UK Mandatory Disclosure Rules regulations are published

The final version of the regulations for UK Mandatory Disclosure Rules (MDR) have now been published. These regulations will come into force on 28 March 2023 meaning any arrangements entered into on or after this date must be reported to HMRC under these rules. UK MDR will replace the existing DAC6 regulations which will be repealed at the same time. HMRC have confirmed the DAC6 reporting portal will remain open for one month to allow arrangements entered into before 28 March 2023 to be reported under DAC6.

In 2018 the OECD published its Model Mandatory Disclosure Rules (MDR), a template for a regime broadly designed to ensure that tax authorities would receive details of certain arrangements which might otherwise restrict their visibility of taxpayers’ assets. In particular, those rules required disclosure of certain Common Reporting Standard (CRS) avoidance arrangements and opaque offshore structures. The OECD rules were incorporated into a much broader disclosure regime (DAC 6) introduced by the EU.

The UK’s implementation of DAC 6 was a late casualty of Brexit, with a significant scaling back of the UK rules being announced shortly before reporting had been due to start on 1 January 2021. That last minute pruning, which essentially discarded those elements of the UK’s implementation of DAC 6 which hadn’t been included in the original OECD Model MDR, was always stated to be a temporary measure.

These regulations (The International Tax Enforcement (Disclosable Arrangements) Regulations 2023) follow a consultation process which started in November 2021, with HMRC’s response to the consultation being published in November 2022.

As reported in our article of 28 November 2022, the final version of the regulations has changed in one major way from the original draft. The ‘look back’ period for reporting pre-existing arrangements initially stretched back to 29 October 2014 but this has been revised to 25 June 2018 (the same as under DAC6). There is an exemption for the look back period in relation to CRS avoidance arrangements where the amount involved is less than US$1 million. There is also an exemption where relevant information has already been provided under DAC6.

The current (DAC6) regime only requires reporting of arrangements which ‘concern’ either the UK or an EU Member State. The OECD rules do not include this territorial restriction, although a reporting obligation should only arise to a person with a relevant link to the UK. Whilst it seems HMRC wish to keep interpretation of UK MDR as close to DAC6 as possible, this does potentially expand the population of arrangements which need to be considered.

As reported previously, HMRC are not providing an online manual reporting system. Instead, any reporting will need to be done online using XML file format. HMRC’s reasoning is that XML is the commonly agreed method for international automatic exchanges of information.

The requirement to use XML file format will mean taxpayers and advisers may need to revisit internal processes and software options.

We understand HMRC envisage that generally the guidance will be consistent with existing DAC6 guidance, except where changes are necessary to ensure alignment with the model rules and commentary, or to address any gaps in the existing guidance.

For further information please contact:

• Sharon Baynham