Guidance: Disclosure of tax avoidance schemes

The rules

If you’re involved in tax avoidance that should be disclosed under the disclosure rules, you must let HMRC have information about the scheme. This helps us to:

• get early information about schemes and how they claim to work
• find out quickly who has used a scheme

If you do not tell HMRC about a scheme that must be disclosed you could be liable to a penalty.

There are 3 different disclosure regimes:

• VAT disclosure regime (VADR)
• Disclosure of Tax Avoidance Schemes: VAT and other indirect taxes (DASVOIT)
• Direct taxes (including Apprenticeship Levy), Stamp Duty Land Tax, Inheritance Tax and National Insurance contributions (DOTAS)

VAT — VADR

VADR applies to arrangements entered into before 1 January 2018.

VADR does not apply to arrangements that are notifiable under DASVOIT, which came into force on 1 January 2018.

VADR has 2 categories:

• listed schemes
• hallmarked schemes

Listed schemes are specific schemes (there are currently 10) that are defined in the disclosure legislation. If you’re registered for VAT in the UK, or are liable to be, and you’re involved in a listed scheme you must notify HMRC unless your annual turnover (or if you’re part of a group, the turnover of the group you belong to) is below £600,000.

Hallmarked schemes are schemes that include or are associated with a ‘hallmark’ of avoidance defined in the legislation. You do not need to make a disclosure if either of the following applies:

• a third party, such as the scheme promoter, has voluntarily disclosed the scheme to HMRC and provided you with the Voluntary Registration Scheme (VRS) reference number
• you or the group you belong to has an annual turnover below £10 million

The Voluntary Registration Scheme cannot be used from 1 January 2018.

The issue of a VRS reference number does not mean that HMRC approves of any analysis of the tax effect of the scheme given in the disclosure. HMRC does not approve tax avoidance schemes.
If you need to disclose the scheme to HMRC but do not, you may be liable to a penalty. This could be:

• 15% of the VAT you’ve sought to save for listed schemes
• up to £5,000 for hallmarked schemes

These penalties can still be applied after 1 January 2018 if you’ve failed to disclose under VADR.

Find more information about VADR in VAT Notice 700/8: disclosure of VAT avoidance schemes.

VAT and other indirect taxes — DASVOIT

The Disclosure of Tax Avoidance Schemes: VAT and other indirect taxes, (DASVOIT), came into force on 1 January 2018.

DASVOIT applies to the following taxes, levies and duties:

• VAT
• Insurance Premium Tax
• General Betting Duty
• Pool Betting Duty
• Remote Gaming Duty
• Machine Games Duty
• Gaming Duty
• Lottery Duty
• Bingo Duty
• Air Passenger Duty
• Hydrocarbon Oils Duty
• Tobacco Products Duty
• duties on spirits, beer, wine, made-wine and cider
• Soft Drinks Industry Levy
• Aggregates Levy
• Landfill Tax
• Plastic Packaging Tax (from 1 April 2022)
• Climate Change Levy
• customs duties

DASVOIT — disclosing a scheme

The promoter of the arrangements is usually responsible for disclosing under DASVOIT. However, there are circumstances where the person using the arrangements must disclose. They are:

• if the promoter is a non-UK promoter who has not disclosed
• if a lawyer is unable to disclose due to legal professional privilege
• if there is no promoter — for example, it’s an in-house scheme

Arrangements or proposed arrangements are notifiable if:

• they enable, or might be expected to enable, a person to obtain a tax advantage
• the main benefit, or one of the main benefits, of the arrangements is a tax advantage
• the arrangements fall within one or more descriptions known as ‘hallmarks’

There are 8 hallmarks. If any of these are met, in addition to the tax advantage and main benefit tests noted in the first 2 bullet points, then the arrangements should be notified.

DASVOIT — scheme reference number (SRN)

There are 2 ways in which HMRC may allocate an SRN to a scheme under the DASVOIT rules.

HMRC may allocate an SRN to a scheme when it is notified. HMRC will tell the person who disclosed the scheme what SRN it has given.

HMRC may also allocate an SRN when they identify a new avoidance scheme or a scheme that continues to be sold on or after 10 June 2021. Where HMRC suspects the scheme should have been disclosed, it will send the promoter or supplier a notice giving them 30 days to demonstrate that the scheme is not notifiable. If HMRC does not receive a satisfactory reply, then HMRC may give the scheme an SRN. HMRC will also tell persons it suspects of being a promotor or supplier what SRN it has given.

The issue of an SRN does not mean that HMRC approves of the arrangements. HMRC does not approve tax avoidance schemes.

DASVOIT — promoter and supplier obligations — SRN

After giving an SRN to a scheme, HMRC will tell promoters and suppliers of the scheme the SRN.

After receiving the SRN from HMRC, you must pass that SRN, as well as information provided by HMRC, to your client.

Promoters and suppliers must regularly tell HMRC which of their clients they’ve promoted the arrangements to.

DASVOIT — scheme user obligations — SRN

Scheme users are required to tell HMRC that they have used the scheme.

You must also pass on the SRN you receive from the promoter or supplier to any other parties to the scheme.

DASVOIT — penalties

Penalties apply if anyone fails to meet an obligation under DASVOIT. They apply if:

• there is a failure to disclose arrangements to HMRC
• if a disclosure is not made in the required form and manner
• if a disclosure is not made within the time limits

If a promoter fails to make a disclosure and the First-tier Tribunal deems the maximum penalty amount stated in the legislation insufficient, they can increase the penalty to an amount of up to £1 million.

Find more information about DASVOIT in Notice 799: disclosure of tax avoidance schemes for VAT and other indirect taxes.

Direct taxes and National Insurance contributions — DOTAS

The DOTAS regime covers:

• Income Tax
• Corporation Tax
• Capital Gains Tax
• Stamp Duty Land Tax (SDLT)
• Inheritance Tax (IHT)
• Annual Tax on Enveloped Dwellings (ATED)
• National Insurance contributions
• Apprenticeship Levy

Find more information about DOTAS in Disclosure of tax avoidance schemes: guidance.

Certain people must provide information to HMRC about avoidance schemes within 5 days of the schemes being made available or implemented. Usually, the person providing the information will be the promoter of the scheme — the person who designs or markets the scheme.

However, there are some limited circumstances when the person using the arrangements must disclose it instead. They are:

• if the promoter is a non-UK promoter who has not disclosed
• if the lawyer is unable to disclose due to legal professional privilege
• if there is no promoter — for example, it’s an in-house scheme

The legislation imposes a number of tests to determine if disclosure is required. Briefly these are:

1. Are there arrangements which are expected to provide a tax advantage?
2. Is getting a tax advantage expected to be one of the main benefits?
3. Does the scheme fall within one of a number of descriptions, called ‘hallmarks’?

There are 8 hallmarks aimed at new and innovative schemes, marketed schemes and targeting specific schemes, for example, loss schemes. Some or all of these hallmarks apply in relation to:

• Income Tax
• Corporation Tax
• Capital Gains Tax
• National Insurance contributions
• IHT
• Apprenticeship Levy

There are also separate hallmarks which apply in relation to SDLT, ATED and IHT respectively.

DOTAS — scheme reference number (SRN)

There are 2 ways in which an SRN may be given to a scheme under the DOTAS rules.

HMRC may give the scheme an SRN after a promoter has supplied information about the scheme on a form AAG1. HMRC will then write to the promoter who disclosed the scheme to tell them the SRN.

The other way in which an SRN may be given is when HMRC identifies a new avoidance scheme or a scheme that continues to be sold on or after 10 June 2021. Where HMRC suspects the scheme should have been disclosed, it will send the promoter or supplier a notice giving them 30 days to demonstrate that the scheme is not notifiable.

If HMRC does not receive a satisfactory reply, then HMRC may give an SRN to the scheme and tell persons it suspects of being a promoter or supplier what SRN it has given.

Issuing an SRN does not mean that HMRC approves the scheme. HMRC does not approve avoidance schemes.

DOTAS — promoter and supplier obligations — SRN

After giving an SRN to a scheme, HMRC will tell promoters and suppliers of the scheme the SRN.
After you receive the SRN from HMRC, you must provide that SRN to any of your clients using the scheme. You must give clients this information by completing a form AAG6 and sending them the whole of that form.

Promoters and suppliers must regularly tell HMRC which scheme they’ve provided scheme related services to. You should write to HMRC to let us know if you prefer to send client information by post or want to arrange to send this information to HMRC electronically. Use the address shown in the section, ‘Sending information required under DOTAS by post’.

DOTAS — scheme user obligations — SRN

If you have used the scheme and received the SRN from a promoter or supplier, you must tell HMRC that you have used the scheme. You must do so by reporting the SRN to HMRC, usually when submitting a tax return, or by using form AAG4, AAG4(IHT), AAG4(SDLT) or AAG4(ATED). The guidance in forms to disclose tax avoidance schemes explains which form to use.

You must also pass on the SRN you receive from the promoter or supplier to any other parties to the scheme.

DOTAS employer obligations — SRN

If you’re an employer and have received an SRN from a promoter for an employment-related scheme, you have 30 days in which to give the SRN to employees to whom the scheme relates by using form AAG7.

You must let HMRC have information about employees who may be advantaged by avoidance schemes where you have received an SRN from a promoter. If there’s a tax advantage for employers, this should also be reported to HMRC. You must send HMRC this information by including the information on form AAG8.

For each SRN, you’ll need to send the following information for each relevant person:

• name, address and tax reference number of the employer
• name and any National Insurance number of the employee
• the SRN of the scheme
• the tax year the employee obtained or expects to obtain the advantage
• if the tax advantage is only expected to be obtained by a person other than the employee, confirmation that there is no tax advantage for the employee
• name and address of the promoter, and the name given to the notifiable arrangement, if any

If you want to send the information on form AAG8 electronically, you should write to HMRC at the address shown in section ‘Sending information required under DOTAS by post’.

We’ll then tell you how you can send it electronically.

If you want to send the information on form AAG8 by post, you should send it to HMRC at the address shown in section ‘Sending information required under DOTAS by post’.

Do not send reports or information about employees by email. Information sent by email is not secure as it could be intercepted and read by people other than those it was intended for.

Sending information required under DOTAS by post

If you need to send information required under DOTAS to HMRC, send it to:

Penalties under DOTAS

You’re liable to a penalty if you fail to disclose a scheme to HMRC within 5 days of the scheme being made available or implemented. The initial penalty is up to £600 a day. If this is not considered to be sufficient deterrent you may have to pay a penalty of up to £1 million.

You’re also liable to a penalty of up to £600 a day if you continue to fail to disclose the scheme to HMRC once the initial penalty has been imposed.

If you’re an employer involved in a tax avoidance scheme, you’re liable to a penalty of up to £5,000 for each employee you fail to include in your end of year report. Further penalties of up to £600 a day may be imposed in respect of each employee if the failure continues after the initial penalty has been imposed.

If you’re a promoter you are liable to a penalty of up to £5,000 for each client to whom you fail to give the SRN. Further penalties of up to £600 a day per client may be imposed if the failure continues after the initial penalty has been imposed.

If you’re a user of a tax avoidance scheme and you fail to report the SRN to HMRC you are liable to a penalty. The penalty is up to £5,000 the first time you fail to do this. If you fail to report an SRN again you may have to pay a penalty of up to £7,500. On the third and future occasions you may have to pay a penalty of up to £10,000 for each failure.

There are also penalties for failing to comply with other aspects of the DOTAS legislation.

After allocating an SRN to a scheme, HMRC can publish information about that scheme.

After notifying a promoter or supplier of the SRN it has given to a scheme, HMRC can publish the name of the promoter or supplier. Before publishing, HMRC must allow them the opportunity to make representations about why their details should not be published and give full consideration to those representations.