Disclosure of tax avoidance schemes: guidance

13 January 2016, HMRC issued guidance for employers on the subject of disclosing tax avoidance schemes.

This guidance has now been updated.

The guidance was previously updated in January 2016 to reflect the introduction of a new consolidated form AAG6 which promoters must use to report details of schemes to clients. This form will apply in relation to all relevant taxes and replaces the individual forms AAG6, AAG6(SDLT), AAG6(IHT) and AAG6(ATED).

The guidance has also been updated to reflect the introduction of a new form AAG7. Employers must use form AAG7 to report an SRN to an employee where a tax advantage is expected to arise relating to their employment as a result of a scheme notified to HMRC under the Disclosure of Tax Avoidance Schemes (DOTAS). This duty for employers and the new form has been introduced following Finance Act 2015.

New regulations came into force on 23 February 2016, amending the hallmarks and their scope.

These regulations

amended the standardised tax product hallmark amended the loss schemes hallmark created a new financial products hallmark

The changes to the standardised tax products hallmark significantly widen the role of the hypothetical informed observer when testing whether or not the hallmark applies.

The exemption from the requirement to disclose schemes, which are the same or substantially the same as schemes that were being marketed before 1 August 2006, was also removed.

The changes to the loss schemes hallmark seek to ensure that promoters can’t argue that the projection of a theoretical profit at some point in the distant future means they are not required to disclose the scheme.

The new financial products hallmark covers arrangements including a financial product:

where the financial product includes terms unlikely to have been entered into were it not for the tax advantage or where the arrangements includes contrived or abnormal steps without which the tax advantage could not be obtained.

The confidentiality hallmark (where there is a promoter involved) and the premium fee hallmark have been extended to include arrangements that might be expected to enable a person to obtain an advantage in relation to inheritance tax (IHT).

The guidance is very comprehensive and extends to some 166 pages, but we recommend employers familiarise themselves with the basics of their responsibilities.