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Tribunal dismisses HMRC's appeal and confirms notification under DOTAS is only required for the first occasion the scheme is implemented

15 March 2023. Published by Harry Smith, Senior Associate

In HMRC v Root2 Tax Ltd [2022] UKUT 353 (TCC), the Upper Tribunal (UT) held that the Disclosure of Tax Avoidance Schemes (DOTAS) regime requires a promoter to notify HMRC only on the first occasion on which the scheme is implemented and not on each subsequent occasion.


The appellant (Root2) acted as 'promoter' in relation to certain tax avoidance arrangements known as the Alchemy scheme (the scheme).  In a previous decision, the First-tier Tribunal (FTT) had held that these arrangements were 'notifiable arrangements', for the purposes of the DOTAS regime, set out in Finance Act 2004 (FA 2004) and that Root2 had been the promoter of the arrangements.  Although Root2 (following this decision) had provided HMRC with information in relation to the scheme, HMRC did not consider that the information provided fulfilled Root2's obligation under section 308(3), FA 2004, to notify HMRC of the  arrangements. 

Section 98C, Taxes Management Act 1970 (TMA 1970), provides for the imposition of penalties where a promoter has failed to notify HMRC of arrangements in circumstances where the legislation requires it to do so.  HMRC applied to the FTT for it to determine such a penalty.  Section 103(4), TMA 1970, requires that such an application be made "at any time within six years after the date on which the penalty was incurred or began to be incurred".  

Whether HMRC was in time to seek a penalty depended whether section 308(3) FA 2004, required Root2 to provide HMRC with the prescribed information in relation to the arrangements: (i) on the first occasion on which it became aware of any transaction forming part of the arrangements; or (ii) on each and every occasion on which it became aware of a transaction forming part of any implementation of the arrangements.  

The FTT directed that the issue of whether HMRC was in time to make such an application be determined as a preliminary issue.  It determined this issue in Root2's favour and declined to impose a penalty.  HMRC appealed to the UT. 

UT decision

The appeal was dismissed.

The UT noted that it was not controversial that the DOTAS provisions identified at least two separate occasions on which a duty to notify HMRC arose: (i) in relation to a "notifiable proposal" (that is, proposed arrangements that would be notifiable arrangements for DOTAS purposes if they were implemented); and (ii) in connection with the implementation of the notifiable proposal.  It further noted that section 308(3), FA 2004, expressly excluded the duty to notify arising on the implementation of the arrangements if those arrangements had already been notified while they were still a "proposal".  

However, the wording of the notification obligation in relation to the implementation of proposals (under section 308(2)(a), FA 2004) was the same as that which arose in relation to the notification at the proposal stage (under section 308(2)(za), FA 2004).  In the UT's view, this meant a single date.  This view was reinforced by the fact that section 308(2)(b) referred to the notification obligation relating to the earliest of three potential dates, which rendered HMRC's contention that multiple notification obligations arose on each occasion on which the arrangements were implemented unworkable.  The UT considered that there was an obligation on promoters to provide early information to HMRC about tax avoidance schemes, and that obligation was a continuing obligation, but it arose only at the dates set out in the legislation, and not at each subsequent implementation of the arrangements.

HMRC had argued that the UT's construction would undermine the proper functioning of the penalty regime in that a longer limitation period (i.e. one running from each implementation of the scheme) would be more consistent with the purpose of the DOTAS legislation.  However, in the view of the UT, Parliament had clearly intended that penalty liability should cease after a period of time.  The fact that Parliament did not specifically deal with multiple breaches and multiple penalties when setting the limitation period pointed to the fact that only one duty to notify arose for a promoter upon its first becoming aware of a transaction implementing the notifiable arrangements.  Even if the language were not as clear as the UT considered it to be, the UT noted that the 'principle of doubtful penalisation' militated in favour of penal legislation being construed strictly.  


The UT's decision is particularly notable in that it is not simply a narrow black-letter interpretation of a statute imposing a penalty, but an exercise in purposive construction that results in a decision which is not favourable to HMRC in the context of tax avoidance arrangement.  Also notable, is that the UT came to its conclusions without the benefit of legal argument from Root2, which made no appearance.

It is understood that HMRC has not sought to appeal this decision to the Court of Appeal.  

The decision can be viewed here.

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