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HMRC internal manual

Compliance Handbook

Penalties for Inaccuracies: Types of inaccuracy: what is reasonable care - avoidance arrangements

These rules for avoidance arrangements apply to all taxes where the inaccuracy is contained in a return or document submitted on or after 16 November 2017, which relates to a tax period that began on or after 6 April 2017 and ended after 15 November 2017.

For other tax periods, the normal rules apply when considering whether the person has failed to take reasonable care, see CH81120.

Where a person has used an avoidance arrangement, any inaccuracies which relate to that arrangement are presumed to be careless unless the person can demonstrate that they took reasonable care, see CH81122. A person cannot rely on advice which is disqualified to demonstrate that they took reasonable care, see CH81123.

Meaning of ‘avoidance arrangements’

‘Arrangements’ take the meaning often used in anti-avoidance legislation.  Arrangements include any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable). So, whilst an arrangement could contain any combination of these things, a single agreement could also amount to an arrangement.

Arrangements are `avoidance arrangements’ and therefore within this part of the legislation if, having regard to all the circumstances, it would be reasonable to conclude that the obtaining of a tax advantage was the main purpose, or one of the main purposes of the arrangements.

This is an objective test that requires that all relevant circumstances are taken into consideration, when determining that at least one of the main purposes of the arrangements was obtaining a tax advantage. The test considers the main purposes of the arrangements and not the main purpose of any particular person who is party to those arrangements.    

We do not consider arrangements to be ‘avoidance arrangements’ for the purposes of this part of the legislation if those arrangements are

  • in accord with established practices; and
  • at the time the arrangements were entered into, HMRC indicated its acceptance of that practice.

Meaning of tax advantage

‘Tax advantage’ includes:

  • relief or increased relief from tax
  • repayment or increased repayment of tax
  • avoidance or reduction of a charge to tax or an assessment of tax
  • avoidance of a possible assessment to tax
  • deferral of a payment of tax or advancement of a repayment of tax
  • avoidance of an obligation to deduct or account for tax
  • in relation to VAT, anything which is a tax advantage for the purposes of Schedule 18 to FA 2016 under paragraph 5 of that Schedule.

This has the same meaning as paragraph 25 in Part 4 of Schedule 18 to FA 2016.

If you need technical advice about counter avoidance legislation see the Counter Avoidance Technical Advice web page.