Decision released 22 September 2021
In Root2 Tax Ltd  TC 08280, the First-tier Tribunal (FTT) allowed a promoter’s appeal against HMRC’s application for a penalty in respect of a failure to notify HMRC of a scheme under the disclosure of tax avoidance scheme (DOTAS) rules. The application was made out of time because a DOTAS notification is only required on the first occasion a scheme is implemented and not, as HMRC submitted, every time a scheme is used.
In Root2 Tax Ltd  TC 06115, the FTT had held that arrangements known as the Alchemy scheme, in respect of which the respondent (Root2) was a promoter, were notifiable arrangements for the purposes of the DOTAS rules. Accordingly Root2 was required to notify the arrangements to HMRC within five days after first becoming aware of any transaction forming part of the notifiable arrangements. Root2 became aware of transactions forming part of Alchemy scheme arrangements that were undertaken by various individuals between April 2011 and August 2017. Root2 made three separate disclosures in relation to the Alchemy scheme. HMRC did not accept that the notifications satisfied the requirements.
On 22 May 2019, HMRC made an application to the FTT for a penalty to be imposed on Root2 under TMA 1970, s. 98C for failing to provide prescribed information in relation to the Alchemy scheme within the required time limit.
Root2 appealed against the penalty application on three grounds. In Root2 Tax Ltd  TC 08254, the FTT directed that the first ground should be dealt with as a preliminary issue. This issue was whether the application made by HMRC under TMA 1970, s. 100C was time barred, on the basis that it had been made more than two years after the expiry of the relevant time limit in TMA 1970, s. 103(4). With the relevant time limit being ‘at any time within six years after the date on which the penalty was incurred or began to be incurred’.
The only issue that had to be decided was whether Root2 was required under FA 2004, s. 308(3) to provide HMRC with prescribed information within five days of the date of:
•the first occasion on which it became aware of any transaction forming part of the Alchemy scheme (in which case the application was out of time); or
•each occasion on which it became aware of a transaction forming part of any implementation of the Alchemy scheme (in which case the application was in time).
Judge Sinfield found that it was clear from the High Court’s decision in Walapu v R & C Commrs  BTC 14 that the effect of FA 2004, s. 308(3) and (5), is that the obligation to notify arises in respect of the scheme and not the individual implementations of its arrangements. Further, variations in a scheme which do not change the analysis for tax purposes are immaterial and do not create a new obligation to notify. Therefore, the FTT was bound by the proposition that a tax avoidance scheme which is implemented on several occasions with only immaterial changes need only be notified once.
The FTT concluded that Root2 was required to provide HMRC with prescribed information on the first occasion on which it became aware of any transaction forming part of the Alchemy scheme, and as that was before 16 May 2013, the penalty application was made out of time and therefore Root2’s appeal was allowed.
This case provides useful clarification about the application of DOTAS penalties.
For commentary on the DOTAS regime, see In-Depth at ¶192-110.
Comment by Meg Wilson, Senior Tax Writer, Croner-i Ltd.
 UKFTT 0346 (TC)