the arrangements are notifiable under either the Disclosure of Avoidance Schemes regime section 58 and Schedule 11A of the Value Added Tax Act 1994, or the Disclosure of Avoidance Schemes: VAT and Other Indirect Taxes rules in Schedule 17 of the Finance (No.2) Act 2017 Schedule 34A paragraph 26A.

Condition E

This condition, described in paragraph 15, is met when the arrangements are Disclosable VAT arrangements, a taxable person (T) is party to them and obtains the tax advantage, but the arrangements also relate to the VAT position of another person (S) that made taxable supplies to T, the advantage made by T is counteracted, and the counteraction is final.

Condition E does not apply to indirect taxes other than VAT.

Condition F

This condition, described in paragraph 16, is met when all, or part, of the asserted tax advantage would not arise if a particular avoidance-related rule (for instance a targeted anti-avoidance rule (TAAR) applies and there is a final judicial ruling upholding HMRC’s view that the asserted tax advantage is to be counteracted by the TAAR. Avoidance-related rule means a rule in category 1 or category 2 in paragraph 25, Schedule 34A.

Defeats within Case 1, 2 or 3

Defeats are categorised as Case 1 where a counteraction is upheld by judicial ruling, Case 2 where there is a judicial ruling that an avoidance-related rule applies or Case 3 where, in the absence of a final judicial ruling a certain proportion of the arrangements have been defeated.

Case 1

Case 1 applies when there is a final judicial ruling, in relation to any of the arrangements that are related, upholding a counteraction that relates to the General Anti-Abuse Rule, the issue of a Follower Notice, DOTAS arrangements or VAT arrangements (Conditions A to E in paragraphs 11 to 15).

See paragraph 7 Schedule 34A.

Case 2

Case 2 applies when there is a final judicial ruling, in relation to any of the arrangements that are related, upholding a counteraction that relates to a Targeted Anti-Avoidance Rule (Condition F in paragraph 16).

See paragraph 8 Schedule 34A.

Case 3

Case 3 applies if:

  • there are multiple users of the same proposal (i.e. the same proposal for arrangements has been implemented by a number of tax arrangements which are related arrangements)

  • absent a judicial ruling upholding the asserted tax advantage in relation to any of the related arrangements, we have settled at least 75% of the open disputes in relation to those users (the tested arrangements)

See paragraph 9 Schedule 34A.

14. Appendix 3: treating a person as meeting a threshold condition met by another person

See Part 2 of Schedule 34 (paragraph 13A).

In certain circumstances, a person (P) can be treated as having met a threshold condition that was met by another person. This treatment allows an Authorised Officer to consider giving P a conduct notice. The rules that determine when this can happen are in Schedule 34 (for threshold conditions 1 to 11) and Schedule 34A (for threshold condition 12). Those rules rely on 2 tests, “control” and “significant influence”.

14.1 Control and significant influence

A person has control or significant influence over a body corporate or partnership if they have the power to ensure that the affairs of a body corporate are conducted in accordance with their wishes.

When POTAS was introduced in the Finance Act 2014, while provision was made for the circumstance where the person meeting the threshold condition is a partnership, no provision was made for the circumstance where the person in control of or under the control of the person meeting a threshold condition is a partnership.

The test of control was based only on the control test in Corporation Tax Act 2009 section 1124. No provision was made for circumstances in which:

  • control is exercised through a partnership
  • no single shareholder has control but two or more together have control
  • a person does not have control but that person has, or two or more persons together have, sufficient influence to ensure that the affairs of a body corporate are conducted in accordance with their wishes

Given that a promoter business can also be carried on through a partnership, as part of a wider strengthening of the regime, with effect from 26 March 2015, the Finance Act 2015 amended the POTAS control test, so that it also considers a person’s interest in a partnership.

In 2017 the rules were further strengthened to deal with situations where no person, on its own, has control by reason of share ownership or voting rights and with situations where more complex ownership and day-to-day control issues arise.

With effect from 17 April 2017, the Finance Act 2017 amended the control test, so that in addition to considering whether one person has control, it can consider whether two or more persons together have control. It also made provision for the situation where a person or persons who do not have control in terms of the control test are able to ensure that the affairs of a body corporate or partnership are conducted in accordance with their wishes through the exercise of ‘significant influence’ over a body corporate or partnership.

For instance, share ownership could be structured to ensure that no person, on their own, meets the control test, because two or more persons have equal holdings of shares or members’ interests. Similarly, through the use of structures or relationships a person may be able to arrange that they have no such holdings while still being able to ensure that the affairs of a body corporate or partnership are conducted in accordance with their wishes.

Control of a body corporate

With effect from 17 July 2014, paragraph 13 (4) of Schedule 34 provided that for POTAS purposes a person is regarded as controlling a body corporate if it can secure that the body corporate conducts its affairs in accordance with that person’s wishes, by means of:

  • holding shares or possession of votes in that body corporate or any other body corporate
  • powers conferred by any document regulating that body corporate or any other body corporate

Control of a body corporate through a partnership

With effect from 26 March 2015, the Finance Act 2015 added a third element to the control test, now paragraph 13A(5), to provide also for control through a partnership.

A person is now regarded as controlling a body corporate if it can secure that the body corporate conducts its affairs in accordance with that person’s wishes, by means of:

  • holding shares or possession of votes in that body corporate or any other body corporate
  • powers conferred by any document regulating that body corporate or any other body corporate
  • controlling a partnership

Joint control of a body corporate

With effect from 17 April 2017, the Finance Act 2017 further strengthened the control test, to provide that two or more persons together control a body corporate if together they satisfy the tests in paragraph 13A(5) (Schedule 34 paragraph 13A(6)).

Control of a partnership

With effect from the 26 March 2015, the Finance Act 2015 further strengthened the control test, so that a person controls a partnership if they are the controlling member or the managing partner (Schedule 34 paragraph 13A(6)):

  • a person is a “controlling member” at any time when they have the right to a share in more than half of the assets or income of the partnership (Schedule 34 paragraph 13A(7) with Schedule 36 paragraph 19(1))
  • a person is a “managing member” if they are the member that directs, or is on a day-to-day level in control of, the management of the business of the partnership (Schedule 34 paragraph 13(8))

With effect from 17 April 2017, the Finance Act 2017 simplified this part of the test of control, so that a person controls a partnership if they are a member and:

  • have the right to a share in more than half of the assets or income of the partnership (Schedule 34 paragraph 13A(7)(a))
  • direct, or are on a day-to-day level in control of, the management of the business of the partnership (Schedule 34 paragraph 13(7)(b))

Joint control of a partnership

With effect from 17 April 2017, FA 2017 further strengthened the control test, to provide that two or more persons together control a partnership of which they are members if together they satisfy either of 2 tests, which are the same as those in paragraph 13A(7) (Schedule 34A paragraph 8).

Significant influence

Also with effect from 17 April 2017, the Finance Act 2017 introduced a new test of “significant influence”, to identify persons that do not control a body corporate or partnership but who are able to ensure that the body corporate or partnership conducts its affairs in accordance with their wishes (Schedule 34, paragraph (10) and (11)).

As with the strengthened test of control, the test for significant influence applies where one person has, and where two or more persons together have, significant influence over a body corporate or partnership.

Circumstances in which a person can be treated as having met a threshold condition

When POTAS was first introduced, the Finance Act 2014 (Schedule 34 paragraph 13) provided that where a business is carried on by a body corporate it could be treated as having met a threshold condition met by another person if that person controlled the body corporate:

  • when it met the threshold condition (Schedule 34 paragraph 13(1)(a)
  • when an authorised officer is making a determination under section 237 in relation to the body corporate (Schedule 34 paragraph 13(1)(b) and (c))

With effect from 26 March 2015, the Finance Act 2015 replaced paragraph 13 with paragraphs 13B to 13D, to extend the circumstances in which a body corporate may be treated as having met a threshold condition met by another person.

These rules apply to threshold conditions 1 to 11. With effect from 15 September 2016, the Finance Act 2016 introduced Schedule 34A paragraphs 20 to 22, to provide similar rules in paragraphs 13B to 13D for threshold condition 12 (see Appendix 4).

There are 3 circumstances in which a person can be treated as meeting a threshold condition met by another person. Where the person that met the threshold condition:

  • controls (or has significant influence over) the person treated as meeting it
  • is controlled by (or under the significant influence of) the person treated as meeting it
  • the person that met it and the person treated as meeting it are under common control (or common significant influence), whether simultaneously or consecutively

Person that met threshold condition controls the person treated as meeting it (paragraph 13B, paragraph 20)

A relevant body is treated as having met a threshold condition if condition A, B or C is met.

Condition A

This is when a person met the threshold condition it was carrying on a business as a promoter, and at the time when consideration is being given to whether the relevant body is treated as meeting a threshold condition, that person controls or has significant influence over the relevant body.

Condition B

This is when a person met the threshold condition it controlled or had significant influence over the relevant body, that body was carrying on a business as a promoter, and at the time when consideration is being given to whether the relevant body is treated as meeting a threshold condition, that person controls or has significant influence over it.

Condition C

This is when the same as condition B, except two or more persons together control the relevant body.

Person that met threshold condition is controlled by the person treated as meeting it

(See paragraph 13C, paragraph 21)

A person is treated as meeting a threshold condition if:

  • a relevant body that person controlled or over which it had significant influence met the threshold condition
  • that relevant body, or another relevant body which that person controlled or over which it had significant influence was carrying on a business as a promoter

It does not matter whether the relevant body still exists.

Person that met threshold condition and person treated as meeting it are under common control

(See paragraph 13D, paragraph 22) A relevant body controlled or significantly influenced by a person, is treated as meeting a threshold condition, if any other relevant body controlled or significantly influenced by that person met that threshold condition at a time when it or any other relevant body controlled or significantly influenced by that person was carrying on a business as a promoter.

It does not matter when the relevant bodies were created or whether they still exist.

15. Appendix 4: attributing relevant defeats

Part 3 of Schedule 34A (paragraphs 17-19) contains rules for treating a relevant defeat occurring in relation to one person as having occurred in relation to another. Where the conditions are met, the defeat is treated as a relevant defeat of that other person for all purposes of Part 5 of the Finance Act 2014.

This means that a defeat notice can be given to that other person and that the defeat can be counted towards meeting threshold condition 12 (section 237A(11), (12), (13)). These rules are similar to, but not as extensive as, the rules that treat a person as having met a threshold condition that was met by another person (paragraphs 13B to 13D of Schedule 34 and paragraphs 20 to 22 of Schedule 34A.

15.1 Appendix 4.1 Treating a relevant defeat as having been incurred by an associated person

Paragraph 17 of Schedule 34A, of the Finance Act 2014 provides that where a relevant defeat occurs in relation to a person (Q), (i.e. Q promoted the defeated arrangements), it is to be treated as having occurred in relation to another person (P), if one of two conditions is met. For the purposes of this test, Q is presumed to have existed at the time of the relevant defeat, even if it did not (paragraph 17(1)(c)(ii)).

Condition 1 can be met where P is not an individual. The condition is met if:

  • at a time when the arrangements in question were promoted arrangements in relation to Q, P was a relevant body controlled by Q, or Q was a relevant body controlled by P
  • at the time when a relevant defeat occurred in relation to Q, Q is a relevant body controlled by P, P is a relevant body controlled by Q or both are controlled by a third person (if Q no longer existed at that time, it is deemed to exist at that time, paragraph 17(1)(c)(ii))

Condition 2 is met if P and Q are relevant bodies and:

  • at a time when the arrangements in question were promoted arrangements in relation to Q, another person (C) controlled Q
  • at the time when a relevant defeat occurred in relation to Q, C controls P (if Q no longer existed at that time, it is deemed to exist at that time, paragraph 17(1)(c)(ii))

It does not matter whether:

  • Q still exists when the defeat occurs (paragraph 17(1)(c)(ii))
  • P was in existence when Q was promoting the defeated arrangements
  • Q was given a section 241A defeat notice
  • C ever carried on business as a promoter

Appendix 4.2 Treating a person as having received a defeat notice at the time a defeat occurred in relation to another person

Paragraph 18 of Schedule 34A, of the Finance Act 2014 provides that, in certain circumstances, where a person (P) incurs a relevant defeat, they can be treated as having been given a single or double defeat notice, in relation to what is termed a “third party defeat” that occurred more than 3 years earlier, at the time when that third party defeat or those third party defeats occurred. A third party defeat is a relevant defeat that occurred in relation to another person (paragraph 18(9)).

The circumstances are that:

  • a conduct notice, or a single or double defeat notice, has been given to the other person
  • at the time of the third party defeat an Authorised Officer could have given P a defeat notice by virtue of the associated person rules in paragraph 17, (single or double depending on whether there are one or two third party defeats) had they been aware that it was a relevant defeat in relation to P
  • had they given a defeat notice to P at that time it would still have effect when P incurred its relevant defeat

This allows the Authorised Officer to consider whether a single or double defeat notice is appropriate in relation to P’s incurring a relevant defeat and therefore whether it is appropriate to consider giving P a conduct notice under section 237A.

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