Disclosure of tax avoidance schemes
Find out about the rules for disclosure of tax avoidance schemes for VAT, direct taxes and National Insurance contributions and penalties for non disclosure
If you’re involved in tax avoidance that is disclosable under the disclosure rules, you must let HM Revenue and Customs (HMRC) have information about the scheme. This helps us to:
- get early information about schemes and how they’re claimed to work
- find out quickly who has used a scheme
If you don’t tell HMRC about a scheme that must be disclosed you could be liable to a penalty.
There are 2 different disclosure regimes, one for VAT and one for direct taxes and National Insurance contributions.
The disclosure regime for VAT has 2 categories - listed schemes and hallmarked schemes.
Listed schemes are specific schemes (there are currently 10) that are defined in the disclosure legislation. If you’re registered for VAT in the UK, or are liable to be, and you’re involved in a listed scheme you must notify HMRC unless your annual turnover (or if you’re part of a group, the turnover of the group you belong to) is below £600,000.
Hallmarked schemes are schemes that include or are associated with a ‘hallmark’ of avoidance defined in the legislation. You don’t need to make a disclosure if either of the following applies:
- a third party, such as the scheme promoter, has voluntarily disclosed the scheme to HMRC and provided you with the Voluntary Registration Scheme (VRS) reference number
- you or the group you belong to has an annual turnover below £10 million
The issue of a VRS reference number doesn’t mean that HMRC approves of any analysis of the tax effect of the scheme given in the disclosure. HMRC doesn’t approve tax avoidance schemes.
If you need to disclose the scheme to HMRC but don’t, you may be liable to a penalty. This could be:
- 15% of the VAT you’ve sought to save for listed schemes
- up to £5,000 for hallmarked schemes
Direct taxes and National Insurance contributions
The disclosure of tax avoidance schemes (DOTAS) regime covers Income Tax, Corporation Tax, Capital Gains Tax, Stamp Duty Land Tax, Inheritance Tax, Annual Tax on Enveloped Dwellings and National Insurance contributions.
Under DOTAS certain people must provide information to HMRC about avoidance schemes within 5 days of the schemes being made available or implemented. Usually the person providing the information will be the promoter of the scheme - the person who designs or markets the scheme. But you must still notify HMRC if you’re a user of a scheme (usually the promoter’s client).
The legislation imposes a number of tests to determine if disclosure is required. Briefly these are:
- Are there arrangements, such as a scheme, or proposals for arrangements?
- If there are, is that scheme expected to provide a tax advantage?
- Is getting a tax advantage expected to be one of the main benefits?
- Does the scheme fall within one of a number of descriptions, called ‘hallmarks’?
There are 8 hallmarks aimed at new and innovative schemes, marketed schemes and targeting specific schemes, for example, loss schemes.
If you’re a promoter you must provide the Scheme Reference Number (SRN) that HMRC gives you to any of your clients using the scheme. The scheme user must then report the SRN to HMRC, usually when submitting a tax return.
Issuing an SRN doesn’t mean that HMRC approves the scheme. HMRC doesn’t approve avoidance schemes.
You must let HMRC have information about employees who may be advantaged by avoidance schemes where you have received a SRN from a promoter. If there’s a tax advantage for employers, this should also be reported to HMRC.
For each SRN, you’ll need to send the following information for each relevant person:
- name, address and tax reference number of the employer
- name and any National Insurance number of the employee
- the SRN of the scheme
- the tax year the employee obtained or expects to obtain the advantage
- if the tax advantage is only expected to be obtained by a person other than the employee, confirmation that there is no tax advantage for the employee
- name and address of the promoter, and the name given to the notifiable arrangement, if any
The first report employers need to send to HMRC is for the year 2015 to 2016. This must be with HMRC by 19 April 2016 - 14 days after the end of the tax year. If you don’t provide details for each relevant employee you may be liable to penalties.
Sending reports online
HMRC are setting up a simple online process to make it easy for you to provide the reports. This will be available in time for you to submit your report by 19 April 2016.
Let HMRC know now if you want to send your reports using the online process. But don’t send reports or information about employees by email. The security of emails you send over the internet can’t be guaranteed.
Sending reports by post
When sending HMRC information by post, employers must use form AAG8 which can be found at Tax Avoidance Schemes forms to send information to HMRC about employees.
You are liable to a penalty if you fail to disclose a scheme to HMRC within 5 days of the scheme being made available or implemented. The initial penalty is up to £600 a day. If this is not considered to be sufficient deterrent you may have to pay a penalty of up to £1 million.
You are also liable to a penalty of up to £600 a day if you continue to fail to disclose the scheme to HMRC once the initial penalty has been imposed.
If you are an employer involved in a tax avoidance scheme you are liable to a penalty of up to £5,000 for each employee you fail to include in your end of year report. Further penalties of up to £600 a day may be imposed in respect of each employee if the failure continues after the initial penalty has been imposed.
If you are a promoter you are liable to a penalty of up to £5,000 for each client to whom you fail to give the scheme reference number. Further penalties of up to £600 a day per client may be imposed if the failure continues after the initial penalty has been imposed.
If you are a user of a tax avoidance scheme and you fail to report the scheme reference number to HMRC you are liable to a penalty. The penalty is up to £5,000 the first time you fail to do this. If you fail to report a scheme reference number again you may have to pay a penalty of up to £7,500. On the third and future occasions you may have to pay a penalty of up to £10,000 for each failure.
There are also penalties for failing to comply with other aspects of the DOTAS legislation.
Published: 4 February 2014
Updated: 31 March 2016
- Sections - employer obligations, sending reports by post and penalties have been updated.
- Penalty information updated.
- Information has been added to the page to explain new rules - Employers must send reports about employees and employers who may be advantaged by avoidance schemes for the year 2015-2016 onwards.
- First published.