Finance Act 2015 Sch 17

Disclosure of Tax Avoidance Schemes Commentary from Finance Act Handbook

The disclosure of tax avoidance schemes (DOTAS) regime has been
in place for over ten years. The regime has developed considerably during that
period and is in many ways much more rigorous than it was when it was first
introduced. But there are still some areas where HMRC believe that the rules
are not being complied with, or where there is genuine doubt about how the
regime should operate. Schedule 17, which follows extensive consultation, is
therefore the latest attempt to modernise the regime.

Schedule 17 has eight main elements:

–       a duty for
promoters to provide updated information to HMRC;

–       an extension of
the time limit within which HMRC may issue a reference number;

–       a duty on
employers to provide information to employees who may receive a tax advantage
under the arrangements;

–       a duty on
employers to notify HMRC of details of employees who may expect to receive a
tax advantage;

–       a widening of the
notification requirements for introducers;

–       a whistleblowing
protection for persons notifying HMRC of suspected breaches of the DOTAS rules;

–       a mechanism for
HMRC to publish information about DOTAS arrangements; and

–       further increases
in certain penalties.

–       New s 310C(1) provides
that the section applies where HMRC have allocated a reference number under FA
2004 s 311 for notifiable arrangements and there is a change in relation to the
arrangements of a type specified in s 310C(2) below.

–       New s 310C(2) provides
that the change is either a change in the name by which the arrangements are
known or a change in the name or address of a person who is a promoter in
relation to the arrangements.

–       New s 310C(3) provides
that notification of the change must be given to HMRC within 30 days of its
being made.

–       New s 310C(4)
introduces s 310C(5) and (6)  which deal
with the situation where there is more than one promoter.

–       New s 310C(5) provides
that where the change is a change of address of the promoter, it is the duty of
that person to notify HMRC.

–       New s 310C(6) provides
that if that person notifies the change to HMRC, the duty of any other person
to notify the same change is discharged. This is a practical measure to deal
with the situations where there are multiple promoters. Otherwise every
promoter in relation to the arrangements would have to notify a change of
address of any one of those promoters.

Paragraphs 2 and 3 are consequential drafting amendments.

Under that regime a DOTAS number is one of the triggers for the
issue of a notice, and there are therefore very significant consequences for
scheme users where a reference number has been allocated to a scheme which does
not actually require one. Cautious promoters may well have had a policy of notifying
HMRC in marginal cases simply in order not to risk a penalty for failure to
notify. They may, however, for the reasons discussed above, not be prepared to
adopt that same cautious approach given the added significance of a DOTAS
reference. Clearly HMRC do not want to do anything to cause previously compliant
promoters to take a different approach to DOTAS notifications going forward.

As a result of these concerns, para 4 extends the time limit for
HMRC to issue a scheme reference number to 90 days. It is thought that HMRC
will use this extended time to discuss with promoters in these marginal cases
whether or not registration is actually required, so that only schemes which
definitely meet the requirements will be allocated a reference number. Such an
approach would not be practical under the previous 30 days limit.

### Paragraphs 5–8

HMRC have been concerned for some time that in schemes which
offer a tax benefit to employees (whether or not they also offer a tax benefit
to the employer) there is no mechanism within DOTAS for capturing the
information about the employee’s use of the scheme. There are also concerns
that in some cases employees are participating in arrangements implemented by
their employers without understanding that those arrangements may constitute
tax avoidance.

Paragraph 5 deals with this issue by imposing further reporting
requirements on certain employers.

Subparagraph (1) introduces amendments to FA 2004 s 312A:

–       New s 312A(2A)
provides that where the scheme user is an employer and receives (or might
reasonably be expected to receive) a tax advantage in relation to the employment
of one or more employees, the employer must provide prescribed information
relating to the reference number to relevant employees. Note that sub-s (2A) is
concerned with advantages received by the employer in relation to employees,
not with benefits which may be received by employees.

–       New s 312A(3)
defines terms used. A “relevant tax” is one prescribed in FA 2004 s 306 (in
practice this is virtually all UK taxes) and a “relevant employee” is one in
relation to whom the employer receives (or might reasonably be expected to
receive) the tax advantage. For this purpose employee includes former employee;
and employee includes office holders.

Subparagraphs (4) and (5) are minor drafting amendments.

Paragraph 6 allows for prescribed circumstances under which the
duty to provide information does not apply. These will be defined in
regulations to be issued shortly.

Paragraph 7 allows for HMRC to include information requirements
for the purpose of this new provision to be included in the relevant statutory
instruments.

Paragraph 8 is a minor drafting amendment.

### Paragraphs 9–11

Paragraph 9 introduces new FA 2004 s 313ZC:

–       New s 313ZC(1) states
that the section applies if Conditions A to C are satisfied.

–       New s 313ZC(2) sets
out Condition A: that a promoter in relation to arrangements is providing (or
has provided) services in connection with those arrangements to a person “the
client”.

–       New s 313ZC(3) sets
out Condition B: that the client received information under FA 2004 s 312(2) or
(5) (i.e. a scheme reference number).

–       New s 313ZC(4) sets
out Condition C: that the client is an employer and one or more of the client’s
employees receive (or might reasonably be expected to receive) a tax advantage
from the arrangements, or the employer might receive (or might reasonably be
expected to receive) a tax advantage in relation to the employment of one or
more employees.

–       New s 313ZC(5)
provides that the client is required to provide prescribed information relating
to the employee to HMRC in either of the circumstances envisaged in s 313ZC(4)
at the prescribed time.

–       New s 313ZC(6)
provides that the obligation above does not apply where HMRC have given notice
under FA 2004 s 312(6) or s 313(5) (i.e. that they no longer require promoters
to notify clients of the scheme reference number).  A list of such schemes can be found at www.gov.uk/government/publications/tax-avoidance-withdrawn-scheme-reference-numbers
]

–       New s 313ZC(7)
provides that the duty to provide HMRC with information does not apply in
prescribed circumstances.

–       New s 313ZC(8) incorporates
the definition of relevant tax in FA 2004 s 312A(3) into new s 313ZC?

Paragraphs 10 and 11 are minor drafting amendments.

### Paragraphs 12 and 13

One of the problems with the operation of DOTAS in the past has
been in dealing with chains of intermediaries. Conceptually DOTAS works best
where there is a single promoter who designs, markets and implements the scheme;
it has struggled to deal with the situation where there a number of people in
the chain – particularly where there are introducers and sub-introducers who
have no part to play in the design or implementation of the scheme but whose
function is simply to make contact with potential clients and refer them
further up the chain.

Paragraph 12 is the latest attempt to deal with this problem.

Subparagraph (1) introduces amendments to FA 2004 s 313C:

–       New s 313C(1)
provides that s 313C applies where HMRC suspect that a person is an introducer
in relation to a proposal which HMRC suspect may be notifiable.

–       New s 313C(1A)
gives HMRC the power to require, by written notice, the person to provide prescribed
information about each person who has provided him with information about the
proposal, and also about each person with whom he has made marketing contact
about the proposal. In other words, this requirement looks both up and down the
chain: up the chain to the person/people who provided the introducer with
information about the scheme, and down the chain to those people to whom the
introducer himself has provided information.

Subparagraphs (3) and (4) are minor drafting amendments.

Paragraph 13 is a minor drafting amendment.

### Paragraphs 14 and 15

Paragraph 14 introduces new FA 2004 s 316A:

–       New s 316A(1)
provides that s 316A applies where a person is required to provide information
under FA 2004 s 312(2) or s 312A(2) or (2A). These are the sections which
require the promoter to provide information to scheme users and certain other
parties.

–       New s 316A(2) gives
HMRC the power to specify additional information which must be provided to
recipients of information under new s 316A(1) above.

–       New s 316A(3)
provides that HMRC may specify the form and manner in which such additional
information is to be provided.

–       New s 316A(4) defines
“additional information” for the purposes of s 316A as information supplied by
HMRC which relates to notifiable proposals/arrangements in general. In other
words this gives HMRC a power to require promoters to give HMRC-sanctioned
information to scheme users etc about the implications of taking part in tax
avoidance arrangements.

Paragraph 15 is a minor drafting amendment.

### Paragraph 16

Paragraph 16 inserts new FA 2004 s 316B. It is intended to
offer protection to whistleblowers who draw HMRC’s attention to potential
breaches of the DOTAS regime.

While the intention of this change is laudable it is difficult
to see quite how it can operate in practice. What protection will it really
give, say, to an employee of a company participating in a scheme which the
employee believes should have been notified under DOTAS but was not? Does it
offer him protection if his employer attempts to dismiss him for breaching the
company’s confidentiality rules?
Protection may be available under other legislation (for exampleEmployment
Rights Act 1996 s 43B?but viewed in isolation para 16 does not appear to
achieve very much.

### Paragraph 17

Paragraph 17 introduces new FA 2004 ss 316C and 316D:

–       New s 316C(1)
provides that HMRC may publish information about arrangements to which a
reference number is allocated, or about a promoter of such arrangements.

–       New s 316C(2)
specifies which information may be published.

–       New s 316C(3)
provides that HMRC may publish the information in any manner they consider appropriate.

–       New s 316C(4) is
an important safeguard. No information can be published which identifies the
user of the arrangements.

–       New s 316C(5)
provides that where a promoter also enters in to the arrangements himself, new
s 316C(4) does not prevent the publication of the promoter’s name or other
information in relation to his capacity as a promoter.

–       New s 316C(6) provides
that before publishing information which identifies a person as a promoter HMRC
must inform that person that they are considering doing so and give the person
a reasonable opportunity to make representations about whether the information
should be published.

–       New s 316C(7) defines
“APN relevant” arrangements. These are arrangements in respect of which HMRC
have indicated in a publication that they may exercise (or have exercised) their
power under the accelerated payment notice regime in respect of the arrangements.

New FA 2004 s 316D imposes a requirement on HMRC to publish
information about final judicial rulings which show that the tax advantage
which the arrangements sought to achieve was in fact achieved. This is presumably
because it would be wrong, in cases where HMRC have published information
previously which suggested that the arrangements would be open to challenge and
might not work, not to publicly acknowledge that in fact the arrangements were
successful.

–       New 316D(1)
provides that this section applies where HMRC have published information about arrangements
under new s 316C; after the information has been published a ruling is made by
a court or tribunal about tax arrangements; and HMRC are of the opinion that
the ruling is relevant to arrangements about which they have published
information. Note that the ruling does not have to be in respect of the
arrangements themselves: it could be about different arrangements. The key
point is that the ruling must be relevant to the arrangements about which HMRC have
published information. So, for example, a court might have given a ruling in a
loss scheme promoted by promoter A. It has many similar features (though is not
identical) to a loss scheme promoted by promoter B. If HMRC have published
information about promoter B’s scheme, the ruling on promoter A’s scheme would
fall within new s 316D.

–       New s 316D(2)
provides that a ruling is relevant to the arrangement if the principles laid
down or given in that ruling would, if applied to the arrangement, allow the
purported tax advantage to be achieved. In addition the ruling must be a final
ruling. In other words, this provision does not apply while there is still the
possibility of appeal. This is a concept taken over from the follower notice regime
introduced in FA 2014.

–       New s 316D(3) places
a requirement on HMRC to publish information about the ruling. HMRC have
discretion as to whether to publish information under new s 316C, but once they
have done so they have no discretion in relation to relevant rulings.

–       New s 316D(4)
provides that HMRC must publish the information about the ruling in the same
matter as they published the information under new s 316C. This does not
prevent HMRC from also publishing information about the ruling elsewhere. The
intention here is to ensure that HMRC give the ruling the same prominence as
the original information and cannot hide it away somewhere on an obscure page
of a website that nobody would ever find.

–       New s 316D(5) and
(6) define a final ruling. Essentially this is a ruling of the Supreme Court or
a ruling of a lower court or tribunal against which all appeal rights have been
exhausted. The test is in all material respects the same as the one in the follower
notice regime.

–       New s 316D(7) defines
“tax arrangements” for the purposes of new s 316D. These are arrangements in
respect of which (having regard to all of the circumstances) the obtaining of
an advantage in relation to tax was the main purpose or one of the main
purposes.

### Paragraph 18

At the moment there are comparatively low fixed penalties for
failure by a user to report the use of a scheme on his return or other relevant
form. The penalty for a first failure is £100, rising to £500 for a second
failure within three years, and £1,000 for each failure after that.

Paragraph 18 amends TMA 1970 s 98C to abolish the fixed
penalties and substitute penalties of up to £5,000, £7,500 and £10,000 for the
three categories listed above.

### Paragraphs 19–21

The commencement provisions for this Schedule are quite complex
because the Schedule contains a number of quite separate provisions.

Paragraph 19 provides that new FA 2004 s 310C (the duty of a
promoter to provide updated information) applies only where a reference number
is allocated to the arrangements on or after 26 March 2015 (the date of Royal
Assent to FA 2015). But it does not apply where information about the arrangements
was originally supplied to HMRC by the promoter in accordance with FA 2004 s 308
before Royal Assent. In other words, there is no obligation on promoters to
revisit old schemes to determine whether or not updated information is required
to be provided to HMRC.

Paragraph 20 provides that where a notice was given by HMRC
under FA 2004 s 312A(4) (i.e. that the obligation to pass on the scheme reference
number to scheme users has been removed) before Royal Assent, that notice is
automatically deemed to include the removal of the new obligation under s
312A(2A) (information to be provided to employees).

Paragraph 21 provides that new FA 2004 s 316C (publication of
information) only applies to information in respect of arrangements to which a
reference number is allocated on or after the date of Royal Assent. In other
words HMRC cannot use the new information powers to publish information about
historic schemes. In addition, new s 316C does not apply where prescribed
information was given to HMRC in compliance with FA 2004ss 308–310 before Royal
Assent. This means that notifications received by HMRC before Royal Assent that
are allocated a reference number after Royal Assent, are not within the
publication regime.

New s 316C(2)(b) (publication of information about final
rulings) applies only in the case of final rulings given on or after the date
of Royal Assent. There is no obligation on HMRC to revisit all past disclosed
schemes to ascertain whether in fact a final ruling of the court has shown them
to be effective.

## Final note

DOTAS continues to evolve. The link between DOTAS and accelerated
payment notices created a fundamental shift in the role of DOTAS within the tax
compliance regime. No longer is it merely concerned with the provision of
information: it has become a de facto charging provision. As the accelerated
payment notices regime continues to develop and practical experience is gained of
how the link with DOTAS actually works, it is likely that there will be yet
further changes to DOTAS. The key issue, and one which is not yet fully
resolved, is how HMRC will deal with deliberate non-compliance with the regime.
HMRC have considerable powers to force disclosure: there is limited evidence
that that those powers have actually been widely used.