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What is DOTAS?
The key aim of DOTAS (disclosure of tax avoidance schemes) is to reduce the number of available tax avoidance schemes targeting promoters users and any setups that seem particularly aggressive.
How Does DOTAS Work?
- Promoter Responsibilities– If an organisation promotes a scheme that facilitates tax avoidance the promoter must notify this to HMRC within 5 days of discovery.
- User Responsibilities– The responsibility does not only lie with the promoter. If a user suspects that a scheme they are involved with encourages tax avoidance they must also contact HMRC. Ignorance is not an excuse for non disclosure.
Once reported any schemes suspected of promoting tax avoidance will be assigned a DOTAS number by HMRC. From this point users of the scheme will have to record the number on their tax returns. HMRC monitor the scheme and if it is found illegal tax avoidance will close the scheme down. Any individual that is found to have been in contravention of the DOTAS rules will be subject to (often significant) financial penalties.
Recent Changes to DOTAS Regulations
As of 1st January 2024 new rules for the disclosure of cross border tax arrangements have been introduced under the OECD is Mandatory Disclosure Rules (MDR). These rules require reporting of certain cross border arrangements that meet specific hallmarks including those related to Common Reporting Standard (CRS) avoidance and opaque offshore structures.
The Impact of the 2024 MDR Update
The DOTAS rules have expanded significantly over the years. In 2020 European Council has announced a new directive requiring accountants, tax advisers and lawyers involved in tax planning arrangements to report any aggressive schemes. The changes introduced widen the DOTAS rules substantially – and more may be on the horizon. Such alterations could impact on more conventional tax planning strategies.
Economic Crime Act - 2022
This Act, effective from January 1, 2023, brought about measures to improve transparency and fight economic crime. It is important to review how these measures may affect the disclosure requirements under DOTAS.
Updates from the OECD’s MDR for CRS Avoidance Arrangements:
The UK’s implementation of the OECD’s MDR, as of January 2022, requires reporting of arrangements designed to avoid the Common Reporting Standard (CRS) and opaque offshore structures. This updated rules effective from January 2024.
Changes to Inheritance Tax (IHT) Thresholds:
As of 6 April 2023 the dwelling and inheritance tax nil rate band thresholds have been updated. These changes will be in effect until 5th April 2028 and may impact reporting and compliance.
What Does DOTAS Cover?
Over the years the regime has been expanded to cover the majority of taxes, as listed below:
- As of 1st August 2006: some schemes or products involving income tax, corporation tax, or capital gains tax will require disclosure to HMRC.
- As of 1st August 2007: some schemes or products involving National Insurance will require disclosure to HMRC.
- Before 1st November 2012, disclosure was only necessary for SDLT schemes when the market value was at least £1 million (residential schemes) or at least £5 million (non-residential). However, since the end of 2012 it has been required that SDLT schemes relating to properties of any value – residential or non-residential – are reported to HMRC.
- As of April 2011: in instances where chargeable lifetime IHT has been avoided, some estate settlements will require disclosure.
- As of 23rd February 2016: two new hallmarks came into effect – financial products and employment income provided through third parties.
- From 21st December 2017: the Apprenticeship levy is subject to the DOTAS rules.
As of 1st April 2018: a new hallmark related to IHT came into effect.
When Should a Tax Scheme Be Disclosed to HMRC?
In brief, a tax scheme should be disclosed to HMRC:
- If it will, or might be expected to, enable any person to obtain a tax advantage.
- If the tax advantage is, or might be expected to be, the main benefit or one of the main benefits of the arrangement.
- It is a tax arrangement that falls within any description (the ‘hallmarks’ – see below) prescribed in the relevant regulations.
It is generally expected that disclosure will be made by the scheme promoter (someone who typically provides tax services, or a bank/securities house) though – as mentioned above – the user also has some responsibility (typically when the promoter is a lawyer, due to legal privilege, or based outside the UK; or when there is no promoter). In future years the onus to disclose may also fall on tax and legal professionals.
DOTAS Hallmarks
If a scheme includes any of the attributes listed below, it is likely to be deemed a tax avoidance arrangement:
- Employment income provided through third parties
- Financial products
- A premium fee
- Standardised tax products
- Loss/leasing/pension benefits schemes
- Confidentiality (from HMRC or competitors).
Need Expert Advice on DOTAS Compliance
The rules surrounding DOTAS are dense and complex; as such, it’s highly recommended that you seek advice from a qualified tax consultant when reviewing your obligations. Not only are IBISS & CO experts on all aspects of the DOTAS regulations, but also specialise in tax planning, ensuring that – whatever your aim – you will remain compliant with the latest legislation whilst protecting your financial interests. Book a meeting or Call us today for a complimentary consultation and to learn more about our services.
