Direct tax avoidance disclosure rules

What schemes must be disclosed to HMRC?

Broadly, notifiable arrangements (and for promoters, proposals for notifiable arrangements) are any arrangements where obtaining a tax advantage is one of the main benefits. This is much wider than old TAD, as new TAD extends to all corporation tax, income tax and capital gains tax. Old TAD was restricted to arrangements connected with employment or involving financial products. The disclosure regime is not restricted to marketed schemes but also covers advice arising out of a continuing adviser/ client relationship. Identifying trigger points for disclosures in the latter situation is one of the practical difficulties inherent in the regime.

Instead of filters excluding the need to notify arrangements, new TAD is set up with seven hallmarks. An arrangement possessing any one of the hallmarks needs to be disclosed.

Four of the hallmarks are counterparts to the premium fee, off market terms and confidentiality filters of old TAD (the last of which is divided into two hallmarks to reflect the presence or absence of a promoter), though with some minor changes.

There are three further hallmarks to consider – standardised tax products, loss schemes and leasing arrangements.

What are the procedural rules for disclosure?

When a promoter makes notifiable tax planning arrangements available for implementation, they must inform HMRC of the arrangements (without client details) within five working days. In-house teams with a disclosure obligation have thirty days from the first implementation of a transaction forming part of the arrangements. This is a considerable reduction from the previous regime where the timing of the disclosure was the same as filing the relevant return. HMRC then registers the arrangements and issues a unique scheme reference number. Promoters pass the reference number to the client, and the client must enter the reference number on their return when filing the relevant return at the normal time. When filing, the client also has to indicate when they expect to obtain the tax advantage in connection with the arrangements.

Promoters and prescribed circumstances

To be a promoter a person has to conduct a business that involves the 'provision to other persons of services relating to taxation' and in the course of providing such services they design, or make available for implementation, proposals and arrangements of a type prescribed within the regulations. There are exclusions from this definition where the 'benign tax advice', 'non-tax adviser' or 'ignorance test' apply. This could be interpreted as only applying to organisations (such as lawyers, accountants or banks) providing tax advisory services, but in reality the following groups are likely to be caught under the definition whether they describe themselves as 'tax advisers' or not:

• Tax specialist practitioners
  
  
• Accountants
  
  
• Lawyers – where a lawyer is prevented by legal privilege from disclosing, and the client of the lawyer does not waive this right, the responsibility to disclose falls on the client.
  
  
• Group tax or the finance function – these would be viewed as promoters if they provide tax advice to other companies in the group. However, the regulations provide a specific exclusion from the definition of promoter where services are provided to other members of the same group (which for this purpose means a company and its 51% subsidiaries). But if the tax department develops tax planning involving companies other than group members, for example where there is a joint venture, this would fall within the promoter definition and if the planning was within the scope of the rules, would create an obligation to notify HMRC within five working days.
  
  
• Counsel – HMRC has been clear that Counsel can be caught as a promoter. This may occur where, for example, Counsel advises that additional or modified steps are added to transactions.
  
  
• Financial service companies – the term 'services relating to taxation' was initially unclear and could be read as covering any service encompassing a tax related element, even if it did not amount to tax advice. From the start, HMRC adopted this wider interpretation of the rules which meant that financial institutions providing tax efficient products would rank as promoters. However, amendments to the Finance Bill put this beyond doubt for banks and securities houses. Those only peripherally involved in the work are not likely to rank as promoters. The exact extent of this exclusion is in the revised 'promoters and prescribed circumstances' regulations. For example, a lawyer giving company law advice in the context of a corporate restructuring is unlikely to rank as a promoter.

Where the promoter is non-UK based and fails to disclose a scheme when required to do so, the user of the scheme must make the disclosure.