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Finance Bill
Schedule 2 — Disclosure of value added tax avoidance schemes
Part 1 — Principal amendments of Value Added Tax Act 1994

256

 

Schedule 2

Section 19

 

Disclosure of value added tax avoidance schemes

Part 1

Principal amendments of Value Added Tax Act 1994

1          

After section 58 of the Value Added Tax Act 1994 (c. 23) insert—

5

“Disclosure of avoidance schemes

58A     

Disclosure of avoidance schemes

Schedule 11A (which imposes disclosure requirements relating to

the use of schemes for avoiding VAT) shall have effect.”.

2          

After Schedule 11 to that Act insert—

10

“Schedule 11A

Disclosure of avoidance Schemes

Interpretation

1          

In this Schedule—

           

“designated scheme” has the meaning given by paragraph

15

3(4);

           

“notifiable scheme” has the meaning given by paragraph

5(1);

           

“scheme” includes any arrangements, transaction or series of

transactions;

20

           

“tax advantage” is to be read in accordance with paragraph 2.

Obtaining a tax advantage

2     (1)  

For the purposes of this Schedule, a person obtains a tax

advantage if—

(a)   

in any prescribed accounting period, the amount by which

25

the output tax accounted for by him exceeds the input tax

deducted by him is less than it otherwise would be, or

(b)   

he obtains a VAT credit when he would not otherwise do

so, or obtains a larger VAT credit or obtains a VAT credit

earlier than would otherwise be the case.

30

      (2)  

A person also obtains a tax advantage for the purposes of this

Schedule if, in a case where he 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

35

otherwise be the case.

Designation by order of avoidance schemes

3     (1)  

If it appears to the Treasury—

 

 

Finance Bill
Schedule 2 — Disclosure of value added tax avoidance schemes
Part 1 — Principal amendments of Value Added Tax Act 1994

257

 

(a)   

that a scheme of a particular description has been, or might

be, entered into for the purpose of enabling any person to

obtain a tax advantage, and

(b)   

that it is unlikely that persons would enter into a scheme of

that description unless the main purpose, or one of the

5

main purposes, of doing so was the obtaining by any

person of a tax advantage,

           

the Treasury may by order designate that scheme for the purposes

of this paragraph.

      (2)  

A scheme may be designated for the purposes of this paragraph

10

even though the Treasury are of the opinion that no scheme of that

description could as a matter of law result in the obtaining by any

person of a tax advantage.

      (3)  

The order must allocate a reference number to each scheme.

      (4)  

In this Schedule “designated scheme” means a scheme of a

15

description designated for the purposes of this paragraph.

Designation by order of provisions included in or associated with avoidance schemes

4     (1)  

If it appears to the Treasury that a provision of a particular

description is, or is likely to be, included in or associated with

schemes that are entered into for the purpose of enabling any

20

person to obtain a tax advantage, the Treasury may by order

designate that provision for the purposes of this paragraph.

      (2)  

A provision may be designated under this paragraph even though

it also appears to the Treasury that the provision is, or is likely to

be, included in or associated with schemes that are not entered

25

into for the purpose of obtaining a tax advantage.

      (3)  

In this paragraph “provision” includes any agreement,

transaction, act or course of conduct.

Meaning of “notifiable scheme”

5     (1)  

For the purposes of this Schedule, a scheme is a “notifiable

30

scheme” if—

(a)   

it is a designated scheme, or

(b)   

although it is not a designated scheme, conditions A and B

below are met in relation to it.

      (2)  

Condition A is that the scheme includes, or is associated with, a

35

provision of a description designated under paragraph 4.

      (3)  

Condition B is that the scheme has as its main purpose, or one of

its main purposes, the obtaining of a tax advantage by any person.

Duty to notify Commissioners

6     (1)  

This paragraph applies in relation to a taxable person where—

40

(a)   

the amount of VAT shown in a return in respect of a

prescribed accounting period as payable by or to him is

less than or greater than it would be but for any notifiable

scheme to which he is party, or

 

 

Finance Bill
Schedule 2 — Disclosure of value added tax avoidance schemes
Part 1 — Principal amendments of Value Added Tax Act 1994

258

 

(b)   

he makes a claim for the repayment of output tax or an

increase in credit for input tax in respect of any prescribed

accounting period in respect of which he has previously

delivered a return and the amount claimed is greater than

it would be but for such a scheme.

5

      (2)  

Where the scheme is a designated scheme, the taxable person must

notify the Commissioners within the prescribed time, and in such

form and manner as may be required by or under regulations, of

the reference number allocated to the scheme under paragraph

3(3).

10

      (3)  

Where the scheme is not a designated scheme, the taxable person

must, subject to sub-paragraph (4), provide the Commissioners

within the prescribed time, and in such form and manner as may

be required by or under regulations, with prescribed information

relating to the scheme.

15

      (4)  

Sub-paragraph (3) does not apply where the scheme is one in

respect of which any person has previously—

(a)   

provided the Commissioners with prescribed information

under paragraph 9, and

(b)   

provided the taxable person with a reference number

20

notified to him by the Commissioners under paragraph

9(2)(b).

      (5)  

The taxable person is not obliged to comply with sub-paragraph

(2) or (3) in relation to any scheme if he has on a previous occasion

complied with that sub-paragraph in relation to that scheme.

25

      (6)  

This paragraph has effect subject to paragraph 7.

Exemptions from duty to notify under paragraph 6

7     (1)  

Paragraph 6 does not apply to a taxable person in relation to a

scheme—

(a)   

where the taxable person is not a group undertaking in

30

relation to any other undertaking and conditions A and B

below, as they have effect in relation to the scheme, are met

in relation to the taxable person, or

(b)   

where the taxable person is a group undertaking in

relation to any other undertaking and conditions A and B

35

below, as they have effect in relation to the scheme, are met

in relation to the taxable person and every other group

undertaking.

      (2)  

Condition A is that the total value of the person’s taxable supplies

and exempt supplies in the period of twelve months ending

40

immediately before the beginning of the relevant period is less

than the minimum turnover.

      (3)  

Condition B is that the total value of the person’s taxable supplies

and exempt supplies in the prescribed accounting period

immediately preceding the relevant period is less than the

45

appropriate proportion of the minimum turnover.

      (4)  

In sub-paragraphs (2) and (3) “the minimum turnover” means—

(a)   

in relation to a designated scheme, £600,000, and

(b)   

in relation to any other notifiable scheme, £10,000,000.

 

 

Finance Bill
Schedule 2 — Disclosure of value added tax avoidance schemes
Part 1 — Principal amendments of Value Added Tax Act 1994

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      (5)  

In sub-paragraph (3) “the appropriate proportion” means the

proportion which the length of the prescribed accounting period

bears to twelve months.

      (6)  

The value of a supply of goods or services shall be determined for

the purposes of this paragraph on the basis that no VAT is

5

chargeable on the supply.

      (7)  

The Treasury may by order substitute for the sum for the time

being specified in sub-paragraph (4)(a) or (b) such other sum as

they think fit.

      (8)  

This paragraph has effect subject to paragraph 8.

10

      (9)  

In this paragraph—

“relevant period” means the prescribed accounting period

referred to in paragraph 6(1)(a) or (b);

“undertaking” and “group undertaking” have the same

meanings as in Part 7 of the Companies Act 1985.

15

Power to exclude exemption

8     (1)  

The purpose of this paragraph is to prevent the maintenance or

creation of any artificial separation of business activities carried on

by two or more persons from resulting in an avoidance of the

obligations imposed by paragraph 6.

20

      (2)  

In determining for the purposes of sub-paragraph (1) whether any

separation of business activities is artificial, regard shall be had to

the extent to which the different persons carrying on those

activities are closely bound to one another by financial, economic

and organisational links.

25

      (3)  

If the Commissioners make a direction under this section—

(a)   

the persons named in the direction shall be treated for the

purposes of paragraph 7 as a single taxable person

carrying on the activities of a business described in the

direction with effect from the date of the direction or, if the

30

direction so provides, from such later date as may be

specified in the direction, and

(b)   

if paragraph 7 would not exclude the application of

paragraph 6, in respect of any notifiable scheme, to that

single taxable person, it shall not exclude the application of

35

paragraph 6, in respect of that scheme, to the persons

named in the direction.

      (4)  

The Commissioners shall not make a direction under this section

naming any person unless they are satisfied—

(a)   

that he is making or has made taxable or exempt supplies,

40

(b)   

that the activities in the course of which he makes those

supplies form only part of certain activities, the other

activities being carried on concurrently or previously (or

both) by one or more other persons, and

(c)   

that, if all the taxable and exempt supplies of the business

45

described in the direction were taken into account,

conditions A and B in paragraph 7(2) and (3), as those

conditions have effect in relation to designated schemes,

would not be met in relation to that business.

 

 

Finance Bill
Schedule 2 — Disclosure of value added tax avoidance schemes
Part 1 — Principal amendments of Value Added Tax Act 1994

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      (5)  

A direction under this paragraph shall be served on each of the

persons named in it.

      (6)  

A direction under this paragraph remains in force until it is

revoked or replaced by a further direction.

Voluntary notification of avoidance scheme that is not designated scheme

5

9     (1)  

Any person may, at any time, provide the Commissioners with

prescribed information relating to a scheme or proposed scheme

of a particular description which is (or, if implemented, would be)

a notifiable scheme by virtue of paragraph 5(1)(b).

      (2)  

On receiving the prescribed information, the Commissioners

10

may—

(a)   

allocate a reference number to the scheme (if they have not

previously done so under this paragraph), and

(b)   

notify the person who provided the information of the

number allocated.

15

Penalty for failure to notify use of notifiable scheme

10    (1)  

A person who fails to comply with paragraph 6 shall be liable,

subject to sub-paragraphs (2) and (3), to a penalty of an amount

determined under paragraph 11.

      (2)  

Conduct falling within sub-paragraph (1) shall not give rise to

20

liability to a penalty under this paragraph if the person concerned

satisfies the Commissioners or, on appeal, a tribunal that there is a

reasonable excuse for the failure.

      (3)  

Where, by reason of conduct falling within sub-paragraph (1)—

(a)   

a person is convicted of an offence (whether under this Act

25

or otherwise), or

(b)   

a person is assessed to a penalty under section 60,

           

that conduct shall not give rise to a penalty under this paragraph.

Amount of penalty

11    (1)  

Where the failure mentioned in paragraph 10(1) relates to a

30

notifiable scheme that is not a designated scheme, the amount of

the penalty is £5,000.

      (2)  

Where the failure mentioned in paragraph 10(1) relates to a

designated scheme, the amount of the penalty is 15 per cent. of the

VAT saving (as determined under sub-paragraph (3)).

35

      (3)  

For this purpose the VAT saving is—

(a)   

to the extent that the case falls within paragraph 6(1)(a), the

aggregate of—

(i)   

the amount by which the amount of VAT that

would, but for the scheme, have been shown in

40

returns in respect of the relevant periods as payable

by the taxable person exceeds the amount of VAT

that was shown in those returns as payable by him,

and

 

 

Finance Bill
Schedule 2 — Disclosure of value added tax avoidance schemes
Part 1 — Principal amendments of Value Added Tax Act 1994

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(ii)   

the amount by which the amount of VAT that was

shown in such returns as payable to the taxable

person exceeds the amount of VAT that would, but

for the scheme, have been shown in those returns

as payable to him, and

5

(b)   

to the extent that the case falls within paragraph 6(1)(b),

the amount by which the amount claimed exceeds the

amount which the taxable person would, but for the

scheme, have claimed.

      (4)  

In sub-paragraph (3)(a) “the relevant periods” means the

10

prescribed accounting periods beginning with that in respect of

which the duty to comply with paragraph 6 first arose and ending

with the earlier of the following—

(a)   

the prescribed accounting period in which the taxable

person complied with that paragraph, and

15

(b)   

the prescribed accounting period immediately preceding

the notification by the Commissioners of the penalty

assessment.

Penalty assessments

12    (1)  

Where any person is liable under paragraph 10 to a penalty of an

20

amount determined under paragraph 11, the Commissioners may,

subject to sub-paragraph (3), assess the amount due by way of

penalty and notify it to him accordingly.

      (2)  

The fact that any conduct giving rise to a penalty under paragraph

10 may have ceased before an assessment is made under this

25

paragraph shall not affect the power of the Commissioners to

make such an assessment.

      (3)  

In a case where the penalty falls to be calculated by reference to the

VAT saving as determined under paragraph 11(3) and the VAT

that would, but for the scheme, have been shown in returns as

30

payable by or to the taxable person cannot be readily attributed to

any one or more prescribed accounting periods, it shall be treated

for the purposes of this Schedule as VAT that would, but for the

scheme, have been shown as payable by or to the taxable person in

returns for such period or periods as the Commissioners may

35

determine to the best of their judgment and notify to the person

liable for the penalty.

      (4)  

No assessment to a penalty under this paragraph shall be made

more than two years from the time when facts sufficient, in the

opinion of the Commissioners, to indicate that there has been a

40

failure to comply with paragraph 6 in relation to a notifiable

scheme came to the Commissioners’ knowledge.

      (5)  

Where the Commissioners notify a person of a penalty in

accordance with sub-paragraph (1), the notice of assessment shall

specify—

45

(a)   

the amount of the penalty,

(b)   

the reasons for the imposition of the penalty,

(c)   

how the penalty has been calculated, and

(d)   

any reduction of the penalty in accordance with section 70.

 

 

Finance Bill
Schedule 2 — Disclosure of value added tax avoidance schemes
Part 2 — Consequential amendments

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      (6)  

Where a person is assessed under this paragraph to an amount

due by way of penalty and is also assessed under section 73(1), (2),

(7), (7A) or (7B) for any of the prescribed accounting periods to

which the assessment under this paragraph relates, the

assessments may be combined and notified to him as one

5

assessment, but the amount of the penalty shall be separately

identified in the notice.

      (7)  

If an amount is assessed and notified to any person under this

paragraph, then unless, or except to the extent that, the assessment

is withdrawn or reduced, that amount shall be recoverable as if it

10

were VAT due from him.

      (8)  

Subsection (10) of section 76 (notification to certain persons acting

for others) applies for the purposes of this paragraph as it applies

for the purposes of that section.

13         

Regulations under this Schedule—

15

(a)   

may make different provision for different circumstances,

and

(b)   

may include transitional provisions or savings.”.

Part 2

Consequential amendments

20

3          

In section 70 of the Value Added Tax Act 1994 (c. 23) (mitigation of

penalties), in subsection (1) after “69A” insert “or under paragraph 10 of

Schedule 11A”.

4          

In section 83 of that Act (appeals) after paragraph (z) insert—

“(za)   

a direction under paragraph 8 of Schedule 11A,

25

(zb)   

any liability to a penalty under paragraph 10(1) of Schedule

11A, any assessment under paragraph 12(1) of that Schedule

or the amount of such an assessment;”.

5     (1)  

Section 84 of that Act (further provisions relating to appeals) is amended as

follows.

30

      (2)  

In subsection (3), for “or (ra)” substitute “, (ra) or (zb)”.

      (3)  

After subsection (6) insert—

“(6A)   

Without prejudice to section 70, nothing in section 83(zb) shall be

taken to confer on a tribunal any power to vary an amount assessed

by way of penalty except in so far as it is necessary to reduce it to the

35

amount which is appropriate under paragraph 11 of Schedule 11A.”.

6          

In section 97 of that Act (orders, rules and regulations) in subsection (4)

(which lists powers exercisable subject to affirmative procedure in the

House of Commons) after paragraph (f) insert—

“(g)   

an order under paragraph 3 or 4 of Schedule 11A.”.

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