New disclosure obligations in relation to VAT and all indirect taxes were introduced with effect from 1 January 2018. The disclosure obligation will apply to “notifiable arrangements” which are first communicated, first made available for implementation and first implemented on or after 1 January 2018.1

The rules closely resemble the 2004 DOTAS rules concerning income tax, corporate tax and capital gains tax.

For the rules to apply there has to be a “notifiable arrangement”2 which:

  • falls within any description prescribed by regulations;3
  • enables or might be expected to enable a person to obtain a tax advantage in relation to VAT or any an indirect tax; and
  • is such that the main benefit or one of the main benefits that might be expected to arise from the arrangement is the obtaining of the tax advantage.


The taxes to which the disclosure obligations apply

What is a tax advantage?

What arrangements are notifiable?

Who is required to disclose, and what?

What are the consequences for users?

The taxes to which the disclosure obligations apply

VAT and all indirect taxes are covered by the rules: insurance premium tax, general betting duty, pool betting duty, remote gaming duty, machine games duty, gaming duty, lottery duty, bingo duty, air passenger duty, hydrocarbon oil duty, tobacco products duty, duties on spirits, beer, wine, made-wine and cider, soft drinks industry levy, aggregates levy, landfill tax, climate change levy and customs duties.4

What is a tax advantage?

There is a dedicated definition of tax advantage for VAT purposes and another for all other indirect taxes.

“VAT advantage” includes:

  • For any prescribed accounting period, the amount by which a person (“P”) P’s output tax exceeds the input tax is less than it otherwise would be but for the notifiable arrangement;
  • P obtains a VAT credit when otherwise P would not or a larger credit or a credit earlier than would otherwise be the case;
  • P recovers input tax on a supply before the seller accounts for the VAT and the period between the input tax recovery and the accounting for the output tax is greater than would be the case;
  • In any prescribed accounting period, the amount of P’s non-deductible tax is greater than it otherwise would be.5

A non-taxable person also obtains a VAT advantage if its non-refundable VAT is less than it would otherwise be the case.6

“Tax advantage” for all other Indirect taxes means:

  • Relief or increased relief from tax;
  • Repayment or increased repayment of tax;
  • Avoidance or reduction of a charge to tax, assessment to tax or liability for tax;
  • Avoidance of possible assessment to tax or liability to pay tax;
  • Deferral or payment or advancement of repayment of tax;
  • Avoidance of an obligation to deduct and account for tax.7

What arrangements are notifiable arrangements and are required to be disclosed?

The 2017 Regulations include three general hallmarks attributable to all indirect taxes and four specific VAT hallmarks.

The general hallmarks:

  • Premium Fees: it might reasonably be expected that the promoter or another person would impose a premium fee for the arrangement or an element of an arrangement but for the 2017 Regulations. The premium fee would be linked to the value of the tax advantage or the chance of securing the tax advantage.8
  • Confidentiality due to likely repetition of the arrangement: it is reasonable to suppose that the promoter (or if there is no promoter a person who is a party to the transaction for the purpose of its business) would likely wish to keep the arrangement confidential from HMRC and another promoter. It is presumed to be reasonable if either the promoter would wish to repeat the use of the arrangement, or, where the promoter does not provide the user with the necessary material to enable the user to make necessary disclosures or gives the information to the user but discourages the user from retaining the information.9
  • Standardised documentation: the arrangement involves standardised or substantially standardised documentation which needs little tailoring to enable a person to implement the arrangement, or a person who intends to implement the arrangement must enter into a specific transaction or series of transactions which is/are standardised or substantially standardised, and the main purpose of the arrangements is to enable a person to obtain a tax advantage and it is unlikely that a person would enter into the arrangements if it were not intended to secure the tax advantage for itself or another person.10

The specific VAT hallmarks:

  • Retail and supply splitting and value shifting11

The arrangement involves the making of two supplies to C, supply one by A and supply two by B and either:

    • Had the supplies been made together the single supply would be taxable at the standard or lower rate but if supplied  singly they would be zero rated or exempt or taxed at a lower rate, or
    • Had the supplies been made together they would have been exempt but supplied singly they are zero rated or taxed at a low rate, and,

the arrangement to supply singly is such that A would not supply unless B supplied to C, the supplies would not be made singly but for the VAT advantage, the business models assume the making of only one component to C, the supplies are dependent on each other and are expected to be made at about the same time. If the two supplies were provided together the price would be the same but there is a greater profit for the supply that generates the VAT advantage.

  • Off-shore supplies – insurance and finance12

The arrangement involves D who carries on a trade in the UK and supplies insurance or financial services to E who is outside the EU and E supplies similar services to F who is in the EU.

The supplies would in both cases be exempt supplies within Group 2 and Group 5 of Schedule 9 Value Added Tax Act 1994 (VATA) if they had taken place in the UK.  Through the circuitous supply involving a person outside the EU D’s recovery of input tax is enhanced.  The supplies will be treated as occurring in this way notwithstanding that they are incorporated into other supplies made by another person or are split into separate supplies or is delivered through a series of supplies involving one or more intermediaries.

  • Offshore supplies – relevant business persons13

The arrangement involves G who makes supplies of services to H a business person who carried on business outside the EU. Those services would be taxable if made in the UK.

H uses those services to make services to I who is in the EU. If those services were supplied in the UK they would be exempt or are supplied where H belongs. Through the circuitous supplies of services G’s recovery of input VAT is increased.

As with the insurance and financial service offshore hallmark, it does not matter to the application of the offshore supplies hallmark that the services provided by G to H or by H to I are subsumed into another supply by another person or are split into separate supplies or effected by means of a chain of supplies involving one or more intermediate suppliers.

  • Options to tax land14

The final hallmark concerns land where a person J has opted to tax and within 20 years J or an associate makes a supply of land but the supply is not a taxable supply by virtue of the exempt land test being satisfied.

We understand this arrangement involves “option cleansing”. It would likely be implemented where the buyer is exempt from tax and wishes to buy the land and use it for its own exempt business but the land is opted to tax and in consequence cannot be transferred to the buyer as a transfer of a business as a going concern.

The arrangement would require J to undertake works on the site which the exempt buyer finances with a value of at least £250,000 in consequence of which the exempt buyer becomes a developer financier in respect of a capital goods scheme item. Subsequently the exempt purchaser takes a long lease which it intends to use for its own purposes and seeks to take advantage of the anti-avoidance provisions in Schedule 10 VATA, Para 12 so that the option to tax can be disregarded.  It should be noted that a similar scheme failed in the VAT Tribunal in 2008.15

Who is required to make a disclosure and what information is required?

Obligations to Notify Proposals

The primary duty to notify HMRC of a notifiable proposal or arrangement rests with the Promoter and it must be communicated within 31 days of first making a firm approach to a client, or making the notifiable proposal available to a client for implementation or within 31 days of the arrangement being implemented.

The information required to be provided is to be prescribed by regulations but must be sufficiently granular to enable HMRC to understand how the tax advantage arises.

If HMRC has reasonable grounds for suspecting the promoter has not provided all the prescribed information in relation to an arrangement or has information to support or to explain the prescribed information, it may obtain an order from the Tribunal demanding the production of the information and/or documents containing that information. Information and documents must be produced within 11 days of the date of the order or such longer period as HMRC may direct.16

Who is a Promoter  

As with the 2004 DOTAS rules, the VAT and indirect tax rules place the promoter at the centre of the arrangements.  A person is a promoter if in the course of a relevant business carried on by that person that person designs notifiable proposals and makes a firm approach to others to make the proposal available to others or organises and manages the implementation of notifiable arrangements in the course of a relevant business.  A relevant business is one involving the provision of services relating to tax or a bank or securities house business carried on by the promoter or a company in the promoter’s group.

No promoter or no UK promoter

Where there is no UK promoter the person who implements an arrangement must within 6 days of implementing the arrangement notify HMRC of the prescribed information.17 If there is no promoter a person who implements an arrangement must notify HMRC.18  HMRC may obtain more information and documents in these two sets of circumstances from the persons implementing the arrangement within 10 days of the request being made.19 If HMRC are of the opinion there is yet more information and/or documents which have not been produced HMRC may obtain an order from the Tribunal requiring production within 10 days of the request or such longer period as HMRC may direct.20  HMRC may also request information from the Promoter about other suspected clients or users of the proposals or arrangements which information must be produced within 11 days of the request.21

The issue of DOTAS reference numbers

A reference number is issued by HMRC within 90 days of being notified of a proposal or arrangement. The issue of a reference number is not of course acknowledgement of the tax advantage being available.  The promoter must notify HMRC within 30 days of any change in the name or description of the notifiable arrangement or any change in the contact details of the promoter.

The promoter must notify the reference number to all users of the proposal or arrangement.  Users are also required to provide to HMRC the reference number of any proposal or arrangement implemented by them and the expected timing of the tax advantage.

Users of the proposals and arrangements are required to provide prescribed information to the Promoter.

If HMRC suspect any person is a promoter or introducer of notifiable arrangements, HMRC has the power to obtain information and documents from such a person and to apply to the Tribunal for an order for the production of such information and documents or for the provision of reasons why the person is not an introducer or promoter.

What are the consequences of being a notifiable proposal or arrangement for users of notifiable arrangements?

Penalties for non-compliance

For persons who implement a notifiable arrangement there are penalties for non-compliance with the obligations mentioned above:

Failure to notify HMRC of participation in a scheme without a promoter or without a UK promoter £600 per day
Failure to give the reference number to another participant Flat rate £5,000
Failure to notify HMRC of changes Flat rate  £5,000
Failure to provide the promoter with necessary details Flat rate £5,000
Failure to notify HMRC of reference number £5,000 /£7,500 /£10,000 per scheme depending on where no other failures one other failure of more than one other failure in the last 3 years

The penalties are fines of £600 per day for failure to notify participation in a notifiable arrangement by the relevant day and continues until the day after compliance. There is a flat rate fine of £5,000 for all other infringements.22

If the infringement continues after a penalty has been imposed there is a further penalty of £600 for each day of failure.23

In fixing the penalty for failure to notify all relevant circumstances must be taken into account including fixing the penalty at a level to act as a deterrent from similar failures in the future as well as the level of tax advantage gained or sought to be gained by the person by participation in the arrangement.

Where an order is obtained from the Tribunal by HMRC to the effect that a proposal or arrangement is a notifiable proposal or arrangement, the £600 daily fines for continued failure to comply with the obligation to notify is increased to £5,000 per day.

Where a person fails to notify HMRC of a reference number there is a fine of £5,000 for each scheme to which the reference number relates. The fine is increased to £7,500 if there is only one other failure in the last 36 months and increased to £10,000 per scheme if there is more than one failure in the last 36 months.

Promoters face identical levels of penalty and circumstances must be taken into account include the fees they receive as a result of participation as a promoter or introducer.24

If the penalty for failure to notify seems inappropriately low in the circumstances the penalty can be increased up to a maximum of £1,000,000 as seems appropriate having regard to all the circumstances.25

Timing of penalty proceedings

Penalties must first be assessed by the officer and a penalty is payable within 30 days of the assessment. But if the user appeals against the penalty, the penalty need not be paid before the appeal process is concluded.26 The appeal is heard by the First-tier Tribunal and any decision of the First-tier Tribunal may be appealed to the Upper Tribunal.  Proceedings in the Fist-tier tribunal must be commenced by an authorised officer within 12 months of the officer becoming aware of the facts justifying the penalty.

The taxpayer is entitled to rely on reasonable excuse defence to resist a penalty but for this purpose it is not reasonable to rely on advice of another person which is issued automatically and is addressed to someone other than the taxpayer.27  Penalties that are not contested or are confirmed by the Tribunal are collected as if they were tax.

20 year assessment period

The usual 4 year period for making an assessment in respect of VAT is increased to 20 years where a person has failed to make disclosure of notifiable proposals or arrangements where there is no promoter or no UK promoter.28

Serial avoiders – warning notices and naming and shaming

A defeat under these VAT and Indirect Tax DOTAS rules will be treated as a defeat for the purposes of the arrangements to discourage serial tax avoidance under Schedule 18 to the Finance Act 2016. Under those rules a warning notice may be given by HMRC to a user of a scheme requiring that person in each of the next five years to file an information notice as to whether the taxpayer has filed a return claiming a tax advantage, or failed to take action which the taxpayer ought to have taken but for a disclosable proposal or arrangement, or has become a party to arrangements and if so in each case to explain why.

A person who suffers a defeat and has received two warning notices may be publicly named and shamed within 12 months of the most recent warning notice. 29

Heather Gething

Heather Gething
+44 20 7466 2346

Dawen Gao

Dawen Gao
Senior Associate
+44 20 7466 2595









1 Para 3(4) Schedule 17 Finance (No.2) Act 2017. All references are to paragraphs in Schedule 17 Finance (No.2) Act 2017 unless otherwise indicated.
2 Para 3(1)
3 SI 2017/1216: The Indirect Taxes (Notifiable Arrangements) Regulations 2017 (the 2017 Regulations)
4 Para 2(1)
5 Para 6(1)
6 Para 6(4)
7 Para 7
8 Article 12 SI 2017/1216
9 Articles 9 and 11 SI 2017/1216
10 Article 13 SI 2017/1216
11 Article 4 SI 2017/1216
12 Article 5 SI 2017/1216
13 Article 6 SI 2017/1216
14 Article 7 SI 2017/1216
15 Shurgard Storage Centres UK Limited & Others v HMRC [2008] UK VAT V20797
16 Para 16
17 Para 17
18 Para 18
19 Para 19
20 Para 20
21 Para 28
22 Para 39(1)(a)
23 Para 39(1)(b)
24 Para 40(1) and (2)
25 Para 40(4)
26 Para 47(3)
27 Para 48(2)(d)
28 Para 51
29 Para 17 and 18 Schedule 18 FA 2016