Getting out of a tax avoidance scheme

To get out of a tax avoidance scheme you stop using it, contact HMRC, work out the tax the scheme was meant to save for every year affected, and agree a settlement covering that tax, late payment interest and any penalty. HMRC says the sooner you settle, the less interest and penalty you pay. An early, complete disclosure and full cooperation are the main ways to keep penalties down.

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What does leaving a scheme actually involve?

Leaving has two parts: stopping the arrangement for the future and putting the past right. A contractor paid partly in loans through an umbrella company, for example, moves to an arrangement where all pay goes through PAYE. HMRC’s introductory guidance lists the forms these untaxed payments take, including loans, grants, salary advances, capital payments, credit facilities, annuities and fiduciary receipts, and says the payments are often routed through chains of companies, trusts or partnerships.

Putting the past right means working through these steps:

Identify every scheme used, its name, any scheme reference number (SRN) and the tax years involved.
Gather the paperwork: contracts, payslips, loan statements, fees paid to the promoter and any letters from HMRC.
Contact HMRC. If you are already speaking to an officer about the scheme, contact that officer. If not, HMRC’s dedicated team takes enquiries at CAGetHelpOutOfTaxAvoidance@hmrc.gov.uk.
Agree the figures for each year and how they will be paid, including a payment plan if needed.
Make sure the settlement is recorded in writing so the open years are closed.

HMRC says its teams will help you settle without charging for their advice, even if you have used several schemes. If HMRC has already written to you, our guide to letters from HMRC Counter Avoidance explains the different notices.

Why settle now rather than wait for the courts?

HMRC’s guidance gives three reasons. The sooner you pay, the less late payment interest builds up. HMRC can reduce penalties where it receives full cooperation. And leaving before HMRC challenges the scheme in court avoids costs such as contributions to a promoter’s “fighting fund”.

Waiting also exposes you to the statutory regime for users of schemes that have been defeated elsewhere. If a final court ruling goes against a scheme like yours, HMRC can issue a follower notice, and failing to take corrective action within 90 days of the notice brings a penalty of 30% of the denied advantage under sections 208 and 209 of Finance Act 2014. Our guide to accelerated payment notices and follower notices covers that process.

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What will HMRC expect you to pay?

In principle, the tax and National Insurance the scheme was designed to save, late payment interest from the dates the tax should have been paid, and any penalty. How that is calculated depends on the scheme.

Disguised remuneration schemes

For loan and similar schemes HMRC uses its published disguised remuneration settlement terms 2020, which it says should be used for all disguised remuneration liabilities. Under those terms a contractor pays:

income tax on all the loans or payments received, net of any scheme fees paid, using the bands and rates of the years the loans were made
late payment interest for years under enquiry, years HMRC is still in time to enquire into, and years where an assessment is in place
National Insurance if self employed, including through a partnership
any penalties and inheritance tax, depending on the circumstances

The amount can be reduced by income tax already paid on the loans as a beneficial loan benefit in kind, but only where the year can still be amended or an overpayment relief claim made. An employer that used a scheme pays income tax and National Insurance on the amounts contributed, and gets corporation tax relief on the fee paid to the promoter. The loan charge has its own rules, covered in our guide to the loan charge and disguised remuneration.

To settle, HMRC asks individuals for the scheme names, any SRN or DOTAS number, the tax years used, the loan amounts in each year, whether any loan is being written off, the National Insurance number and UTR, and whether the person was employed, self employed or a partner at the time. Individuals give this through HMRC’s online settlement form.

Other schemes

HMRC operates a different process for other types of scheme. For some schemes it runs a settlement opportunity on set terms. HMRC notes that a settlement opportunity calculation may include interest and penalties, so it may not match the amount on an accelerated payment notice for the same scheme.

How far back will the settlement go?

Years under enquiry or appeal stay open until they are settled by agreement or a closure notice. Years that are closed can only be reopened by a discovery assessment, and the time limit depends on behaviour. For income tax and capital gains tax the normal limit is four years after the end of the tax year (section 34 TMA 1970), six years where the loss was brought about carelessly (section 36(1)) and 20 years where it was deliberate (section 36(1A)).

The 20 year limit also applies where the loss is attributable to arrangements for which the person failed to comply with the DOTAS obligations in sections 309, 310 or 313 of Finance Act 2004, or failed to notify a promoter reference number under section 253 of Finance Act 2014. Scheme users who never reported their DOTAS scheme reference number should therefore expect HMRC to look well beyond four years.

How are penalties worked out and kept down?

Inaccuracy penalties under Schedule 24 to Finance Act 2007 have a maximum of 30% of the potential lost revenue for careless errors, 70% for deliberate and 100% for deliberate and concealed. Paragraph 10 reduces these for disclosure, down to minimums that depend on whether the disclosure was prompted or unprompted.

Behaviour	Maximum	Minimum if prompted	Minimum if unprompted
Careless	30%	15%	0%
Deliberate	70%	35%	20%
Deliberate and concealed	100%	50%	30%

Avoidance cases have a twist on reasonable care. For returns covering tax periods that began on or after 6 April 2017 and ended after 15 November 2017, sent on or after 16 November 2017, HMRC presumes you did not take reasonable care over an inaccuracy linked to defeated avoidance arrangements. You must show that you did. Relying on advice helps only if it was not “disqualified advice”: advice is disqualified if it came from, or was arranged by, someone who took part in or was paid to facilitate the arrangements, if the adviser lacked the appropriate expertise, if it did not take account of your circumstances, or if it was addressed to someone else. HMRC’s factsheet CC/FS7c also says it is unlikely to suspend a penalty connected with avoidance.

For follower notice penalties, section 210 of Finance Act 2014 allows a reduction for cooperation, such as helping quantify the advantage or counteracting it, but not below 10% of the denied advantage. The practical message is the same for every type of penalty: tell HMRC early, give full figures and give access to records. See penalty reductions for disclosure for how HMRC scores telling, helping and giving access.

What if you have already received an accelerated payment notice?

You still have to pay it. HMRC’s guidance says an accelerated payment notice must be paid within 90 days unless you make representations, in which case the period may be longer. Paying it does not settle your tax affairs: it covers only the disputed tax on that scheme and excludes interest and penalties. You can still settle after receiving one, and any payment is treated as a payment on account of the final liability, stopping interest on the underlying debt from the date HMRC receives it.

What if you cannot afford to pay?

Ask HMRC for a payment plan when you settle. Under the disguised remuneration terms, HMRC says you can pay over up to five or seven years without giving detailed financial information, and will not ask for more than 50% of disposable income unless that income is very high. Where there are no disposable assets, it will agree at least five years if income in the latest complete tax year was under £50,000 and at least seven years if it was under £30,000. For other schemes see time to pay arrangements. HMRC also warns that bankruptcy is not an easy way out, and it will challenge assets that are hidden or transferred before or during proceedings.

Illustration only. A contractor received £20,000 a year in loans through a scheme for three years and paid the promoter £2,000 a year in fees. Under the 2020 terms income tax is charged on £18,000 for each year at that year’s rates, with late payment interest on each year that was still open. The contractor pays a lump sum and agrees monthly instalments for the rest.

What mistakes do people make when leaving a scheme?

Treating an SRN as approval. HMRC says it does not approve any tax avoidance scheme, and a scheme without an SRN can still be challenged.
Waiting for a lead case to be decided, while interest grows and the follower notice regime comes into play.
Asking the promoter whether the scheme works. Advice from someone involved in the arrangements is disqualified advice for penalty purposes.
Settling one scheme or one tax year and forgetting others, so later years stay open.
Assuming that paying an accelerated payment notice closes the matter. It is only a payment on account.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.