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Understanding the Disclosure of Tax Avoidance Schemes (DOTAS)

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Reviewed: 3rd June 2016

What company directors need to know about the Disclosure of Tax Avoidance Schemes

HMRC has developed a ‘taskforce’ to track down undisclosed tax avoidance schemes that should have been notified to them through DOTAS. Under Disclosure of Tax Avoidance Schemes legislation, they are targeting promoters, introducers, and also scheme users.

As a company director, any involvement in a scheme of this type - whether as an employer or an individual user - carries with it a risk of heavy financial penalties for non-compliance with DOTAS rules.

The regime provides HMRC with early knowledge of new tax avoidance schemes, and helps them decide whether they have been set up with the main aim of providing a tax advantage to users.

Two different types of DOTAS regime

Two different DOTAS regimes exist – one covers disclosure of VAT schemes; the other is for direct taxes and National Insurance contributions. Both promoters of the scheme, and its users, are required to provide disclosure to HMRC.

Direct taxes

Direct taxes include Income Tax, National Insurance contributions, Capital Gains Tax, Corporation Tax, Inheritance Tax, Annual Tax on Enveloped Dwellings, and Stamp Duty Land Tax.

Promoters and introducers - those who design and/or market a scheme - must inform HMRC within five days of its implementation. HMRC will issue a scheme registration number (SRN), which should be passed on by the promoter to all scheme users for inclusion on their tax returns.

If you’re unsure whether a particular scheme comes under DOTAS regulations, you can use the following questions as a test:

  • Are there arrangements already in place for a new scheme, or proposals for arrangements?
  • If so, is there an expectation that a tax advantage will be provided?
  • Would this be one of the major scheme benefits
  • Can the scheme be ‘hallmarked’ using the descriptions included in the legislation?

VAT schemes

VAT schemes can be broken down into two sub-categories:

  • Listed schemes
    The legislation lists certain schemes that should be disclosed if you’re registered or are about to register for VAT, unless your annual turnover is below £600,000. Failure to disclose could result in a penalty of 15% of any VAT saved.
  • Hallmarked schemes
    These are so called because they bear the common hallmarks of tax avoidance (as detailed in the legislation). There’s a requirement to disclose a hallmarked scheme unless your annual turnover is less than £10 million, or the scheme has already been voluntarily disclosed.

In this instance, you should have been provided with a Voluntary Registration Scheme reference number (VRN). HMRC can apply a penalty of up to £5,000 for failing to comply with these requirements.

The hallmarks mentioned above are:

  • Confidentiality
  • Premium fee
  • Tax loss schemes
  • Leasing schemes
  • Employment income

Penalties for failure to comply with DOTAS

As an employer, you could be fined up to £5,000 for every employee using a scheme that falls under DOTAS legislation, if you fail to include them on your end-of-year report. Further failures to comply could result in your company receiving fines of up to £600 per day. Penalties can also be applied for lack of compliance in other areas.

DOTAS regulations are extremely complex. For this reason it’s important to seek professional advice regarding your obligations as a company director.

Real Business Rescue can advise on what you need to do under DOTAS, ensure you comply with all HMRC requirements, and so avoid the hefty fines mentioned above. Call one of the team for a same-day consultation that’s free-of-charge.