DOTAS / GAAR
If you have used a tax avoidance scheme, you may be unsure where you stand or whether the advice you received was sound. We independently review the arrangements and explain your options.
DOTAS & GAAR Advice
If you have been involved in a tax avoidance scheme, you may be unsure whether the advice you received was sound or what HMRC can now require of you. Tax Innovations provides independent DOTAS and GAAR advice, examining the arrangements and explaining your options if HMRC challenges them.
Tax planning and tax avoidance schemes
The UK tax system works on the basis of self-assessment, meaning that taxpayers calculate the tax they owe each year based on the income, gains and profits declared to HMRC.
However, this leaves room for unscrupulous players to sell tax-avoidance schemes to unsuspecting taxpayers – selling the idea that a few simple steps can allow the taxpayer to completely avoid UK tax; often in return for substantial fees. By the time HMRC come knocking, the advisers may have disappeared, leaving taxpayers with a nasty tax bill on top of the fees.
For example, contractor loan schemes were sold to self-employed contractors for many years, telling them that by routing their income via an overseas umbrella company they could receive much of their earnings as supposedly tax-free loans. These arrangements can leave users facing tax liabilities as well as the fees already paid to the promoter.
What is GAAR?
The GAAR is a broad power to counteract tax advantages arising from abusive tax arrangements. It considers whether the arrangements are consistent with the purpose of the relevant legislation, including whether they involve contrived steps or seek to exploit shortcomings in the rules.
This is subject to a ‘double reasonableness’ test, requiring HMRC to show that the arrangements “cannot reasonably be regarded as a reasonable course of action” before GAAR can be applied.
Tax planning does not become abusive simply because it reduces a tax bill. Equally, an arrangement does not escape challenge just because the promoter says it follows the literal wording of the legislation. The structure and the purpose of the rules both need to be examined.
What is DOTAS?
DOTAS is a separate mandatory system under which tax advisers, promoters, and sometimes scheme users must notify HMRC about arrangements that meet the disclosure conditions. These include criteria known as hallmarks, which can concern matters such as confidentiality, premium fees and standardised tax products.
This is designed to give HMRC much earlier information about potential tax avoidance schemes, allowing them to close these off much quicker than in the past.
Disclosure is usually the promoter’s responsibility, although users must disclose in certain circumstances. Strict deadlines apply, so it is important to establish who is responsible and when the disclosure is due.
Does a DOTAS number mean HMRC has approved a scheme?
No. HMRC issue schemes with a DOTAS scheme reference number, which promoters must pass to users. Users must report the number to HMRC as required, usually through their tax returns.
Unfortunately, this allows the unscrupulous promoters of such schemes to claim that the tax avoidance scheme is “HMRC registered” or even “HMRC approved”, but HMRC do not approve these schemes by issuing a reference number.
A DOTAS number does not establish whether a scheme works or whether it is abusive under GAAR. Nor does the absence of a number establish that the arrangements are acceptable.
What happens if HMRC challenges a tax avoidance scheme?
The prevalence of such schemes means that Tax Innovations has long experience of assisting taxpayers who have come to us because they are dealing with HMRC enquiries into their use of such tax avoidance schemes.
Some clients were assured that the arrangements were routine and have been taken aback by HMRC’s response. Others remain convinced that their scheme works. In either case, the first step is to understand exactly what was done, what advice was given and the basis of HMRC’s challenge.
We review the scheme documents and correspondence, explain where you stand and assess whether there are sound grounds to dispute HMRC’s position. Where there are, we can put those arguments forward. Where there are not, we will explain why and advise on resolving the matter.
Armed with the details and history of the scheme, we can prepare an approach to HMRC that takes account of the tax properly due, any grounds for reducing penalties and your rights during the enquiry. We can handle the correspondence and challenge demands that go beyond HMRC’s powers.
Can HMRC require payment before the dispute is resolved?
In some cases, HMRC can issue an Accelerated Payment Notice (APN), requiring payment of disputed tax before the underlying dispute is settled. Specific conditions must be met; a DOTAS number alone is not enough.
The payment deadline is normally 90 days, although this can change where representations are made. If you receive a notice, we can review the grounds on which it was issued, check the amount and advise on the response required.
Independent advice before entering a scheme
If you have been offered a tax arrangement and want a second opinion, we can review how it works, whether disclosure may be required and where it could be challenged. Taking advice before committing can help you understand risks that were not made clear in the promoter’s explanation.
If you are concerned about a scheme you have used, or have received a letter from HMRC, speak to us about the arrangements and the advice you were given. We can help you establish where you stand and what to do next.
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