The disclosure of tax avoidance schemes (DOTAS) regime is designed to provide HMRC with information about potential tax avoidance arrangements at an earlier stage than otherwise would have been the case, and to enable swifter and more effective investigation and, where appropriate, counteraction. The disclosure legislation applies to "notifiable arrangements" (and "notifiable proposals") that have as a main expected benefit the obtaining of a UK tax advantage and which fall within any one of certain widely drawn "hallmarks". There are currently eight hallmarks. Promoters, and in some cases, users of schemes falling within the regime must disclose details about the scheme to HMRC. For background on the DOTAS regime, see Practice note, Direct tax disclosure regime.

As part of the March 2010 Budget, the then government published a consultation response document which stated that HMRC intended to extend DOTAS to employment income schemes and so-called "income to capital" schemes. The consultation response document noted that many respondents to the consultation launched in 2009 considered that the scope of the proposals relating to employment income and "income to capital" schemes was too wide and would catch many ordinary tax planning arrangements. Consequently, HMRC stated that it proposed to amend the proposals to include descriptions of the types of schemes which must be disclosed, rather than a generic definition with a list of exceptions. However, the March 2010 document did not give any further details of the types of arrangements which would be included on the list of disclosable arrangements. (See Legal update, March 2010 Budget: key business tax announcements: Disclosure of tax avoidance schemes (DOTAS): extension of scheme.)

As part of the June 2010 Budget, the new coalition government confirmed that substantive changes to the descriptions of schemes that must be disclosed would be worked up in 2011-12. This was confirmed in the 2011 Budget (see Legal update, 2011 Budget: key business tax announcements: DOTAS regime: further changes to hallmarks).

In June 2011, HMRC launched an informal consultation on new or revised hallmarks in the following areas:

The government also proposes to repeal hallmark 8 (pensions). This requires disclosure of schemes seeking to circumvent the special annual allowance charge legislation, which ceased to apply with effect from 6 April 2011. HMRC will monitor developments in the use of pensions tax reliefs and keep the need for a replacement hallmark under review.

The accompanying paper (dated 22 June 2011) is not available on the HMRC or HM Treasury websites. HMRC recently made the paper available to PLC Tax and we have provided a link to a pdf version below.

HMRC requests comments on the proposals by 31 August 2011.

The purpose of this paper is to provide a framework for the informal consultation by describing the background, policy concerns and risk areas identified by HMRC. As such, it does not pose any specific questions nor does it set out detailed plans for legislative change. It is clear from the paper, however, that HMRC intends to use the DOTAS hallmarks as a way of monitoring the effectiveness of anti-avoidance measures, such as the new disguised remuneration rules in Part 7A of ITEPA 2003. This suggests that further hallmarks will be added in future as more anti-avoidance legislation is enacted.

Any new hallmark aimed at offshore tax planning arrangements may need to be revised to take account of the final shape of the proposed reform of the CFC rules.

HMRC discussion paper: Disclosure of Tax Avoidance Schemes (DOTAS): Hallmarks (22 June 2011).

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