DOTAS hallmarks will identify schemes to be disclosed to HMRC
HM Revenue & Customs has recently produced guidance on features required to be disclosed under the DOTAS regime (Disclosure of Tax Avoidance Schemes). These features are termed “hallmarks”.
 
This guidance updates HMRC’s previous consultation in which the hallmarks proposed by HMRC were widely considered to be drawn too broadly. In particular, HMRC undertook to identify positive hallmarks (describing the types of schemes required to be disclosed) rather than a negative one (a broad description with a list of exceptions).
 
HMRC anticipates an increase in growth share schemes
HMRC is particularly interested in the use of "growth share schemes" which "involve a class of shares, not available to ordinary investors, whose rights are such that they have a low value at issue, or acquisition, but potential for significant appreciation if the company grows in value. In tax terms they usually involve a relatively low up-front income tax charge to the employee, with capital gains tax treatment on disposal of the shares."
 
Now that anti-avoidance provisions in relation to third party remuneration (disguised remuneration) are in force, HMRC anticipates that one response might be an increase in the number of growth share schemes. It is keen, therefore, that all such schemes are disclosed so that it can decide whether any action, such as further anti-avoidance legislation, is appropriate.
 
HMRC believes that there is a need for hallmarks that capture such arrangements and to this end it will be discussing the scope with interested parties, such as promoters, representative bodies and other persons who have participated in the previous consultation exercise. 
 
While the general principles underlying HMRC’s approach might appear reasonable, there remain questions about how these will be applied in practice. Shares of whatever class in private companies are not generally available to private investors, and ordinary shares of any company with debt or even preference shares could be said to have the potential for significant appreciation. That is what gearing is about.
 
It is not yet clear how HMRC will treat joint-ownership share arrangements
 It remains to be seen, therefore, how HMRC will distinguish between tax avoidance and normal commercial arrangements, and how HMRC will treat joint-ownership share arrangements, which have a similar effect to growth shares but which make use of conventional classes of shares.