Serial tax avoider rules – action needed before 6 April 2017

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If you have participated in a tax avoidance scheme, you may have limited time in which to take action to protect your interests, otherwise you could be branded a Serial Tax Avoider (STA) by the tax office under new rules coming into force on 6 April 2017.

The schemes affected are, principally, those within the DOTAS (“Disclosure of Tax Avoidance Schemes”) regime, which includes Enterprise Zone Trusts and some film partnerships.

Avoidance schemes which are defeated in the courts on or after 6 April 2017 will count towards STA status. A scheme may also be “defeated” where the tax office issues an assessment or takes action to recover any tax.

Serial Tax Avoider Sanctions

Anyone in a scheme defeated on or after 6 April 2017 will receive a warning notice, requiring the recipient to provide extra information to HM Revenue & Customs (HMRC) for a 5 year period. Furthermore, persons classed as STAs can be given additional sanctions, including:

  • additional penalties (based on the number of schemes entered into)
  • being publically named as a ‘Serial Tax Avoider’; and
  • being subject to certain restrictions on the use of other tax reliefs.

In the case of a partnership, all partners, and in the case of a company, all companies under common control or controlled by the investing company, will receive a warning notice, and the defeat will count towards their own number of schemes defeated, if any.

Retrospective nature

Any such scheme which was entered into before 15 September 2016 and which is defeated on or after 6 April 2017, will potentially count towards STA status for anyone who has participated in it.

What can you do before 6 April 2017?

Where a scheme was entered into before 15 September 2016 and on or after 6 April 2017 is defeated, that defeat won’t trigger the STA rules provided one of the following actions has been taken;

  • A full declaration is made to HMRC before 6 April 2017 of involvement in any scheme (which is subsequently defeated), or a notice is given to HMRC of a firm intention to make full disclosure of those matters, and the person makes such a full disclosure within any time limit set by HMRC. (It should be noted that the fact that an existing scheme is already under enquiry with HMRC does not remove the need to make a further disclosure under these new rules); or
  • The taxpayer fully ‘settles’ the scheme with HMRC before 6 April 2017, i.e. agrees a settlement with HMRC of all of the tax which HMRC consider to be due. It should be noted that paying tax under an “Advance Payment Notice” (APN) does not amount to settling the tax due.

What next?

If you were involved in a scheme before 15 September 2016, you should consider how best to protect yourself from the new rules, whether by formally settling your liabilities with HMRC by 6 April 2017, or by making a declaration of your involvement in a scheme before that date.

In either case, we will be happy to assist you with this should you not wish to contact HMRC directly. Please contact a member of our Personal Tax team.

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