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Tax Risk Evaluation and Mitigation Schemes

The tax climate in the UK has changed significantly in recent years and HMRC are increasingly likely to challenge arrangements they regard as excessive tax planning.  There are also increasing obligations to disclose information about certain transactions or arrangements as they arise, creating further administrative burden on all taxpayers (including those who may not even be knowingly engaging in tax avoidance).

Why use CMS for tax risk evaluation

Appetite for tax risk varies considerably from taxpayer to taxpayer.  At CMS, we have considerable experience advising clients at both ends of the spectrum, including advising on how commercial transactions are likely to be perceived by HMRC, the courts or other authorities (e.g., under the Banking Code of Conduct).

Why use CMS for tax mitigation schemes

We also advise in relation to both the effectiveness of tax schemes and any potential recourse against scheme promoters and advisers.  Our experience includes advising on schemes involving films, employee incentives, SDLT planning, specific tax deductions/reliefs and inheritance tax planning.

Frequently asked questions

What are the disclosure rules for tax schemes?

There are different disclosure regimes relating to potential avoidance schemes depending on the underlying taxes involved (together referred to as the ‘Disclosure of Tax Avoidance Scheme’ rules, or DOTAS).

Under DOTAS, promoters and users of a potential avoidance scheme must provide information to HMRC about that scheme within a specified period.  The requirement to make a disclosure will depend on certain criteria being met, including that the scheme falls into one of a number of so-called ‘hallmarks’ (broadly, these are aimed at capturing innovative, marketed or specific schemes).

Failure to make a disclosure required under DOTAS can result in material financial penalties.

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Do I need to disclose an arrangement where the tax treatment is not certain?

HMRC are introducing new rules, effective for returns filed on or after 1 April 2022, that will require large businesses to notify HMRC when they have adopted an ‘uncertain tax treatment’.  These rules are not aimed at tax avoidance, but rather situations where taxpayers may take a different view to HMRC on the correct interpretation of UK tax law.

The specific rules will be set out in future legislation, but are expected to affect any businesses with either an annual turnover above £200 million or a balance sheet total of over £2 billion.  The legislation is also expected to include a threshold of £5 million below which uncertain tax treatments do not need to be notified to HMRC.

In practice, large businesses are already likely to discuss any areas of uncertainty with their CCM or to include a reference in their tax returns.  However, the new rules will inevitably impose a new administrative burden on large businesses, and anyone concerned about the potential impact of these rules should contact a member of our team.
 

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Key contacts

Stephen Hignett
Partner
Co-Head of Tax
London
T +44 207 067 3397
Sam Dames
Partner
London
T +44 20 7367 2470
Kristin Shelley
Senior Associate
London
T +44 207 367 3560