£1m DOTAS Penalty: FTT Rules on Tax Scheme
Company Faces Maximum DOTAS Penalty at Tribunal
A recent First-tier Tribunal (FTT) decision underscores the risks faced by companies, especially those operating as intermediaries for contractors, when failing to comply with the Disclosure of Tax Avoidance Schemes (DOTAS) regime. W S Vision Ltd, a company established in May 2016 by its sole shareholder and director, Mr Warren Spencer, which utilised loan-based remuneration schemes, has been issued a £1 million penalty for failing to disclose its arrangements to HMRC within the required timeframe.
Overview of the Case
The FTT’s proceedings in the case of W S Vision Ltd (TC09714) followed a now-familiar pattern. The company, established in 2016 and acting as an umbrella employer via Peerless PAYE Ltd, offered contracts to individuals on minimum wage and supplemented their pay through so-called “loans”. These loans, interest-free and rarely repaid, allowed the company and its workers to avoid PAYE and NIC obligations on the majority of income.
Key features of the scheme included:
Employment contracts on minimum wage
Interest-free loans: Repayable after five years, with a further premium attached
Labour provision to end clients via agencies
Gross receipts split between PAYE-processed salary and loan advances
The company entered voluntary liquidation in 2020, and the scheme was only disclosed to HMRC in January 2021—over three years after it should have been reported.
Legal Framework and Tribunal Findings
The tribunal, led by Judge Nigel Popplewell, methodically addressed five key questions:
Was the scheme notifiable under DOTAS rules?
Was W S Vision Ltd a promoter of the scheme?
Did the company fail to comply with its disclosure obligations?
Was there a reasonable excuse for non-compliance?
What should the penalty be?
Was the Scheme Notifiable?
The judge found the scheme met several DOTAS “hallmarks”, including:
A premium fee contingent on the tax advantage
Standardised documentation
Payment of employment income through third parties
Use of loans as a financial product
These factors made the arrangements clearly notifiable.
Promoter Status and Failure to Comply
The company actively marketed the scheme and charged a percentage fee for its use—qualifying as a scheme promoter. Although the liquidators acted swiftly to disclose upon their appointment, the original failure to notify HMRC was without excuse. Disclosure should have occurred by October 2017, but was delayed until January 2021.
Penalty Calculation
The statutory penalty of £600 per day of non-compliance (over 1,171 days) would have produced a penalty of £702,600. However, the FTT determined that aggravating factors justified the maximum £1 million penalty. The company’s turnover from the scheme exceeded £12 million, generating over £2 million in fees. The tribunal stressed that such penalties serve to deter similar misconduct and protect vulnerable workers from dubious schemes.
“Setting penalties at the maximum level should serve as a deterrent to other potential promoters.”
Deterrent Effect and Policy Implications
The absence of timely disclosure deprived potential scheme users of the information a Scheme Reference Number (SRN) provides—an important warning that a tax arrangement may be questionable. Judge Popplewell highlighted the danger to unsophisticated individuals lured into such arrangements without proper regulatory scrutiny.
Industry Reaction and Commentary
The decision has sparked debate within the contractor community and among tax professionals. Some commentators argue that the penalty, while severe, may have limited practical effect if the company’s assets have been dissipated. Others call for further regulatory reform to allow authorities to pursue individuals behind corporate promoters more effectively.
“They must look through the corporate veil for cowboys like this.” – Industry comment
There is also criticism of HMRC for its delayed detection of such schemes, with suggestions that more proactive enforcement is required.
Lessons for UK Contractors and Businesses
This case demonstrates the importance of:
Timely disclosure: Failure to notify HMRC of notifiable arrangements can result in heavy penalties.
Due diligence: Contractors should exercise caution when engaging with umbrella companies or schemes promising tax advantages via complex arrangements.
Regulatory vigilance: The DOTAS regime is enforced rigorously, and penalties are set to deter both companies and individuals.
Key Takeaways Table
| Issue | Tribunal Finding/Consequence |
|---|---|
| Notifiable Arrangement? | Yes – met multiple DOTAS hallmarks |
| Promoter Status? | Yes – company marketed and profited |
| Disclosure Failure? | Yes – over 3 years late |
| Reasonable Excuse? | No – liquidators’ action not retroactive |
| Penalty Amount | £1 million (maximum allowed) |
| Deterrent Purpose | Stressed by tribunal |
What Contractors Should Do Next
Review all current and historic arrangements for DOTAS compliance
Consult with professional advisers on disclosure obligations
Avoid schemes that lack transparency or promise unrealistic tax savings
Source References
“Given there is no regulation of the promotion of the sort of schemes by, for example, the Financial Conduct Authority, … promoters and introducers can involve unsophisticated individuals in these sorts of schemes to their detriment.” – Judge Nigel Popplewell
Final Thoughts
The FTT’s decision is a reminder that HMRC, with tribunal support, is determined to clamp down on tax avoidance schemes—especially those targeting contractors. For those operating in the contracting sector, strict adherence to disclosure rules is not optional. The financial and reputational risks of non-compliance are simply too high to ignore.
