The changes from 1 January 2018 and penalties for non-compliance
For a number of years, there have been rules governing the disclosure of tax avoidance schemes. HMRC requires information about the relevant scheme which assists them to:
- Get early information about schemes and how they claim to work
- Find out quickly who has used a scheme
Two issues that are worth reviewing are the changes in the categories of the schemes from 1 January 2018 and also the penalties surrounding non-disclosure/involvement with such schemes.
What has changed?
There are three different disclosure regimes:
- VAT disclosure regime (VADR)
- Disclosure of Tax Avoidance Schemes: VAT and other indirect taxes (DASVOIT)
- Direct taxes and National Insurance contributions (DOTAS).
The changes relate to the first two categories. From 1 January 2018, DASVOIT came into force. The disclosure regime for VADR now applies to arrangements entered into before 1 January 2018.
DASVOIT applies to arrangements which are used on or after 1 January 2018. However, there is an exclusion from this for arrangements which were marketed or made available by a promoter, or where a promoter knew about arrangements being implemented, before 1 January 2018.
DASVOIT applies to the following taxes, levies, and duties (so for most members the emphasis will be on 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
- Climate Change Levy
- customs duties
Who is responsible for the disclosure
The main duty to disclose under DASVOIT falls on the promoter of the arrangements. However, there are circumstances where the person using the arrangements must disclose. They are:
- if there’s a non-UK promoter who hasn’t 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
There are penalties for failing to disclose any type of scheme and these apply to promoters, employers, and users of avoidance schemes.
Just as importantly, there are also penalties for ‘enablers’ of schemes that are defeated. An ‘enabler’ is defined as:
- any person who is responsible, to any extent, for the design, marketing or otherwise facilitating another person to enter into abusive tax arrangements
This may well include the client’s accountant if they are seen to be involved with or advise on a tax scheme. HMRC has issued full guidance on the application of penalties relating to defeated schemes which include examples of when /how various advisers become ‘enablers’ (see link below)
HMRC guidance on the tax avoidance scheme changes
HMRC detailed guidance on the new DASVOIT disclosure scheme
HMRC guidance on penalties for defeated schemes