How to make sure you’re not affected by serial tax avoidance rules and what to do if you get a warning notice from HMRC.
If you use more than one tax avoidance scheme you could be classed as a serial tax avoider by HM Revenue and Customs (HMRC). Even if you only use one avoidance scheme, you can still be affected by the new serial tax avoidance rules which came into effect on 15 September 2016.
Schemes defeated on or after 6 April 2017 count towards serial tax avoidance status.
If you’re in a scheme defeated after this date, you’ll get a serial tax avoidance warning notice and you’ll have to send extra information to HMRC.
If you’re classed as a serial tax avoider you’ll also be given sanctions, which could include:
- being publicly named as a serial tax avoider
- restrictions to direct tax relief
Make sure you’re not affected
If HMRC isn’t already looking into your tax affairs
You can contact HMRC to declare and arrange to leave any avoidance schemes you use. This will make sure you’re not at risk of being classed as a serial avoider for these schemes.
If HMRC is already looking into your tax affairs
If you enter into a tax avoidance scheme on or after 15 September 2016, and it’s defeated, it’ll count towards serial tax avoidance status.
Where you’ve entered into a scheme before 15 September 2016, you can make sure that you’re not affected for that scheme if you either:
- settle the scheme with HMRC before 6 April 2017 - this will usually mean coming out of the scheme and paying what you owe
- fully disclose the scheme to HMRC before 6 April 2017
- write to HMRC before 6 April 2017 and agree a time limit to fully disclose the scheme - HMRC will set the time limit
If you’ve entered into more than one scheme before 15 September 2016, you’ll have to do this for each scheme if you want to make sure you’re not affected.
How to tell HMRC about a scheme before 6 April 2017
You’ll need to fully disclose the scheme to HMRC. This means providing all the information HMRC needs to fully check the scheme.
You must include:
- full details of the scheme (tax arrangements) you used
- a description of how you used the scheme
- a description of how the scheme is designed to produce a tax advantage
- a breakdown of the income, reliefs and deductions you received or claimed through the scheme - for each tax year or period (include any future income, reliefs or deductions)
- the total amount of tax advantage you received from the scheme - for each tax year or period (include any future tax advantage)
- the dates any tax would have been due - if you hadn’t used the scheme
- your tax or VAT reference number, for example your UTR (Unique Taxpayer Reference), National Insurance number or employer PAYE reference
Make sure you also include any supporting documents or information you have about the scheme, for example:
- copies of accounting entries
- copies of related letters or emails
Send the information to HMRC in writing.
If you’re already dealing with someone in HMRC Counter-Avoidance, send the information to them. If not, send it to:
HM Revenue and Customs
You can contact HMRC if you have a question about making a full disclosure by calling:
- the person in HMRC Counter-Avoidance you’re already dealing with
- HMRC on Telephone: 03000 510 350 if you’re not already dealing with someone in the Counter-Avoidance team
A tax avoidance scheme is classed as defeated if you:
- reach an agreement with HMRC, so the expected tax advantage of using the scheme isn’t available
- appeal to a tribunal or court against HMRC’s assessment of a scheme and they rule in HMRC’s favour
If you use use a tax avoidance scheme which is defeated, you’ll get a warning notice and factsheet from HMRC within 90 days of the defeat.
The notice gives you:
- information about the defeated scheme
- start and end dates for your serial tax avoidance warning period
You’ll also get a warning notice from HMRC if you’re linked to someone who’s in a scheme which is defeated.
Once you get a warning notice, you’ll enter into a warning period.
The warning period runs for 5 years from the date on the notice. During this period, you must send extra information to HMRC about your tax affairs.
A warning period can be extended if you:
- don’t send information asked for on the warning notice to HMRC
- use another tax avoidance scheme which is also defeated
Information you need to send to HMRC
During the warning period, you must send an annual information notice to HMRC every year. Your warning notice will tell you the exact information you need to send to HMRC.
This could be information about:
- your use of any tax avoidance schemes
- late or missed tax returns
- any tax returns that included avoidance arrangements you were using
You must send your annual information notice to HMRC within 30 days of the end of the reporting period it covers.
You may lose access to some direct tax reliefs and receive a penalty if you use another defeated tax avoidance scheme during your warning period.
In a single warning period, if you use further defeated schemes, you can be charged penalties of:
- 20% for 1 defeated scheme
- 40% for 2 defeated schemes
- 60% for 3 or more defeated schemes
How to pay or appeal against a penalty notice
If you get a penalty from HMRC, you have 30 days from the date shown on the notice to:
Public list of serial tax avoiders
If you use 3 or more defeated avoidance schemes during a warning period, HMRC may publicly name you as a serial tax avoider. Your details could be published for up to 12 months.
You’ll get several warnings from HMRC before your name is published, and have the chance to object if you think this shouldn’t happen.
Tax relief restrictions
As well as receiving penalties and being publicly named, you could also be stopped from claiming direct tax reliefs for up to 3 years. HMRC can put this restriction in place if:
- you’ve used 3 more defeated schemes during a single warning period
- each of those schemes involves the misuse of direct tax reliefs
If this happens, HMRC will send you a relief restriction notice.
Direct tax relief restrictions can cover:
- Annual Tax on Enveloped Dwellings
- Apprenticeship Levy
- Capital Gains Tax
- Corporation Tax
- Diverted Profits Tax
- Income Tax
- Inheritance Tax
- National Insurance contributions
- Petroleum Revenue Tax
- Stamp Duty Land Tax