A disclosure regime was introduced in 2004 requiring details of tax avoidance schemes in relation to financial products and employment income to be disclosed to HMRC. The relevant legislation was enacted as Part 7 of the Finance Act 2004 (FA 2004) but was heavily supplemented by supporting regulations. These provisions formed the subject of our client guide, Disclosure of tax avoidance schemes in relation to financial products (October 2004). Changes to the disclosure regime were announced in the 2005 Pre-Budget Report. The regulations, which came into force on 1 August 2006, broadened the scope of the regime to direct tax generally, replaced the concept of ‘filters’1 with ‘hallmarks’ and brought forward the time for notification of tax avoidance schemes involving no promoter. Revised HMRC guidance on the disclosure regime (the Guidance) also came into effect from 1 August 2006. The changes made by these regulations were referred to in our updated client guide, Disclosure of tax avoidance schemes 2006 update (August 2006). There are also separate disclosure regimes in respect of VAT, stamp duty land tax (SDLT) and, from 1 May 2007, national insurance contributions (NICs).
In the 2006 Pre-Budget Report further changes were announced to ‘strengthen’ the disclosure regime. Following consultation, the Finance Act 2007 (FA 2007) has inserted four new powers into Part 7 of the FA 2004 enabling HMRC to investigate cases of ‘apparent failure by a promoter to meet a statutory obligation to provide information … to HMRC.’2 The revised rules came into force on 19 July 2007 (Royal Assent to the FA 2007) but the powers have retrospective effect in the sense that they can potentially apply to transactions that have already been undertaken and schemes that have already been disclosed. The additional powers allow HMRC to:
- require a promoter to explain (providing documents and other specified information) why a particular transaction is not notifiable if HMRC ‘suspect’ that it ‘may’ be;
- obtain an order from the Special Commissioners that a particular scheme or transaction must be notified where either HMRC suspect that it may be notifiable or can prove that it is; and
- obtain an order from the Special Commissioners requiring a promoter to provide specified ‘information about, or documents relating to’ a proposal where HMRC believe a disclosure to be incomplete. (Note that this power is not limited to material that is actually required to be provided to HMRC under the general disclosure regime rules.)
- Increased penalties apply to a failure to comply with the orders to notify. HMRC issued business brief 57/07 in August 2007 (BB 57/07) explaining the new powers.
HMRC have also announced, on 20 November 2007, a further consultation in relation to the disclosure regime, proposing changes to the Scheme Reference Number system. The aim is to improve identification of users of disclosed schemes.
This client guide is an update of our August 2006 guide and aims to provide an introduction to the regime as amended by the FA 2007, while noting some of the more difficult issues currently raised by the regime. It also covers the current proposals for changes to the reference number system. This guide does not consider the VAT, SDLT3 or NICs regimes. All statutory references are to the FA 2004 unless otherwise stated4. References to statutes and statutory instruments are to those in force as at 10 January 2008.
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