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However, it is important to note that the penalty is not due until it is assessed section FA For example, after the issue of a closure notice in direct tax cases. At that stage the figure of understated tax that forms the Dotas impact of the penalty will have been calculated for the purpose of the closure notice.
The penalty rates are different for partnerships for more information see section 1. A person has been given a follower notice in relation to a complex scheme which depends on a number of transactions to produce a cumulative tax advantage.
Having reconsidered the scheme, the person accepts that a part of it does not achieve the intended tax advantage, so amends their return only to the extent of that part.
They continue to maintain the success of the remaining parts of the scheme. The amendment to the return was before the due date of the notice.
Any penalty is only calculated on the tax advantage which is still being claimed as at the due date.
Thus the penalty base will be reduced from the original amount for the scheme to the amended amount still on the return or in any appeal.
If the person has been given a follower notice and not taken the corrective action by the due date, then they are liable to a penalty. Having now concluded the check and issued the closure notice, HMRC must issue any penalty assessment within 90 days.
Any such penalty assessment will take into account the degree of co-operation provided by the person. In a situation with an open appeal where a follower notice has been given, the person has not taken corrective action within the time limits; there are three potential time limits as shown below.
HMRC must assess any penalty within 90 days of the date that corrective action is taken. HMRC must assess any penalty within 90 days of the date the ruling was made. HMRC has 90 days from the date that the case is formally acknowledged as abandoned by the court to assess any penalty.
It is not treated in the same way as an assessment to tax. For the purposes of a Court determining whether civil proceedings can be adjourned; the penalty assessment is treated as if it were a NICs decision as to whether the person was liable for the penalty.
The effect is that if there is an appeal against the penalty assessment, the Court must adjourn any civil proceedings taken to recover the penalty until the appeal is finally determined. In a case where the advantage was overstated, and a penalty has already been paid, the excess penalty will be repaid with interest.
The penalty is treated as notified when the penalty notice is delivered to the person is treated in the same way as an appeal against an assessment of the tax or NICs decision is concerned, whether the penalty was assessed on tax or NICsbut see section 1.
If required, HMRC will then, as appropriate, repay any amounts, plus interest, to the person. If the tribunal upholds the appeal against the penalty solely on the grounds that it was reasonable for the person to proceed, this outcome does not overturn the follower notice itself.
However, interest, where appropriate, runs from the original due and payable date of the penalty. This is fairly broadly drawn. Section FA sets out some grounds on which the tribunal can consider and uphold an appeal, but these grounds are not intended to be exhaustive.
It should not normally be necessary for the penalty appeal to be heard by the tribunal in such instances. Whilst the penalty does not have to be paid pending litigation, a person may pay it to prevent interest accruing on it. Any amount of penalty already paid will be repaid with interest in those circumstances.
In addition, tax may be repayable, together with interest, to the person. The person may also become liable to a penalty under other legislation, for example on the grounds that their return was incorrect because of deliberate action on their part.
Schedule 55 FAas applied by paragraph 21G of Schedule 4 to the Social Security Contributions Regulations with effect from 6 October section 98A TMAas applied by paragraph 22 7 of Schedule 4 to the Social Security Contributions Regulations for tax years up to and including 6 April to 5 April When considering the total of the aggregate penalties as described in section 1.
Where a person subsequently applied for and obtained leave to make a late appeal, section 49 TMA and regulation 9 of the Social Security Contributions Decisions and Appeals Regulations the process for follower notices is suspended while the late appeal into that decision is heard.
If the late appeal is determined in favour of the person, any follower notice given on the basis of that decision will be discharged and any penalties paid or accelerated payments made as a result of that notice repaid with interest.
If a follower notice has been given identifying the original ruling now subject to a late appealHMRC must notify the recipient of the notice as soon as practicable. The follower notice is suspended until HMRC notifies the person that either the appeal has: It is treated as if it were in respect of the new final ruling resulting from the appeal.
These rules essentially reflect the general tax treatment of partnerships.
It is not materially different to a follower notice in content or purpose, but is given to the representative partner rather than to all the partners. There is provision in the law to give the partnership follower notice to a successor of the representative partner where necessary. These rules only apply to partnerships required to deliver a partnership return under rules in section 12AA TMA It is the responsibility of the representative partner to take the corrective action, if agreed to by the partners, in response to the partnership follower notice.Business Succession and Inheritance Tax Clients regularly talk to us about their key points of concern when considering what the future will hold for their valuable assets once they have passed away – squandered inheritance or claims on the estate, and Inheritance Tax.
Are all DOTAS schemes the same? No. Far from it. The coverage of DOTAS is incredibly wide. Any arrangement that, in HMRC’s opinion, enables tax minimization in any way qualifies for DOTAS. Schemes caught by DOTAS vary from, at one end of the spectrum, highly aggressive and complex tax minimization schemes used by the very rich.
Editor’s Note: This is the first instalment of a three-part guide on DOTAS for contractors, by WTT Consulting exclusively for ContractorUK. Part two will explore DOTAS’s impact today and Part three, DOTAS’s impact in the future.
Introduction. This guidance relates to follower notices and accelerated payments. It supports the measures set out in the Finance Act (FA) (Part 4) and the National Insurance Contributions. DOTAS has proved to be highly successful and the Government has used information from DOTAS to introduce a range of anti-avoidance measures every year since - a total of 49 measures, closing off over £12 billion in avoidance opportunities.
There is considerable anecdotal evidence that DOTAS has changed the economics of avoidance. ideal would be to assess the impact of the DOTAS regime on collection over time by examining trends in revenue and in the tax gap but in our view it is unlikely that the impact of DOTAS could be isolated sufficiently to put any reliable figure on this impact.