Recent Changes to DOTAS and Proposed Further Changes

Mon 14 Sep 2015

HMRC updated its guidance on Disclosure of Tax Avoidance Schemes (DOTAS) on 2September 2015, replacing the previous version of the guidance issued on 4 November 2013.

The new guidance incorporates certain changes introduced by the Finance Act 2014 and the Finance Act 2015. These are considered in more detail below.

Finance Act 2014 changes

The guidance has been updated to reflect new information powers introduced by the Finance Act 2014 (which took effect from 17 July 2014), enabling HMRC to obtain further information after a notifiable proposal or notifiable arrangement has been notified.

The Finance Act 2014 also introduced changes around ‘monitored promoters’ of tax avoidance schemes, which are covered separately in HMRC’s guidance on that area.

Finance Act 2015 changes

Schedule 17 to the Finance Act 2015 (which took effect from 26 March 2015) introduced changes to the DOTAS provisions which in summary:

• Require promotors to notify HMRC if there is a change in their details (name or address) or a change to the name given to an arrangement to which a SRN has been issued, within 30 days of that change (new s310C FA 2004).
• Extend the period within which HMRC have to issue a reference number for an arrangement, from 30 days to 90 days. In view of the increased significance of arrangements which are given a DOTAS scheme reference number (SRN) in this ear of accelerated payment notices, it is advisable to use that additional time to enter into a dialogue with HMRC prior to an SRN being issued (given that there is no formal clearance procedure).
• Amend the information that an employer is required to provide to an employee where the employer expects to benefit from a tax advantage from a notifiable arrangement relating to the employment of that individual (new s312(2A) FA 2004). 
• Amend the information an employer is required to provide to HMRC in relation to avoidance schemes involving their employees and removes the need for those employees to provide this information to HMRC themselves (where their employer is required to provided it under these new provisions) (new s313ZC FA 2004).
• Extend the provisions in s 313C FA 2004 relating to introducers, from allowing HMRC to request details about each person who has provided information to the promotor, to include details of persons an introducer has made ‘marketing contact’ with (as defined in s 307(4B) FA 2004).
• Allow for HMRC to prescribe for additional information (not directly related to the scheme reference number) to be included on the notification that a promotor or other person must provide to ‘the client’ in relation to a notifiable scheme (new s316A FA 2004).
• Provide protection to persons who wish to voluntarily provide information about potential failures to comply with DOTAS, despite restrictions imposed on them by promotors (new s316B FA 2004).
• Enable HMRC to publish additional information about promotors and schemes which have been allocated SRNs, although HMRC are required to notify the promotor in advance of publishing any information which would identify them (and allow them a reasonable opportunity to make representations about whether the information should be published) and are prevented from publishing any information about users of the notifiable arrangement (new s316C FA 2004).  Where there is a subsequent court ruling which is relevant to the information already published by HMRC, new s316D requires HMRC to publish that in the same manner as the original publication.
• Extend the penalties under s98C TMA 1970 to cover non-compliance with the new provisions detailed above (as applicable) and to significantly increase the penalty for persons using schemes who do not comply with their reporting requirements, as follows:

The majority of these changes are covered within the new guidance.

Further Changes to DOTAS Hallmarks

In addition, we are soon to see widened definitions of certain hallmarks for DOTAS.  On 16 July 2015 HMRC published two sets of draft Regulations in respect of the DOTAS hallmarks, one more general and the other specifically covering IHT hallmarks (which is covered in the separate article below). The consultation period has now closed, although it is not clear as to when the final Regulations will be issued.

Concerning the first of these sets of Regulations, of particular note is the proposed removal of the grandfathering provision in the current standardised tax products hallmark.  This took arrangements outside the scope of the hallmark if they were the same as arrangements first made available for implementation before 1 August 2006.  Also, the draft revised hallmark is slightly reworded so that it asks whether an ‘informed observer’ could reasonably be expected to conclude that the arrangements were standardised or substantially standardised by ‘having studied the arrangements with regard to all relevant circumstances’.

The loss schemes hallmark (which only affects individuals) is changed so that it includes arrangements where the obtaining of the loss is one of the main benefits (and not just the main benefit, as previously).

A new Hallmark for financial products is also covered in the drafts Regulations.  This would apply where an informed observer would conclude (having studied the arrangements and having regard to all relevant circumstances) that the arrangements:

• include at least one ‘specified financial product’; and
• the main benefit (or one of the main benefits) of including the specified financial product is to give rise to a tax advantage; and
• the specified financial product includes at least one term which is unlikely to have been entered into were it not for the tax advantage; and
• the arrangements involve one or more contrived or abnormal steps without which the tax advantage could not be obtained.The list of ‘specified financial products’ is extremely widely drawn and is something of a throwback to the original DOTAS rules which operated prior to the introduction of the hallmarks.  For example, it includes ‘loans’ and ‘shares’.  The key concern is whether the requirement for a contrived or abnormal step to be included will successfully eliminate ordinary commercial arrangements from falling under the hallmark.The draft Regulations for the IHT Hallmarks are covered in a separate article.