THE DOTAS REGIME has become the “kiss of death” for tax avoidance schemes and has pushed some promoters into providing non-DOTAS structures instead.
The Disclosure of Tax Avoidance Schemes (DOTAS) sees anyone entering into a scheme generating tax savings issued with a number by HM Revenue & Customs, which later investigates the structure.
It has proven an effective tool for the taxman, which has seen a string of contrived structures shut down as a result of those investigations and subsequent tribunals. Most notably the Icebreaker and Eclipse schemes has been defeated, which will see investors including several celebrities forced to repay billions in sheltered tax.
The more recent Liberty scheme is set to be challenged in tribunal next year.
But advisers are now warning such high-profile defeats for DOTAS-registered schemes are now causing those determined to avoid paying to seek alternatives.
“Around late 2007 or early 2008 intermediaries started to understand that a DOTAS number was likely to bring HMRC attention more quickly than not having it. As such, their focus switched to having non-DOTAS products. This led to promoters finding ways not to DOTAS schemes, or to notify only very late in the day. Penalties for non-disclosure were relatively low and this was a risk that they were prepared to take,” said Rebus head of professional relations Graham Webber.
“HMRC initially thought that DOTAS was working as the number of notified schemes fell dramatically. They then understood that the rules were being interpreted in such a way as to prevent registration. In particular if a promoter could get a QC opinion that registration was not required, the penalty could also be avoided,” he said.
HMRC are now in the process of strengthening the legislation and is currently consulting on measures, which will conclude on 23 October.
It’s the first reconsideration of the rule since it was introduced in 2004, and will examine what has to be disclosed and potentially broaden the scope in order to take in schemes currently going undisclosed.
HMRC said in a statement: “The DOTAS regime captures a wide range of tax avoidance activity, and has proved instrumental in closing down tax loopholes. It is backed up by a strict regime of penalties of up to £1m for those who don’t disclose the schemes they are required to. We encourage anyone with information on schemes they think should have been disclosed to tell us about them by contacting us on 03000 588993.
“HMRC published yesterday the consultation announced at Budget 2014 on strengthening DOTAS. The regime has been in place for ten years, although has been revised at various times. Now is the right time to look at DOTAS again to ensure it continues to be effective.
“Non-disclosure of schemes required to be disclosed under DOTAS is also one of the criteria for triggering the new high-risk promoters rules, which will allow HMRC to tackle the small and persistent minority of tax advisers promote tax avoidance schemes and are not transparent with HMRC.”
Taxman’s Counter Avoidance Directorate behind the massive increase in revenue, law firm claims
Phillip Gershuny, senior tax partner at Hogan Lovells, outlines how a European exit could affect UK taxes
Brexit could hit UK GDP by as much as 3% by 2020, the international economic body has claimed
London accountancy firm Blick Rothenberg warns of potential damages VAT changes could cause UK businesses