Finance Bill Tracking Service 2010 | Budget 2010

BN64 DISCLOSURE OF TAX AVOIDANCE SCHEMES

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 2010 revising the Disclosure of Tax Avoidance Scheme (DOTAS) and providing for increased penalties for failure to comply with the rules.

3. Regulations, not dependent upon the Bill, will be laid revising and extending the DOTAS "hallmarks" (descriptions of schemes required to be disclosed).

4. National Insurance Contributions (NICs) regulations will mirror the tax changes in primary and secondary legislation, to the extent that they concern income tax.

Operative date

5. Finance Bill 2010 will contain substantive provisions and powers to make regulations. The substantive powers will come into effect on separate days to be appointed by Order. It is expected that the substantive provisions and the regulations (including both the Descriptions Regulations and the NICs regulations) will come into effect on a common date in autumn 2010.

Current law and proposed revisions

6. Part 7 of the Finance Act (FA) 2004 and regulations (the disclosure regulations) require certain persons (normally the promoter but in some cases the user) of tax schemes falling within certain descriptions to provide information to HM Revenue & Customs (HMRC) about the scheme within certain time limits.

7. HMRC may allocate a scheme reference number (SRN) to a disclosed scheme. Promoters must pass the SRN to their clients who have entered into the scheme. Clients who are intermediaries must pass on a SRN to persons it knows to be end users of the scheme. Scheme users are required to report the use of the scheme back to HMRC.

8. HMRC has the power to investigate cases where it suspects a person has failed to disclose a scheme as required. Section 98C of the Taxes Management Act 1970 (TMA) contains penalties for failure to comply with a requirement to disclose.

9. The Social Security Administration Act 1992 provides for HM Treasury to make regulations applying (with or without modification) or corresponding to the DOTAS tax legislation (primary and secondary) to the extent that it relates to income tax. These powers are exercised in the National Insurance (application of Part 7 of the Finance Act 2004) Regulations 2007, SI 2007/785.

10. Finance Bill 2010 amends Part 7 of FA 2004 and section 98C of TMA to strengthen and improve the DOTAS regime. The new and amended provisions:

•    introduce a new "trigger point" for the disclosure of actively marketed schemes - the point at which a promoter first communicates a fully designed scheme to a third party for the purpose of obtaining clients of that scheme;

•    include a new requirement for a person who introduces a client to a notifiable scheme to provide HMRC with the name and address of the promoter who provided them with details of that scheme;

•    increase the penalties for failure to comply with a disclosure obligation, subject to determination by the Tribunal; and

•    introduce a new requirement for promoters to provide HMRC with periodic information about clients who implement a notifiable scheme for SRNs issued on or after the date the regulations come into force.

11. Regulations will amend or replace The Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2006 SI 2006/1543 which contain the descriptions of schemes to be disclosed, commonly referred to as "hallmarks". The amended (or replacement) regulations will revise and extend the current hallmarks.

12. Regulations will amend or replace the National Insurance (Application of Part 7 of the Finance Act 2004) Regulations 2007, SI 2007/785, mirroring the changes to the tax legislation, to the extent that they concern income tax.

13. HMRC will have further discussions with business about the detail of the package of regulations.

Further advice

14. If you have any questions about this change, 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