Advanced Taxation (UK) · Ethical and professional issues arising from the giving of tax planning advice

GAAR, DOTAS and Disclosure of Tax Avoidance Schemes for ACCA ATX

Updated 11 October 2026

The GAAR lets HMRC counteract tax advantages from abusive arrangements that are not a reasonable course of action. DOTAS requires promoters, and sometimes users, to tell HMRC about notifiable schemes. In ATX you identify the rule, apply it to the scenario, state the consequences and advise ethically.

Understand GAAR, DOTAS and Disclosure of Tax Avoidance Schemes

Tax planning is legal. Tax avoidance that follows the letter of the law but defeats its purpose is risky. Tax evasion is illegal. ATX tests whether you can see where a plan moves from acceptable planning into abuse, and what that means for the client and for you as adviser.

The General Anti-Abuse Rule (GAAR) is a statutory rule. It applies to tax arrangements that are abusive. An arrangement is abusive if entering into or carrying it out cannot reasonably be regarded as a reasonable course of action, having regard to all the circumstances. This is the double reasonableness test. The 'double' refers to the two uses of the word 'reasonable' in the test. The test is set out in statute, and HMRC must show that the arrangement is abusive. The test sets a high threshold. In effect, an arrangement is caught only if it cannot reasonably be regarded as a reasonable course of action. It is not enough that HMRC thinks the arrangement is aggressive. You judge this against the intended policy of the legislation, whether the arrangement has contrived or abnormal steps, and whether it tries to exploit shortcomings in the legislation. If the GAAR applies, HMRC can counteract the tax advantage on a just and reasonable basis. Before it does, the case goes to an independent GAAR Advisory Panel, whose opinion HMRC must take into account. Ordinary, mainstream planning that follows the intended policy of the legislation is not caught.

DOTAS (Disclosure of Tax Avoidance Schemes) is about transparency. It applies to direct taxes and certain other taxes. An arrangement is notifiable if it is expected to give a tax advantage, that advantage is a main benefit of the arrangement, and it falls within the prescribed descriptions, called hallmarks. The promoter must usually notify HMRC within a short time limit. HMRC gives the scheme a scheme reference number (SRN). The promoter gives the SRN to clients. Clients who use the scheme must quote the SRN on their tax return or claim. Disclosure does not mean HMRC approves the scheme. It only means HMRC knows about it.

If the client does not tell the truth about the scheme, or the scheme fails, the client faces extra tax, interest and penalties. Promoters who fail to comply with DOTAS face penalties. HMRC also has two further tools. A follower notice can be issued where a final judicial ruling in another case applies to the taxpayer's open enquiry or appeal. It pushes the taxpayer to settle or face a penalty. An accelerated payment notice (APN) can be issued only while an enquiry or appeal into the taxpayer's return or claim is open, and where the tax advantage claimed arises from the arrangements concerned and one of these conditions is met: (a) a DOTAS scheme reference number has been issued for the scheme used, (b) a follower notice has been given, or (c) a GAAR counteraction notice has been given. It requires the disputed tax to be paid up front. There are also special penalties for enablers of abusive schemes and a GAAR-based penalty on the tax counteracted. Do not quote exact rates or limits unless the exam gives them. Focus on the principles.

For you as an ACCA member, the ethical rules apply. You must act with integrity, objectivity, professional competence and due care, confidentiality and professional behaviour. Do not advise on a scheme you do not understand. Explain the risks to the client in writing, and do not help in evasion. The risk is not only the tax. It is also reputation, cash flow from upfront payments and possible professional discipline.

Key rules to remember

GAAR test: Abusive = entering into or carrying out the arrangement cannot reasonably be regarded as a reasonable course of action; This is the double reasonableness test. The 'double' is the two uses of the word 'reasonable'. The test is set out in statute, HMRC must show the arrangements are abusive, and the threshold is high. Judge it against the intended policy of the legislation, contrived or abnormal steps, and exploitation of shortcomings in the law.
GAAR consequence: Tax advantage counteracted on a just and reasonable basis; HMRC must first refer the case to the independent GAAR Advisory Panel and consider its opinion.
DOTAS trigger: Notifiable arrangement = expected to give a tax advantage + that advantage is a main benefit + fits a prescribed hallmark; DOTAS applies to direct taxes and certain other taxes. The promoter normally notifies HMRC and receives a scheme reference number.
Client duty under DOTAS: Scheme reference number must be quoted on the client's tax return or claim; Failure to quote the number can lead to a penalty. The client remains responsible for the correct tax.
Acceptable versus unacceptable: Tax planning (legal) > avoidance (risky) > evasion (criminal); Evasion involves deliberate dishonesty, such as hiding income or false claims.

How to solve GAAR, DOTAS and Disclosure of Tax Avoidance Schemes questions

Use this method for any scenario on a tax planning scheme, an adviser's duty or a possible abusive arrangement.

1Read the requirement and note who you are advising: the client, the promoter or yourself as adviser.
2Classify the arrangement: normal planning using a relief as intended, avoidance, or evasion.
3Test for GAAR: are there contrived or abnormal steps, and does it defeat the purpose of the law? Say whether it is a reasonable course of action.
4Test for DOTAS: is there a hallmark, such as a confidentiality condition or a premium fee? Who must notify, and does the client need an SRN on the return?
5State the consequences with the scenario figures: counteraction of the advantage, interest, penalties, and possible upfront payment.
6Apply ethics: integrity, competence, confidentiality, and any duty to withdraw or refuse the work.
7Give a clear recommendation, with safer alternatives, and close with a short professional conclusion.

Quickest way: Four-question scan

When to use it: Use when time is short and you need a structured answer in a few minutes.

Is it genuine commercial planning, or is it contrived steps for a tax result? That is the GAAR point.
Is it marketed or fee-linked to the saving, or confidential? That is the DOTAS point.
What does the client lose if it fails: tax, interest, penalties, upfront payment?
What must I do ethically: warn in writing, avoid the scheme, or consider ceasing to act?

Common mistakes in GAAR, DOTAS and Disclosure of Tax Avoidance Schemes

Saying the GAAR applies to all tax planning.
Students think any tax saving is abuse.
Fix: State that it targets only abusive arrangements. Use the reasonable course of action test and say normal planning is outside it.
Treating DOTAS disclosure as HMRC approval of a scheme.
A reference number looks like official clearance.
Fix: State that disclosure only informs HMRC. The scheme can still fail and be challenged.
Confusing avoidance with evasion.
Both reduce tax and are discussed together.
Fix: Avoidance is legal use of the rules, though it may be challenged. Evasion is deliberate dishonesty and illegal.
Forgetting the client's own duty to report the SRN.
Students focus on the promoter only.
Fix: Say the client reports the number on the return and keeps responsibility for correct tax.
Ignoring the ethical angle and giving only tax technicalities.
Students rush into computations.
Fix: Link to the fundamental principles and professional skills. Say you would advise in writing and decline work you cannot support.
Quoting exact penalty rates or time limits from memory.
Students try to show detail.
Fix: Describe the type of consequence and use only figures given in the exam.

Worked examples

Example 1

Meera is asked by a promoter to join a scheme that routes her salary through an offshore trust in a series of circular loans with no commercial purpose. The promoter says the scheme is legal because it follows the wording of the law. Advise Meera on the GAAR risk.

Show the solution

Identify the facts: the loans are circular and have no commercial purpose, so there are contrived and abnormal steps.
State the test: the GAAR applies if the arrangement is abusive, meaning it cannot reasonably be regarded as a reasonable course of action.
Apply: following the wording of the law is not enough. The scheme defeats the purpose of the rules and exists for a tax advantage.
Consequence: HMRC could counteract the tax advantage on a just and reasonable basis after referral to the GAAR Advisory Panel. Meera could also face interest and penalties.
Advice: do not enter the scheme. Use an ordinary planning route with a genuine commercial purpose.

Answer: The scheme is likely to be abusive under the GAAR because of its contrived steps and lack of commercial purpose. HMRC could counteract the tax advantage, and Meera could face interest and penalties. Advise her to avoid it.

Example 2

Arjun, a tax adviser, learns that a client's scheme was disclosed under DOTAS and has an SRN. The client says this means HMRC has approved it and he need not mention it on his return. Advise the client and state Arjun's ethical position.

Show the solution

Explain DOTAS: disclosure means HMRC has been told about the scheme. It does not mean approval.
State the client's duty: the SRN must be reported on the tax return. Leaving it out can lead to a penalty.
Explain the risk: if the scheme fails, the client may owe extra tax, interest and penalties, and HMRC may require upfront payment in some cases.
Ethical position: Arjun must act with integrity and professional behaviour and must not assist in a return he knows is incomplete.
Action: advise the client in writing to include the SRN. If the client refuses, Arjun should consider whether he can continue to act.

Answer: The client is wrong. DOTAS disclosure is not approval, and the SRN must be reported on the return. Arjun must advise him in writing and should consider ceasing to act if he refuses.

Exam tips

Define the GAAR test in one sentence, then spend your marks applying it to the facts, such as contrived steps or no commercial purpose.
Always separate promoter duties from client duties in DOTAS answers.
Link every answer to ethics. Professional skills marks reward scepticism and clear written advice.
Give a recommendation. Examiners want a decision, such as avoid the scheme or use a simpler alternative.
Do not invent rates or limits. Use the figures given and describe the consequence in words.

Practice questions from Ethical and professional issues arising from the giving of tax planning advice

GAAR, DOTAS and Disclosure of Tax Avoidance Schemes: frequently asked questions

What is the GAAR in ACCA ATX?

It is a statutory rule that lets HMRC counteract tax advantages from abusive arrangements. An arrangement is abusive if entering into or carrying it out cannot reasonably be regarded as a reasonable course of action. HMRC must show the arrangement is abusive, and the threshold is high. You apply it by looking at the intended policy of the law, contrived or abnormal steps and use of loopholes.

What is DOTAS and who must disclose?

DOTAS is the regime requiring notifiable tax avoidance schemes to be disclosed to HMRC. The promoter normally notifies and gets a scheme reference number. Clients who use the scheme must quote that number on their return or claim.

Does a DOTAS reference number mean the scheme works?

No. It only shows HMRC has been told about the scheme. HMRC can still challenge it, and the client can face extra tax, interest and penalties.

How is avoidance different from evasion?

Avoidance uses the tax rules to reduce tax, though the result may be challenged. Evasion is deliberate dishonesty, such as hiding income, and is a criminal matter.