What are the Disclosure of Tax Avoidance Schemes (DOTAS) rules? When should you disclose your use of a tax avoidance scheme? What are the consequences of non-disclosure? How are penalties calculated?

A guide for subscribers.

At a glance

At a glance

The Disclosure of Tax Avoidance Schemes (DOTAS) regime was originally designed to enable HMRC to keep up to date with what types of tax avoidance schemes are in circulation. By requesting that promoters make a disclosure, HMRC has the opportunity to review and if necessary amend legislation to block any scheme which the government considers aggressive and unfair.

Changes to regulations from February 2016 have significantly broadened the DOTAS rules, which could conceivably capture more standard tax planning strategies.

  • Under DOTAS a scheme promoter is required to disclose the main elements of the scheme to HMRC.
  • Special rules apply where disclosure is not made by a promoter and in those cases, a scheme user must make the disclosure.
  • HMRC will then issue the scheme with a DOTAS reference number (SRN).
  • A scheme user will have to notify HMRC that it is using the scheme by inserting the DOTAS number in its tax return. 
  • HMRC will monitor the scheme’s use and if necessary legislate to terminate it.
  • Financial penalties are levied on those who fail to comply with the regime.
  • If an obligation to disclose exists, the notification must be made within five days of the arrangements first being made available.

What's new?

In October 2022 STEP published a response from HMRC in respect of their views on several more common Inheritance Tax planning scenarios.

HMRC published a consultation 'Draft regulations: DOTAS, DASVOIT and POTAS regimes', requesting industry views on proposed rule changes in the then Finance Bill 2021 which would enable HMRC to act decisively where promoters fail to disclose avoidance schemes at an early stage. The changes would allow HMRC to allocate a reference number to an arrangement or a proposal that has not been disclosed but where HMRC reasonably suspects them to be notifiable.

Finance Act 2021 provides, from the date of Royal Assent on 10 June 2021:

  • For HMRC to issue a new information notice to Promoters Of Tax Avoidance Schemes and require them to supply the information HMRC needs to determine whether an avoidance scheme is being promoted that has not been disclosed under DOTAS.
    • If the information is forthcoming HMRC can use that information as normal within the DOTAS regime.
    • If the information is not forthcoming or insufficient HMRC can issue a DOTAS Scheme Reference Number (SRN) and publish information from the notice along with the SRN to ensure taxpayers are sufficiently informed of HMRC’s interest in the scheme.

The European Council has adopted new rules requiring tax advisors, accountants and lawyers who design or promote tax planning schemes which could be potentially aggressive, to report them. The EC Directive applies from 1 July 2020. The rules are built around a set of hallmarks which determine whether a scheme should be reported. The draft directive can be found here.