HMRC have attacked tax avoidance with DOTAS and GAAR

Disclosure of Tax Avoidance Schemes (DOTAS) is a complex system of rules, whereby any schemes falling within the criteria must be disclosed to HMRC and are issued with a DOTAS number, allowing HMRC to keep abreast of current tax avoidance ideas.

Disclosure is generally required to made by the scheme ‘promoter’, but where this does not happen, the scheme user also has a duty to provide this disclosure. Broadly, a tax scheme needs to be disclosed to HMRC when the answer to the following questions is yes:

  • Is the scheme expected to provide a tax advantage?
  • Is getting a tax advantage expected to be one of the main benefits?
  • Does the scheme fall within one of a number of descriptions (known as hallmarks)?

Where a scheme with a DOTAS number is investigated by HMRC, they can now issue an Accelerated Payment Notice (APN) to users of the scheme requiring them to pay any disputed tax within 90 days, rather than having to wait until any investigation has been finalised as was previously the case.

The General Anti-Abuse Rules (GAAR) were introduced at the same time as APNs, and apply to ‘tax arrangements’ which are ‘abusive’. In broad terms a tax arrangement is any arrangement which, viewed objectively, has the obtaining of a tax advantage as its main purpose or one of its main purposes.

‘Tax advantage’ in this context is also broadly defined as it is intended to cover any form of tax benefit, for example: increasing deductions or losses; decreasing income or gains; obtaining timing advantages; obtaining or increasing repayments of tax; or ensuring that a potential tax charge does not arise or is reduced.

Determining if arrangements are ‘abusive’ can be complicated, but can be broadly stated as arrangements that go beyond anything which could reasonably be regarded as a reasonable course of action, given the purpose of the legislation being used.

The introduction of GAAR means that HMRC can now legally challenge arrangements that they believe go beyond the intent of the legislation to obtain a tax advantage. Furthermore, APNs can force the taxpayer to pay any disputed tax to HMRC up front whilst the legal position is dealt with. As a result, it is difficult for taxpayers to gain any advantage by using marketed tax avoidance schemes.

Remember, if it seems too good to be true then it probably is! If you are offered the chance to participate in a tax avoidance scheme, and you find yourself tempted, you should always obtain independent tax advice to explain the risks and any hidden costs which may not have been clearly set out by the promoter of the scheme.

Tax Innovations can provide independent advice regarding the tax implications of any proposed course of action, and help you to find the best solution for your tax affairs, without the risk of using aggressive or abusive schemes.

If you would like any advice regarding DOTAS and GAAR, or would simply like to discuss other ways in which we could help you or your business, please contact us on 01962 856 990 or customerservice@taxinnovations.com.

For an initial consultation please call us on 01962 856 990 or visit our contact page.