HMRC have published a response to their 2016 consultation on ‘Strengthening the Tax Avoidance Disclosure Regimes for Indirect Taxes and Inheritance Tax’.

The original consultation sought views on HMRC’s proposals, along with a request for alternative ideas, to reform the VAT Disclosure Regime (VADR) in order to bring it into better alignment with the Disclosure of Tax Avoidance Schemes (DOTAS) requirements.

As a result of the consultation and responses received, draft legislation was included in the Finance Bill 2017. The new rules will come into force on 1 September 2017 and will apply to VAT, other indirect taxes and custom duties:

  • These will replace the current regime which places the disclosure responsibility solely on promoters.
  • Arrangements that carry a tax advantage and have the ‘hallmarks’ of avoidance will be notifiable.
  • A tax advantage is where excess input tax is recovered or where a shortfall of output tax is payable.
  • A disclosure is required within 31 days of it being offered by a promoter to a client, or where there is no promoter, within 31 days of the date which will be prescribed by HMRC in regulations.
  • A reference number will be provided, which must be given to all users.
  • Daily penalties of £600 can be applied where there is a failure to notify HMRC of the arrangements.
  • These daily penalties can be increased, to total up to £1 million, if they seem inappropriately low.
  • The penalty for failing to comply with any of the other above rules is £5,000.

The draft legislation also imposes the following on users:

  • Users who are given a reference number will have to notify HMRC that they are party to the avoidance scheme.
  • Failure to do so will result in penalties of up to £10,000 per scheme they use.

More details are to be included in regulations: this will include details of the hallmarks, which are expected to combine the hallmarks used for DOTAS, such as premium fees and standardised products, and some of the specific VAT hallmarks that are in the current VAT disclosure regime.


Our subscriber guide: DOTAS: Disclosure of tax avoidance schemes

The response document and original consultation can be found here.