Q: I have heard we are required to disclose certain tax planning structures we have put in place. What is this all about?
A: New VAT (and corporation tax) rules were introduced on 1 August 2004.
They require all businesses, including charities, to disclose the use of certain listed VAT-avoidance structures, and any other arrangement with "hallmarks" of VAT avoidance.
Such structures have to be notified in writing to the Customs & Excise Avoidance Disclosures Unit in London. The deadline dates for notification were 30 October 2004 for businesses that have a monthly VAT return period ending 31 August, and 30 December 2004 for businesses whose first VAT return quarter affected by the rules ends on 31 October 2004. Failure to do so will render your organisation liable to 15 per cent of the tax saved from using a listed scheme, and £5,000 for using hallmarked schemes.
VAT-registered organisations with a turnover exceeding £600,000 must disclose the use of one of the eight specified schemes, including granting a major interest in a building to an associated company and where a charity leases goods from an associate. Businesses with a turnover exceeding £10m must disclose any arrangement with the hallmarks of avoidance. These include inter-group property transactions, prepayments or transactions funded by inter-group loans or share subscriptions.
It is not enough that your local inspector is aware of the scheme or has agreed its implementation - you must still disclose. And remember, disclosing the scheme does not constitute seeking or obtaining approval.
Similar requirements exist for corporation tax.
- Pesh Framjee is head of the non profit unit at Deloitte and special adviser to the CFDG. No liability arises to the author, his firm or Third Sector. Send your questions to firstname.lastname@example.org.