Government eases tax avoidance disclosure rules for advisers

We reported here on the Government’s detailed plans for its new tax avoidance disclosure regime. These plans resulted in deep concerns amongst those professionals most likely to be affected – accountants and lawyers.

Following intense lobbying the Government has just announced some significant changes and concessions. According to the Revenue’s latest press release:

1. Only those at the heart of a scheme or arrangement, and who are capable of meeting the obligations, will be treated as promoters. Revised published regulations will exclude from the definition of promoter:

· anyone who is not involved in those parts of the scheme that give rise to a tax advantage (for example, someone dealing only with the company law aspects of a scheme); and

· most people responsible for the organisation or management of the arrangements, unless connected with the designer of the arrangements.

2. Changes will be made to the descriptions of what schemes and arrangements need to be disclosed to ensure the financial products test is easier to apply in practice. Revised published regulations will:

· remove the formula requiring promoters to calculate the value of the tax benefit versus the difference between the economic benefit and the cost of the arrangements;

· introduce new filters focusing on factors related to the innovative use of sophisticated financial products to gain a tax advantage; and include a list of financial products to which disclosure does not apply, including ISAs and finance leasing.

3. Changes will be made to the commencement rules, which will help ensure smooth transition to the new disclosure regime. Revised published regulations will:

· set a time limit of not later than 30 September 2004 for making a disclosure of schemes where the relevant date falls on or after 1 August;

· lift the requirement for promoters to disclose arrangements involving financial products marketed from 18 March or 23 April 2004 and instead require disclosure of such arrangements where the relevant date falls on or after today. Promoters will be given until 31 October 2004 to disclose financial product arrangements with a relevant date falling on or between today and 31 July 2004;

However, there will be no change to the requirement to disclose arrangements involving employment products where the relevant date falls on or after 18 March or 23 April 2004, as appropriate, but promoters will be allowed until 31 October 2004 to make disclosures in respect of employment products where the relevant date falls on or before 31 July 2004.

The Inland Revenue says it will continue discussions with the tax community on the regulations, guidance and explanatory notes, which will be finalised once the consultation process ends on 30 June.

The Paymaster General is quoted as saying that "These changes will ensure that disclosure will only be required of those schemes and arrangements which pose the greatest threat to the Exchequer and strike the right balance as to the range of people who will be required to report. They will also provide promoters sufficient time to make the transition to the new regime without compromising its objectives."

Tax advisers have generally welcomed the changes but there still appears to be a great deal of scope for uncertainty as to what types of arrangements need to be disclosed.

Kevin Miller, MA FCA