Scheme promoters (tax advisers) and users (taxpayers) should consider the impact of HMRC’s new disclosure regime for VAT and other indirect taxes on their business.
The new Disclosure of Tax Avoidance Schemes for VAT and other indirect taxes (DASVOIT) regime came into force on 1 January 2018. While the new rules primarily affect tax advisors, there are still important obligations for taxpayers under DASVOIT.
DASVOIT has replaced the old VAT avoidance disclosure regime (VADR), which applied to VAT only. Under VADR, responsibility for disclosure rested with the scheme user. In contrast, DASVOIT applies to all UK indirect taxes and the responsibility for disclosure generally (but by no means always) rests with the scheme promoter.
DASVOIT has many similarities with DOTAS, the existing disclosure regime for direct taxes, but remains a separate regime.
What triggers a disclosure liability?
Arrangements are notifiable and must be disclosed to HMRC where all the following criteria are met:
- They enable any person to obtain an indirect tax advantage
- That tax advantage is the main benefit or one of the main benefits of the arrangements
- The arrangements fall within one of the prescribed descriptions (referred to as ‘hallmarks’).
What are the hallmarks of disclosable arrangements?
Some of the listed hallmarks are generic and apply to all indirect taxes (confidentiality conditions, premium fees and/or standardised tax products), whereas others (retail supplies, offshore supplies, option to tax disapplication) refer to specific VAT schemes.
Responsibility for disclosure
The duty to disclose normally falls on the scheme promoter. However, special rules apply when:
- A non-UK based promoter fails to disclose the arrangements
- The promoter is a lawyer and legal professional privilege prevents them from providing all of the required details to HMRC
- There is no promoter (eg the arrangements are devised ‘in-house’).
In all of these circumstances, the responsibility for disclosure rests with the scheme user. Penalties can apply if notifiable arrangements are not disclosed accurately, using the right forms and at the right time.
Other reporting obligations
Once notifiable arrangements have been disclosed, HMRC will normally issue the person who made the disclosure with a scheme reference number (SRN).
Where the disclosure was made by a promoter, it must provide the SRN to the scheme user. On receipt of an SRN from the promoter, the user must provide its VAT registration number to the promoter.
Promoters must then provide quarterly lists to HMRC of clients to whom they were required to issue an SRN during that calendar quarter. This duty to provide client details to HMRC applies to any tax adviser who has provided services to a client in connection with any notifiable indirect tax planning arrangements.
Irrespective of whether the scheme user receives the SRN direct from HMRC (as a result of disclosing the arrangements itself) or via the promoter, the user must report its use of the arrangements to HMRC at the outset and then annually for as long as it uses the arrangements.
Again, penalties can apply if any person fails to notify prescribed information in the prescribed format and within the prescribed time limits.
Taxpayers need to ensure they are aware of their reporting obligations under DASVOIT, bearing in mind the potential penalties for non-compliance.