Disclosure of tax avoidance schemes

Disclosure of tax schemes set up to evade tax appears counter-intuitive to most people – if someone is seeking to avoid tax, why would they then agree to disclose it?

However, guilt combined with increasingly harsh penalties for tax (going back up to 20 years) often flushes out a need to settle the past. Alternatively, it may be that the removal of skeletons from your closet is now more affordable, some years later.

Alternatively, and perhaps more commonly, individuals or companies advised on tax schemes may wish to disclose such schemes to ensure that HMRC agrees it is compliant with the legislation that exists at the time and does not fall within the general ambit covered by the anti-abuse rule.

• however, as tax legislation is constantly catching up attempts to restructure affairs around the latest legal position a disclosure may be necessary to seek clearance or establish whether a breach has occurred and mitigate the penalties that may otherwise be due (which can be substantial).
• individuals or companies participating in tax schemes, which they are uncertain as to the tax treatment of, now have the opportunity to disclose such schemes so as to ensure they are not later caught up in any unexpected action taken by HMRC to recover taxes which may be due on the income received under such schemes.

Whatever the reason, HMRC has promoted for many years the Disclosure of Tax Avoidance Schemes (“DOTAS”).

Who does DOTAS apply to?

DOTAS covers any individual or company which:

“promotes or uses arrangements (including any scheme, transaction or series of transactions) that will or are intended to provide the user with a tax or National Insurance advantage when compared to adopting a different course of action”.

It can legitimise any tax arrangement where the disclosure has been made by the promoter and the DOTAS number obtained, but primarily DOTAS is designed to alert HMRC as to tax schemes and enable the implementation of future legislation to eliminate them.

What does DOTAS cover?

DOTAS applies to most forms of income tax, corporation tax and capital gains arising from 2006, with National Insurance Contributions falling within these disclosure requirements from 2007.

Stamp Duty also falls within such requirement, although for most properties this was only appropriate for purchases from 2012 onwards. Other taxes are covered by this for different periods and we recommend you seek tax accountancy advice as regards your specific circumstances.

DOTAS can be very complex for the tax payer. A DOTAS scheme number will not mean that a scheme is approved, yet often it is used by scheme providers to indicate some sort of approval by HMRC (which is not the case).

What benefit does DOTAS disclosure provide?

There is no tax saving through disclosure of a scheme via DOTAS and often the only benefit is that the scheme has been declared to HMRC and, perhaps by virtue of their silence, passively approved.

This does not mean that tax liabilities may not arise in the future, either as a result of the scheme not being found capable of achieving its purpose or as a result of legislation introduced following the declaration.

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At Francis Wilks & Jones we are able to assist with all concerns as regards any tax liabilities and disputes you may face, disclosure requirements and any legal matters arising in respect of such tax liabilities and with regard to claims out of insolvency or claims for breaches of a director’s fiduciary duties.