These proposals are not yet concrete: there are no immediate changes to the DoTAS rules but we can be confident changes will be made. A stated reason for the changes is not only to strengthen the DoTAS regime, but also very much to support the new accelerated payments regime. This is not surprising as one of the triggers for an accelerated payment notice (APN) is where a scheme has been reported under DoTAS and then selected by HMRC for APN purposes. HMRC are therefore keen to reduce the wiggle room for promoters to avoid disclosing schemes.
Changes being considered
- HMRC are considering changing the descriptions of schemes required to be disclosed under three areas (standardised tax products, loss hallmarks and IHT) and the possible introduction of a further new hallmark to catch features outside the current hallmarks (such as the requirement for users to contribute to a fighting fund at the outset).
- The standardised tax products hallmark to be amended to catch a wider range of tax products, and to remove the current ‘grandfathering’ of schemes which were in existence at the time this hallmark came into force, so that previously grandfathered schemes will need to be disclosed if they are made available or newly implemented after the change takes effect. The tests will also change so that only those arrangements which are genuinely bespoke fall outside its scope.
- The current IHT DoTAS requirements only apply where property becomes held on relevant property trusts, but HMRC is concerned about IHT avoidance in other areas and the proposal is that the scope should be widened to cover:schemes entered into during a person’s lifetime which are designed to reduce the value of their estate on death; and
- Arrangements which seek to avoid IHT on lifetime transfers or charges other than ‘entry charges’ on relevant property trusts, so any arrangements to avoid or reduce an immediate charge to IHT (other than the straightforward use of reliefs) would become disclosable.
- Other IHT planning may well also be covered since the paper notes that as IHT is covered by the GAAR, there is no reason IHT avoidance schemes should be excluded from disclosure.
- The general hallmarks such as confidentiality and premium fee hallmarks would also be extended to encompass IHT.
Other proposals include:
- encouraging continued compliance with the rules by promoters not resident in the UK (who may not disclose schemes to avoid APNs) by requiring additional persons to make disclosures; widening the obligations of introducers to provide information to HMRC ;
- increases in the penalties applicable to users of schemes who fail to notify their use of a scheme using the correct box in the tax return;
- introducing protection for those who wish to provide information about potential avoidance to HMRC but who are prevented from doing so by governance or confidentiality requirements;
- improving the regime’s operation generally, including processes around the issue of scheme reference numbers (with the possibility of extending the timescale for HMRC to issue these to 90 days to allow time for discussion before SRNs are issued), to provide greater certainty regarding how HMRC may respond to the notification
(For example, this would include requiring employers to notify individual employees of the scheme reference number of a disclosed scheme so that HMRC can identify who to issue APNs to);
- “improving” the VAT disclosure regime to ensure HMRC receives appropriate information about schemes designed to avoid VAT.
Any changes affecting employment Income Tax will extend to the DoTAS NIC rules.
“New hallmark, “Financial Product”
The paper proposes adding a wide-ranging “Financial Product” hallmark. Originally financial products were one of the main heads of disclosure when DoTAS as introduced, but this was then superseded by the hallmarks. Clearly HMRC feel that they have missed disclosures as a result. The effect of this proposed additional DoTAS hallmark is:
“where arrangements include at least one of the financial products listed in paragraph 5.11 [reproduced below], the arrangements must be disclosed where the main benefit, or one of the main benefits, of including the financial product(s) is to give rise to a tax advantage and, either the financial product contains at least one term which is unlikely to have been entered into by the persons concerned were it not for the tax advantage, or, the arrangements involve one or more contrived or abnormal steps without which the tax advantage could not be obtained.”
The financial products mentioned at 5.11 are very widely drawn:
- a loan;
- a share;
- a derivative contract within the meaning given by section 576 of the Corporation Tax Act 2009;
- a repo in respect of securities within the meaning given by section 263A(A1) of the Taxation of Chargeable Gains Act 1992;
- a creditor repo, creditor quasi-repo, debtor repo or a debtor quasi-repo (within the meanings given by sections 543, 544, 548 and 549 of CTA 2009 respectively);
- a stock lending arrangement within the meaning given by section 263B(1) of the TCGA;
- an alternative finance arrangement within Chapter 6 CTA 2009 or Part 10A Income Tax Act 2007; or
- a contract which, whether alone or in combination with one or more other contracts, in substance represents the making of a loan, or the advancing or depositing of money, and falls to be accounted for on that basis.
Subject to any further changes to the proposed wording of the hallmark the Government intends to lay the final regulations to take affect as soon as practical after the response to this consultation is published, so we can expect to see this hallmark introduced later this year. The draft legislation is included in the paper at Annex A.