From 1 August 2006 those promoting (and in some cases those using) schemes
and arrangements designed to produce a tax advantage relating to registered
pension schemes will be obliged to report these to HMRC.
Tax advantaged schemes are notifiable if they fall within any one of
eight descriptions ("hallmarks"). Four "generic" hallmarks
target new and innovative schemes. One hallmark targets standardised tax
products. Two hallmarks target known specific risk areas – loss schemes
for individuals and finance leasing. A hallmark which came into force on
1 September 2009 (but effective from 23 April 2009) targets schemes intended
to circumvent the restrictions on pensions relief introduced in Finance
Act 2009. These are set out in The Tax Avoidance Schemes (Prescribed Descriptions
of Arrangements) Regulations 2006 (SI 1543/2006).
Although all registered pension schemes will confer a tax advantage because
of the tax reliefs available to them, pension schemes and their members
who are merely enjoying those reliefs in normal ways are unlikely to be
affected by these disclosure requirements because the arrangements will
not be within any of these hallmarks. In particular, entering into a registered
pension scheme based on standardised documentation will not be a reportable
event.
However the regulations will require disclosures from those who promote
(and in some cases those who use) arrangements that are intended to exploit
the rules surrounding registered pension schemes.
Who makes the disclosure
Normally it is the promoter of the scheme who is required to disclose.
But there are three circumstances in which the taxpayer must disclose:
"in-house" schemes, i.e. where there is no promoter;
where the promoter is offshore and does not disclose;
where the promoter is a lawyer who is prevented from making a full disclosure
of the required information by legal professional privilege (LPP). The client
may, however, waive privilege, in which case the lawyer is required to disclose.
Timing of disclosures
In general, disclosure must be made within five working days of the scheme
being made available for implementation or when the first transaction to
use the scheme takes place. Users of in-house schemes were initially allowed
to disclose on their tax returns. From 1 August 2006 the time limit for
disclosing an in-house scheme is reduced to within 30 days of the first
transaction to use the scheme.
Reference numbers
The rules provide that the HMRC may issue a reference number for any
scheme disclosed within 30 days of receipt of the disclosure. Where HMRC
issues a number to a promoter, the promoter must provide this to clients
within 30 days of the later of:
Becoming aware of the first transaction to use the scheme; or if later
Receipt of a reference number from HMRC.
Further obligations on users of a disclosed scheme
A person who uses a scheme and has been issued with a reference number,
either by the promoter or directly by HMRC, must declare that number on
each self assessment return (or in some circumstances form AAG4 –
see the link to guidance below for more detail) for a period that is affected
by the scheme.
Penalties
A promoter who fails to disclose scheme etc will be liable to an initial
penalty of up to a maximum of £5,000. Where after this initial penalty
is imposed the failure continues then a further daily penalty of up to a
maximum £600 per day will be imposed.
Promoters who fail to give a registration numbers to their client will
also 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 and then
£1000 for subsequent failures.
In respect of both promoters and taxpayers, initial penalties will be
determined by the First-tier Tribunal and there will be a right of appeal
against the imposition of the penalty.
