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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
270

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
271

(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
272

(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
273

      (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
274

      (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
275

(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
276

      (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.”.
40