The purpose of the Disclosure of Tax Avoidance Schemes is to alert Her Majesty’s Revenue and Customs (HMRC) of schemes with regard to individuals or corporations, who are avoiding taxes. Any party entering into a program and/or arrangement which offers the benefit of minimizing taxes is required to be disclosed.
Hence, corporations or even individuals who fail to adhere to the disclosure rules may potentially face tax investigations by the HMRC and if upon completion of the investigation, HMRC finds that the said individual or corporation failed to the said rules, it may impose penalties upon the respective party for their failure to adhere to the respective rules.
Three regimes fall under the category of disclosure regimes, mentioned below;
- Direct taxes (including Apprenticeship Levy) and National Insurance Contributions (DOTAS)
- The Disclosure of Tax Avoidance Schemes: VAT and other indirect taxes (DASVOIT)
- VAT Disclosure Regime (VADR)
Direct taxes (including Apprenticeship Levy) and National Insurance Contributions (DOTAS)
DOTAS guides promoters of Employment Benefit Trusts and other schemes, that is, the individuals who market or design the scheme to provide the relevant information about avoidance schemes to the HMRC. This must information must be provided within five days of when the scheme becomes available or is implemented. The promoter of the scheme is responsible to provide the scheme reference number which the HMRC has allotted to him through completing the form AAG6, to any user of the scheme, which is your client.
In addition to this, in case if you are a user of the respective scheme, it is also your duty to inform the HMRC. This can be done through reporting the scheme reference number to the HMRC at the time of submitting your tax return or by using form AAG4, AAG4(IHT), AAG4(SDLT) or AAG4 (ATED); the utilisation of which form under which situation can be conveyed to you, through the aid of your tax accountant. The latter can also guide you in carrying out the tests which the legislation imposes, to decipher whether disclosure is required or not.
The DOTAS regime covers particular areas, with respect to tax, dwellings, contributions and levy, which includes Corporation Tax, Income Tax, Inheritance Tax (IHT), Capital Gains Tax, and Annual Tax on Enveloped Dwellings (ATED), Stamp Duty Land Tax (SDLT), Apprenticeship Levy and National Insurance contributions.
The Disclosure of Tax Avoidance Schemes: VAT and other indirect taxes (DASVOIT)
The Disclosure of Tax Avoidance Schemes: VAT and other indirect taxes (DASVOIT) came into force on 1st January 2018. It provides a detailed outline of what is to be done when a promoter either promotes or uses arrangements with the aim to provide the user with a VAT or other indirect tax advantage.
The primary responsibility of disclosing proposal or arrangements that is to be notified under DASVOIT to the HMRC is upon the promoter of the arrangements. However, in certain circumstances, the client of the promoter may be responsible for the disclosure including; if the promoter is non-UK based, if the promoter is a lawyer cannot disclose as a result of legal privileges or if there is no promoter, that is, the arrangement is made in house.
Furthermore, any arrangement or proposed arrangement is required to be disclosed to the HMRC, in case if it allows for an individual to obtain a tax advantage or if the tax advantage is an expected benefit of the respective arrangement or if the arrangement falls within one or more descriptions known as ‘hallmarks’, which can further be elaborated upon with the aid of an accountancy solutions firm.
As with DOTAS, under DASVOIT a scheme reference number may be issued by HMRC to an individual, either promoter or user of the scheme, when the said individual notifies and discloses the respective scheme. Subsequently, the promoter must pass the scheme reference number, along with the information provided by HMRC, to his respective client who in turn must provide this to any other parties who are utilising the scheme. In addition to this, the users of the scheme also have a duty to inform HMRC of their use of the respective scheme.
VAT Disclosure Regime (VADR)
As opposed to DASVOIT, the disclosure for VADR schemes is to be carried out upon arrangements which were put into action before 1st January 2018. The said schemes can further be divided into two categories, namely listed schemes and hallmark schemes. The former, are specific schemes which are defined within the disclosure legislation whereas the latter include those schemes which are associated with or are included with a ‘hallmark’ of avoidance defined in the legislation. The further elaborations of each of these schemes can be known through the aid of your tax accountant, who can further guide you.
In case of the aforementioned schemes, if an individual or corporation fails to disclose an arrangement to the HMRC, the HMRC may launch a tax investigation against the said individual or corporation. If the delinquent individual or corporation is held to be liable upon the conclusion of the said investigation, HMRC may impose certain penalties.
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