Budget Notes

BN67 TAX AVOIDANCE DISCLOSURE REGIME: SCHEME REFERENCE NUMBER SYSTEM

Who is likely to be affected?

1. Promoters of tax avoidance schemes, including accountancy and law firms, banks and other financial institutions, and their clients.

General description of the measure

2. Legislation will be introduced in Finance Bill 2008 to improve the existing system of identifying users of disclosed tax avoidance schemes through the Scheme Reference Number (SRN) system.

Operative date

3. The legislation will contain substantive provisions and powers to make regulations. They will have effect on and after separate dates to be appointed by Treasury order.

Current law and proposed revisions

4. Part 7 of Finance Act 2004 and regulations made under it require promoters of tax schemes falling within certain descriptions to provide information to HM Revenue & Customs (HMRC) about those schemes ("disclose the scheme") within prescribed time limits.

5. Section 308(4) ("the co-promoter rule") relieves a promoter of the obligation to disclose where there is more than one promoter in relation to the same scheme and another promoter has disclosed it.

6. Section 311 provides for HMRC to issue a SRN to a promoter who discloses a scheme. Section 312 requires the promoter to pass the SRN on to clients who implement the scheme. Section 313 requires a client who uses the scheme to obtain a tax advantage to report it to HMRC within time limits. Section 316 provides for HMRC to specify (i.e. in guidance) the form and manner in which information is to be provided.

7. The information required and the time by which that information must be provided are prescribed under Part 7 in the Tax Avoidance Schemes (Information) Regulations (SI 2004/1864, as amended).

8. Legislation will be introduced in Finance Bill 2008 to ensure that a user of a disclosed scheme is supplied with the SRN issued to the promoter who has disclosed it.

9. The co-promoter rule will be amended so that co-promoters are only relieved of the obligation to disclose a scheme under one of the new procedures set out in paragraph 10. Each co-promoter will be required to pass on the SRN to its clients.

10. The new procedures will be either:

•    a promoter (P1), when disclosing a scheme, notifying HMRC of any co-promoters (P2) and providing those co-promoters with a copy of the disclosure - HMRC will notify the SRN to those co-promoters under an amended section 311; or

•    P1 notifying the SRN to any further co-promoters, and providing them with a copy of the disclosure.

11. The existing legislation requires a promoter to pass the SRN to a client when the client implements the scheme. In practice, promoters often pass the SRN on earlier, as soon as they make the scheme available to clients. The legislation will be amended to ensure that clients who use a scheme have to report to HMRC SRNs received via this non-compulsory route.

12. HMRC will use the existing powers in section 316 to require promoters to use an HMRC form to pass the SRN to clients. The form will provide the client with key information about what to do with the SRN. It will be available for download on HMRC's website alongside the existing disclosure forms.

13. The legislation will require clients who receive a SRN to pass it on to any other person who is party to the same scheme and is likely to obtain a tax advantage from using it.

14. The legislation will also provide for HMRC to withdraw a SRN, thereby removing the obligation for the SRN to be passed on to other parties or reported to HMRC.

15. Draft regulations, guidance and an updated Impact Assessment will be published before this legislation is considered in detail by Parliament.

Further advice

16. If you have any questions about these changes please contact Philippa Staples on 020 7147 2444 (email: philippa.staples@hmrc.gsi.gov.uk). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk