Policy paper

Strengthening the Indirect Tax Avoidance Disclosure Regime

Published 5 December 2016

Who is likely to be affected

Promoters and users of indirect tax avoidance schemes.

General description of the measure

This measure replaces the VAT regime for disclosure of avoidance, which currently only covers VAT. It moves the responsibility for disclosing VAT avoidance schemes to HM Revenue and Customs (HMRC) from scheme users to scheme promoters.

It also widens the scope of the disclosure regime to include all indirect taxes.

The measure will require promoters of indirect tax avoidance schemes to provide details of schemes at the earliest of: the date the promoter first makes a firm approach to another person about the proposed scheme; the date the proposals are first made available for implementation by another; or the date the promoter first becomes aware of any transaction which forms part of the scheme. In some circumstances where arrangements or proposed arrangements are substantially the same as arrangements already notified to HMRC, the promoter will not be required to make a further disclosure.

If a person uses a tax avoidance scheme the promoter of which does not belong in the UK, or there is no promoter of the scheme, the user of the scheme will be required to disclose it to HMRC.

When a promoter notifies HMRC of details of a scheme, HMRC will issue a reference number and the promoter must notify their clients of this number. The promoter must provide HMRC with certain details about these clients; those details will be contained in Regulations. The client will be required to notify HMRC of their use of a scheme, and the scheme number.

Policy objective

This measure reforms the way indirect tax avoidance is notified to HMRC so that it more closely resembles the regime for disclosure of avoidance of direct taxes, Disclosure of Tax Avoidance Schemes (DOTAS). This forms an important part of the government’s fight against tax avoidance by giving HMRC earlier and more comprehensive detail about VAT avoidance schemes as they emerge and provide a coherent approach to the requirements to disclose tax avoidance schemes.

Expanding the scope of the disclosure regime to encompass all indirect taxes will allow HMRC early insight into emerging avoidance in these areas.

Background to the measure

At Budget 2016, the government announced a joint consultation on these proposals and regulations concerning disclosure of Inheritance Tax avoidance, entitled ‘Strengthening the Tax Avoidance Disclosure Regimes for Indirect Taxes and Inheritance Tax’. The consultation ran from 20 April 2016 to 13 July 2016.

A consultation response document will be published with the draft legislation.

Detailed proposal

Operative date

The measure will have effect from 1 September 2017 and will affect those who promote schemes after this date.

Current law

Current law is set out at section 58A and Schedule 11A to the Value Added Tax Act 1994 and accompanying Regulations.

Proposed revisions

Legislation will be introduced in Finance Bill 2017 to set out the requirements of promoters of indirect tax avoidance arrangements to disclose their schemes to HMRC. The legislation will provide that once a scheme is disclosed to HMRC, they must issue a scheme reference number to the promoter, who in turn must pass this number on to all users of the avoidance scheme. Scheme users must inform HMRC when they use a disclosed scheme.

If there is any dispute concerning whether or not a scheme should be disclosed, HMRC may apply to the tax tribunal for an order to say the arrangements are disclosable or must be treated as if they were.

HMRC may apply to the tribunal for penalties of up to £600 per day for a failure to disclose arrangements or provide certain information. Where a promoter fails to disclose arrangements or proposals when they should have been disclosed, the tribunal may impose a penalty of up to £1 million if the penalty would otherwise appear inappropriately low.

The types of tax arrangement which will have to be disclosed to HMRC, the time limits for making disclosures and the form in which they should be made will be set out in regulations.

Summary of impacts

Exchequer impact (£m)

2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021
-	nil	nil	nil	nil

This measure is not expected to have an Exchequer impact.

Economic impact

This measure is not expected to have any significant economic impacts.

Impact on individuals, households and families

There will only be an impact on those individuals who promote or engage in tax avoidance.

This measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

It is not anticipated that this measure will have adverse impacts on any group with protected characteristics.

Impact on business including civil society organisations

This measure is expected to have a negligible administrative impact on promoters of indirect tax avoidance schemes who will now have to provide HMRC with information. One-off costs include familiarisation with the new rules and may also include setting up a new process and/or system to provide HMRC with the required information. On-going costs include providing information to HMRC about clients and listed and hallmarked schemes as required, and notifying clients of the scheme reference number allocated by HMRC. In most cases, promoters will already have these systems in place to comply with their DOTAS requirements. There is no impact on civil society organisations.

Operational impact (£m) (HMRC or other)

HMRC will have to make changes to IT systems to implement this measure, at an estimated cost of £62,000.

Other impacts

Justice impact test: there will be a minimal impact on the Ministry of Justice Tribunal Service.

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be monitored through monitoring of disclosures of indirect tax avoidance schemes, and through communication with taxpayers and practitioners affected by the measure.

Further advice

If you have any questions about this change, please contact Pete Woodham on Telephone: 03000 586533 or email: peter.woodham@hmrc.gov.uk.