Finance (No. 2) Bill (HC Bill 155)

Section 147

SCHEDULE 18 Serial tax avoidance

Part 1 Contents of Schedule

1 5In this Schedule—

(a) Part 2 provides for HMRC to give warning notices to persons who
incur relevant defeats and includes—

(i) provision about the duration of warning periods under
warning notices (see paragraph 3), and

(ii) 10definitions of “relevant defeat” and other key terms;

(b) Part 3 contains provisions about persons to whom a warning notice
has been given, and in particular—

(i) imposes a duty to give information notices, and

(ii) allows the Commissioners to publish information about such
15persons in certain cases involving repeated relevant defeats;

(c) Part 4 contains provision about the restriction of reliefs;

(d) Part 5 imposes liability to penalties on persons who incur relevant
defeats in relation to arrangements used in warning periods;

(e) Part 6 contains provisions about corporate groups;

(f) 20Part 7 contains definitions and other supplementary provisions.

Part 2 Entry into the regime and basic concepts

Duty to give warning notice

2 (1) This paragraph applies where a person incurs a relevant defeat in relation to
25any arrangements.

(2) HMRC must give the person a written notice (a “warning notice”).

(3) The notice must be given within the period of 90 days beginning with the
day on which the relevant defeat is incurred.

(4) The notice must—

(a) 30set out when the warning period begins and ends (see paragraph 3),

(b) specify the relevant defeat to which the notice relates, and

(c) explain the effect of paragraphs 3 and 17 to 46.

(5) In this Schedule “arrangements” includes any agreement, understanding,
scheme, transaction or series of transactions (whether or not legally
35enforceable).

(6) For the meaning of “relevant defeat” and provision about when a relevant
defeat is incurred see paragraph 11.

Warning period

3 (1) If a person is given a warning notice with respect to a relevant defeat (and
40sub-paragraph (2) does not apply) the period of 5 years beginning with the

day after the day on which the notice is given is a “warning period” in
relation to that person.

(2) If a person incurs a relevant defeat in relation to arrangements during a
period which is a warning period in relation to that person, the warning
5period is extended to the end of the 5 years beginning with the day after the
day on which the relevant defeat occurs.

(3) In relation to a warning period which has been extended under this
Schedule, references in this Schedule (including this paragraph) to the
warning period are to be read as references to the warning period as
10extended.

Meaning of “tax”

4 In this Schedule “tax” includes any of the following taxes—

(a) income tax,

(b) corporation tax, including any amount chargeable as if it were
15corporation tax or treated as if it were corporation tax,

(c) capital gains tax,

(d) petroleum revenue tax,

(e) diverted profits tax,

(f) apprenticeship levy,

(g) 20inheritance tax,

(h) stamp duty land tax,

(i) annual tax on enveloped dwellings,

(j) VAT, and

(k) national insurance contributions.

25Meaning of “tax advantage” in relation to VAT

5 (1) In this Schedule “tax advantage”, in relation to VAT, is to be read in
accordance with sub-paragraphs (2) to (4).

(2) A taxable person obtains a tax advantage if—

(a) in any prescribed accounting period, the amount by which the
30output tax accounted for by the person exceeds the input tax
deducted by the person is less than it would otherwise be,

(b) the person obtains a VAT credit when the person would not
otherwise do so, or obtains a larger VAT credit or obtains a VAT
credit earlier than would otherwise be the case,

(c) 35in a case where the person recovers input tax as a recipient of a
supply before the supplier accounts for the output tax, the period
between the time when the input tax is recovered and the time when
the output tax is accounted for is greater than would otherwise be the
case, or

(d) 40in any prescribed accounting period, the amount of the person’s non-
deductible tax is less than it would otherwise be.

(3) A person who is not a taxable person obtains a tax advantage if the person’s
non-refundable tax is less than it otherwise would be.

(4) In sub-paragraph (3) “non-refundable tax”, in relation to a person who is not
45a taxable person, means—

(a) VAT on the supply to the person of any goods or services,

(b) VAT on the acquisition by the person from another member State of
any goods, and

(c) VAT paid or payable by the person on the importation of any goods
5from a place outside the member States,

but excluding (in each case) any VAT in respect of which the person is
entitled to a refund from the Commissioners by virtue of any provision of
VATA 1994.

Meaning of “non-deductible tax”

6 (1) 10In this Schedule “non-deductible tax”, in relation to a taxable person,
means—

(a) input tax for which the person is not entitled to credit under section
25 of VATA 1994, and

(b) any VAT incurred by the person which is not input tax and in respect
15of which the person is not entitled to a refund from the
Commissioners by virtue of any provision of VATA 1994.

(2) For the purposes of sub-paragraph (1)(b), the VAT “incurred” by a taxable
person is—

(a) VAT on the supply to the person of any goods or services,

(b) 20VAT on the acquisition by the person from another member State of
any goods, and

(c) VAT paid or payable by the person on the importation of any goods
from a place outside the member States.

“Tax advantage”: other taxes

7 25In relation to taxes other than VAT, “tax advantage” includes—

(a) relief or increased relief from tax,

(b) repayment or increased repayment of tax,

(c) receipt, or advancement of a receipt, of a tax credit,

(d) avoidance or reduction of a charge to tax, an assessment of tax or a
30liability to pay tax,

(e) avoidance of a possible assessment to tax or liability to pay tax,

(f) deferral of a payment of tax or advancement of a repayment of tax,
and

(g) avoidance of an obligation to deduct or account for tax.

35“DOTAS arrangements”

8 (1) For the purposes of this Schedule arrangements are “DOTAS arrangements”
at any time if they are notifiable arrangements at the time in question and a
person—

(a) has provided information in relation to the arrangements under
40section 308(3), 309 or 310 of FA 2004, or

(b) has failed to comply with any of those provisions in relation to the
arrangements.

(2) But for the purposes of this Schedule “DOTAS arrangements” does not
include arrangements in respect of which HMRC has given notice under

section 312(6) of FA 2004 (notice that promoters not under duty to notify
client of reference number).

(3) For the purposes of sub-paragraph (1) a person who would be required to
provide information under subsection (3) of section 308 of FA 2004—

(a) 5but for the fact that the arrangements implement a proposal in
respect of which notice has been given under subsection (1) of that
section, or

(b) but for subsection (4A), (4C) or (5) of that section,

is treated as providing the information at the end of the period referred to in
10subsection (3) of that section.

(4) In this paragraph “notifiable arrangements” has the same meaning as in Part
7 of FA 2004.

“Disclosable VAT arrangements”

9 For the purposes of this Schedule arrangements are “disclosable VAT
15arrangements” at any time if at that time—

(a) a person has complied with paragraph 6 of Schedule 11A to VATA
1994 in relation to the arrangements (duty to notify Commissioners),

(b) a person under a duty to comply with that paragraph in relation to
the arrangements has failed to do so, or

(c) 20a reference number has been allocated to the scheme under
paragraph 9 of that Schedule (voluntary notification of avoidance
scheme which is not a designated scheme).

Paragraphs 8 and 9: “failure to comply”

10 (1) A person “fails to comply” with any provision mentioned in paragraph 8(1)
25or 9(a) if and only if any of the conditions in sub-paragraphs (2) to (4) is met.

(2) The condition in this sub-paragraph is that—

(a) the tribunal has determined that the person has failed to comply with
the provision concerned,

(b) the appeal period has ended, and

(c) 30the determination has not been overturned on appeal.

(3) The condition in this sub-paragraph is that—

(a) the tribunal has determined for the purposes of section 118(2) of
TMA 1970 that the person is to be deemed not to have failed to
comply with the provision concerned as the person had a reasonable
35excuse for not doing the thing required to be done,

(b) the appeal period has ended, and

(c) the determination has not been overturned on appeal.

(4) The condition in this sub-paragraph is that the person admitted in writing to
HMRC that the person has failed to comply with the provision concerned.

(5) 40In this paragraph “the appeal period” means—

(a) the period during which an appeal could be brought against the
determination of the tribunal, or

(b) where an appeal mentioned in paragraph (a) has been brought, the
period during which that appeal has not been finally determined,
45withdrawn or otherwise disposed of.

(6) In this paragraph “the tribunal” means the First-tier tribunal or, where
determined by or under Tribunal Procedure Rules, the Upper Tribunal.

“Relevant defeat”

11 (1) A person (“P”) incurs a “relevant defeat” in relation to arrangements if any
5of Conditions A to E is met in relation to P and the arrangements.

(2) The relevant defeat is incurred when the condition in question is first met.

Condition A

12 (1) Condition A is that—

(a) P has been given a notice under paragraph 12 of Schedule 43 to FA
102013 (general anti-abuse rule: notice of final decision) stating that a
tax advantage arising from the arrangements is to be counteracted,

(b) that tax advantage has been counteracted under section 209 of FA
2013, and

(c) the counteraction is final.

(2) 15For the purposes of this paragraph the counteraction of a tax advantage is
“final” when the adjustments made to effect the counteraction, and any
amounts arising as a result of those adjustments, can no longer be varied, on
appeal or otherwise.

Condition B

13 (1) 20Condition B is that (in a case not falling within Condition A above) a
follower notice has been given to P by reference to the arrangements (and
not withdrawn) and—

(a) P has complied with subsection (2) of section 208 of FA 2014 by
taking the necessary corrective action for the purposes of that section
25in respect of the denied advantage, or

(b) the denied advantage has been counteracted otherwise than as
mentioned in paragraph (a) and the counteraction of the denied
advantage is final.

(2) For the purposes of this paragraph it does not matter whether the denied
30advantage has been dealt with—

(a) wholly as mentioned in one or other of paragraphs (a) and (b) of sub-
paragraph (1), or

(b) partly as mentioned in one and partly as mentioned in the other of
those paragraphs.

(3) 35In this paragraph “the denied advantage” is to be interpreted in accordance
with section 208(3) of FA 2014.

(4) For the purposes of this paragraph the counteraction of a tax advantage is
“final” when the adjustments made to effect the counteraction, and any
amounts arising as a result of those adjustments, can no longer be varied, on
40appeal or otherwise.

(5) In this Schedule “follower notice” means a follower notice under Chapter 2
of Part 4 of FA 2014.

Condition C

14 (1) Condition C is that (in a case not falling within Condition A or B)—

(a) the arrangements are DOTAS arrangements,

(b) P has relied on the arrangements (see sub-paragraph (2))—

(c) 5the arrangements have been counteracted, and

(d) the counteraction is final.

(2) For the purposes of sub-paragraph (1), P “relies on the arrangements” if—

(a) P makes a return, claim or election on the basis that a relevant tax
advantage arises, or

(b) 10P fails to discharge a relevant obligation (“the disputed obligation”)
and there is reason to believe that P’s failure to discharge that
obligation is connected with the arrangements.

(3) For the purposes of sub-paragraph (2) “relevant tax advantage” means a tax
advantage which the arrangements might be expected to enable P to obtain.

(4) 15For the purposes of sub-paragraph (2) an obligation is a “relevant
obligation” if the arrangements might be expected to have the result that the
obligation does not arise.

(5) For the purposes of this paragraph the arrangements are “counteracted” if—

(a) adjustments, other than taxpayer emendations, are made in respect
20of P’s tax position—

(i) on the basis that the whole or part of the relevant tax
advantage mentioned in sub-paragraph (2)(a) does not arise,
or

(ii) on the basis that the disputed obligation does (or did) arise,
25or

(b) an assessment to tax other than a self-assessment is made, or any
other action is taken by HMRC, on the basis mentioned in paragraph
(a)(i) or (ii) (otherwise than by way of an adjustment).

(6) For the purposes of this paragraph a counteraction is “final” when the
30assessment, adjustments or action in question, and any amounts arising
from the assessment, adjustments or action, can no longer be varied, on
appeal or otherwise.

(7) For the purposes of sub-paragraph (1) the time at which it falls to be
determined whether or not the arrangements are DOTAS arrangements is
35when the counteraction becomes final.

(8) The following are “taxpayer emendations” for the purposes of sub-
paragraph (5)—

(a) an adjustment made by P at a time when P had no reason to believe
that HMRC had begun or were about to begin enquiries into P’s
40affairs relating to the tax in question;

(b) an adjustment (by way of an assessment or otherwise) made by
HMRC with respect to P’s tax position as a result of a disclosure
made by P which meets the conditions in sub-paragraph (9).

For the purposes of paragraph (a) a payment in respect of a liability to pay
45national insurance contributions is not an adjustment unless it is a payment
in full.

(9) The conditions are that the disclosure—

(a) is a full and explicit disclosure of an inaccuracy in a return or other
document or of a failure to comply with an obligation, and

(b) was made at a time when P had no reason to believe that HMRC
were about to begin enquiries into P’s affairs relating to the tax in
5question.

(10) For the purposes of this paragraph a contract settlement which HMRC
enters into with P is treated as an assessment to tax (other than a self-
assessment); and in relation to contract settlements references in sub-
paragraph (5) to the basis an which any assessment or adjustments are
10made, or any other action is taken, are to be read with any necessary
modifications.

Condition D

15 (1) Condition D is that—

(a) P is a taxable person;

(b) 15the arrangements are disclosable VAT arrangements to which P is a
party,

(c) P has relied on the arrangements (see sub-paragraph (2));

(d) the arrangements have been counteracted, and

(e) the counteraction is final.

(2) 20For the purposes of sub-paragraph (1) P “relies on the arrangements” if—

(a) P makes a return or claim on the basis that a relevant tax advantage
arises, or

(b) P fails to discharge a relevant obligation (“the disputed obligation”)
and there is reason to believe that P’s failure to discharge that
25obligation is connected with those arrangements.

(3) For the purposes of sub-paragraph (2) “relevant tax advantage” means a tax
advantage which the arrangements might be expected to enable P to obtain.

(4) For the purposes of sub-paragraph (2) an obligation is a “relevant
obligation” if the arrangements might be expected to have the result that the
30obligation does not arise.

(5) For the purposes of this paragraph the arrangements are “counteracted” if—

(a) adjustments, other than taxpayer emendations, are made in respect
of P’s tax position—

(i) on the basis that the whole or part of the relevant tax
35advantage mentioned in sub-paragraph (2)(a) does not arise,
or

(ii) on the basis that the disputed obligation does (or did) arise,
or

(b) an assessment to tax is made, or any other action is taken by HMRC,
40on the basis mentioned in paragraph (a)(i) or (ii) (otherwise than by
way of an adjustment).

(6) For the purposes of this paragraph a counteraction is “final” when the
assessment, adjustments or action in question, and any amounts arising
from the assessment, adjustments or action, can no longer be varied, on
45appeal or otherwise.

(7) For the purposes of sub-paragraph (1) the time at which it falls to be
determined whether or not the arrangements are disclosable VAT
arrangements is when the counteraction becomes final.

(8) The following are “taxpayer emendations” for the purposes of sub-
5paragraph (5)—

(a) an adjustment made by P at a time when P had no reason to believe
that HMRC had begun or were about to begin enquiries into P’s
affairs relating to VAT;

(b) an adjustment made by HMRC with respect to P’s tax position (by
10way of an assessment or otherwise) as a result of a disclosure made
by P which meets the conditions in sub-paragraph (9).

(9) The conditions are that the disclosure—

(a) is a full and explicit disclosure of an inaccuracy in a return or other
document or of a failure to comply with an obligation, and

(b) 15was made at a time when P had no reason to believe that HMRC
were about to begin enquiries into P’s affairs relating to VAT.

Condition E

16 (1) Condition E is that the arrangements are disclosable VAT arrangements to
which P is a party and—

(a) 20the arrangements relate to the position with respect to VAT of a
person other than P (“S”) who has made supplies of goods or services
to P,

(b) the arrangements might be expected to enable P to obtain a tax
advantage in connection with those supplies of goods or services,

(c) 25the arrangements have been counteracted, and

(d) the counteraction is final.

(2) For the purposes of this paragraph the arrangements are “counteracted” if—

(a) HMRC assess S to tax or take any other action on a basis which
prevents P from obtaining (or obtaining the whole of) the tax
30advantage in question, or

(b) adjustments, other than taxpayer emendations, are made in relation
to S’s VAT affairs on a basis such as is mentioned in paragraph (a).

(3) For the purposes of this paragraph a counteraction is “final” when the
assessment, adjustments or action in question, and any amounts arising
35from the assessment, adjustments or action, can no longer be varied, on
appeal or otherwise.

(4) For the purposes of sub-paragraph (1) the time when it falls to be
determined whether or not the arrangements are disclosable VAT
arrangements is when the counteraction becomes final.

(5) 40The following are “taxpayer emendations” for the purposes of sub-
paragraph (2)—

(a) an adjustment made by S at a time when neither P nor S had reason
to believe that HMRC had begun or were about to begin enquiries
into the affairs of S or P relating to VAT;

(b) 45an adjustment (by way of an assessment or otherwise) made by
HMRC with respect to S’s tax position as a result of a disclosure
made by S which meets the conditions in sub-paragraph (6).

(6) The conditions are that the disclosure—

(a) is a full and explicit disclosure of an inaccuracy in a return or other
document or of a failure to comply with an obligation, and

(b) was made at a time when neither S nor P had reason to believe that
5HMRC were about to begin enquiries into the affairs of S or P relating
to VAT.

Part 3 Annual information notices and naming

Annual information notices

17 (1) 10A person (“P”) who has been given a warning notice under this Schedule
must give HMRC a written notice (an “information notice”) in respect of
each reporting period in the warning period (see sub-paragraph (11)).

(2) An information notice must be given not later than the 30th day after the end
of the reporting period to which it relates.

(3) 15An information notice must state whether or not P—

(a) has in the reporting period delivered a return, or made a claim or
election, on the basis that a relevant tax advantage arises, or has since
the end of the reporting period delivered on that basis a return which
P was required to deliver before the end of that period,

(b) 20has in the reporting period failed to take action which P would be
required to take under or by virtue of an enactment relating to tax
but for particular DOTAS arrangements or disclosable VAT
arrangements to which P is a party,

(c) has in the reporting period become a party to arrangements which—

(i) 25relate to the position with respect to VAT of another person
(“S”) who has made supplies of goods or services to P, and

(ii) might be expected to enable P to obtain a relevant tax
advantage (“the expected tax advantage”) in connection with
those supplies of goods or services,

(d) 30has failed to deliver a return which P was required to deliver by a
date falling in the reporting period.

(4) In this paragraph “relevant tax advantage” means a tax advantage which
particular DOTAS arrangements or disclosable VAT arrangements enable,
or might be expected to enable, P to obtain.

(5) 35If P has, in the reporting period concerned, made a return, claim or election
on the basis mentioned in sub-paragraph (3)(a) or failed to take action as
mentioned in sub-paragraph (3)(b) the information notice must—

(a) explain (on the assumptions made by P in so acting or failing to act)
how the DOTAS arrangements or disclosable VAT arrangements
40enable P to obtain the tax advantage, or (as the case may be) have the
result that P is not required to take the action in question, and

(b) state (on the same assumptions) the amount of the relevant tax
advantage mentioned in sub-paragraph (3)(a) or (as the case may be)
the amount of any tax advantage which arises in connection with the
45absence of a requirement to take the action mentioned in sub-
paragraph (3)(b).

(6) If P has, in the reporting period, become a party to arrangements such as are
mentioned in sub-paragraph (3)(c), the information notice—

(a) must state whether or not it is P’s view that the expected tax
advantage arises to P, and

(b) 5if that is P’s view, must explain how the arrangements enable P to
obtain the tax advantage and state the amount of the tax advantage.

(7) If the time by which P must deliver a return falls within a reporting period
and P fails to deliver the return by that time, HMRC may require P to give
HMRC a written notice (a “supplementary information notice”) setting out
10any matters which P would have been required to set out in an information
notice had P delivered the return in that reporting period.

(8) A requirement under sub-paragraph (7) must be made by a written notice
which states the period within which P must comply with the notice.

(9) If P fails to comply with a requirement of (or imposed under) this paragraph
15HMRC may by written notice extend the warning period to the end of the
period of 5 years beginning with—

(a) the day by which the information notice or supplementary
information notice should have been given (see sub-paragraphs (1)
and (8)) or, as the case requires,

(b) 20the day on which P gave the defective information notice or
supplementary information notice to HMRC,

or, if earlier, the time when the warning period would have expired but for
the extension.

(10) HMRC may permit information notices given by members of the same
25group of companies (as defined in paragraph 46(9)) to be combined.

(11) For the purposes of this paragraph—

(a) the first reporting period in any warning period begins with the first
day of the warning period and ends with a day specified by HMRC
(“the specified day”),

(b) 30the remainder of the warning period is divided into further reporting
periods each of which begins immediately after the end of the
preceding reporting period and is twelve months long or (if that
would be shorter) ends at the end of the warning period.

Naming

18 (1) 35The Commissioners may publish information about a person if the person—

(a) incurs a relevant defeat in relation to arrangements which the person
has used in a warning period, and

(b) has been given at least two warning notices in respect of other
defeats of arrangements which were used in the same warning
40period.

(2) Information published for the first time under sub-paragraph (1) must be
published within the 12 months beginning with the day on which the most
recent of the warning notices falling within that sub-paragraph has been
given to the person.

(3) 45No information may be published (or continue to be published) after the end
of the period of 12 months beginning with the day on which it is first
published.