The main purpose of Disclosure is to obtain early details of tax avoidance schemes which in turn inform both anti-avoidance legislation and HMRC's compliance work. Disclosure has informed many of the anti-avoidance measures in the last three Finance Bills.
The policy objectives for disclosure are to:
There are two regimes. One applies to Value Added Tax (VAT) the other, 'the main regime', applies to all the other taxes. The Disclosure Regime for the main taxes applies to income tax, capital gains tax, corporation tax, national insurance contributions and stamp duty land tax on non-residential property.
The main regime was introduced from 1 August 2004 and applied, initially, to Income Tax, Corporation Tax and Capital Gains Tax but was limited in scope to schemes that concerned employment or certain financial products, those being the high risk areas. It was widened to the whole of those taxes with effect from 1 August 2006. Stamp Duty Land Tax was added with effect from 1 August 2005 and the regime was again widened to include NICs with effect from 1 May 2007.
Disclosure requires certain persons, usually 'promoters' (persons who design or market a scheme - e.g. accountants or lawyers), to provide information to HMRC about avoidance schemes within 5 days of the schemes being made available or implemented.
The legislation imposes a number of tests. Briefly these are:
Those descriptions are described as 'hallmarks'. There are 7 hallmarks aimed at targeting new and innovative schemes, mass market schemes and targeting specific schemes (e.g. loss schemes).
Promoters are required to provide a reference number, allocated by HMRC, to their clients who use the scheme. The client, or user, of the scheme is required to declare it on each return affected.
Promoters are liable to penalties for failure to disclose: an initial penalty of up to £5,000 and penalties of up to £600 per day for continued failure to disclose. Finance Act 2007 provides for the Treasury to make regulations setting a higher penalty for non-compliance in certain circumstances.
Promoters who fail to give a registration numbers to their client will be liable to a maximum penalty of £5,000. Taxpayers who fail to show scheme registration numbers on returns will be liable to an initial penalty of £100 rising to £500 for subsequent failures.
In respect of both promoters and taxpayers, initial penalties will be determined by the Special Commissioners and there will be a right of appeal against the imposition of the penalty.
If you become aware of an arrangement that you suspect should have been disclosed please contact AAG Intelligence.
The disclosure regime for VAT was introduced from 1 August 2004. However, disclosure is limited to two broad categories: listed schemes and hallmarked schemes.
Listed schemes are specific schemes (there are currently 10) that are designated in the relevant legislation. Taxable persons who are party to a listed scheme are required to notify HMRC unless their annual turnover (or, if part of a group, the turnover of the group to which they belong) is below £600,000.
Hallmarked schemes are schemes that include or are associated with a 'hallmark' of avoidance designated in the relevant legislation. Disclosure is not required if:
There are penalties for failure to disclose:
Finance Act 2007 introduced new powers exercisable by AAG for HMRC to ensure that promoters comply with the regime requiring disclosure of tax avoidance schemes. The Act provides for HMRC to make regulations prescribing time limits and for the Treasury to make regulations setting a higher penalty for non-compliance in certain circumstances.
Most promoters of avoidance schemes comply with their disclosure obligations, but a minority do not. Up until now, there have been no powers to enquire into the reasons for non-disclosure or otherwise to police the regime. The Finance Act 2007, introduces a package of powers, mostly exercisable through the Special Commissioners, to plug this gap. In brief:
The Act also provides for the Treasury to make regulations setting the daily penalty at a higher amount than normal (currently up to a maximum of £5,000 per day) where a promoter fails to disclose a scheme after the Special Commissioners have made an order that the scheme is disclosable.