Amid the headlines on welfare cuts and house building, a key announcement in the Spring Statement went largely unnoticed: a significant clampdown on tax avoidance. Backed by new funding for HMRC and a pledge to increase prosecutions by 20% each year, the government’s message is clear – aggressive enforcement is coming.

But how could businesses become so affected? The answer lies in proposals first introduced in 2024 and now under consultation. John Hartley, Partner & Head of Business Crime at Primas Law. discusses the changes that could bring routine tax planning under legal scrutiny and expose even cautious SMEs to criminal liability.

More powers under DOTAS

The disclosure of tax avoidance scheme (or DOTAS, for short) has been in place for more than 20 years and requires individuals or companies to notify HMRC of arrangements that may be classified as tax avoidance schemes. It’s effectively an early warning system, and currently, promoters (i.e. advisors), users, and some intermediaries must make a disclosure.

However, under the current DOTAS proposals, HMRC want to give a wider definition to a “promoter” or an “enabler”, which means we could soon see legal professionals, sales reps, and even digital software providers subject to this scheme. The new proposals would also potentially introduce a new criminal offence for failure to notify an arrangement falling under DOTAS.

For SMEs, these reforms may result in greater scrutiny even for routine tax planning. Legal advisors will need to assess whether the proposed structure could fall within scope of the new DOTAS criteria and ensure early disclosure.

What is the new proposed criminal offence?

Under the proposals, a person would be guilty of an offence if they, without reasonable excuse, failed to notify arrangements to HMRC under DOTAS. The important point is the offence is one of “strict liability”, which means it doesn’t matter what a person’s intent is.

Whilst this is still being consulted on, the offence could carry a sentence of up to two years’ imprisonment or an unlimited fine – or both.

Increased Investigations, Fewer Loopholes

As part of the broader anti-avoidance agenda, HMRC is also set to receive expanded powers of investigation. These include greater access to third-party data and the ability to compel more comprehensive disclosures from taxpayers and advisors alike. The proposed changes will streamline the process for issuing information notices and reduce the scope for delaying tactics during compliance checks.

Notably, HMRC will be able to issue more rapid nudge letters and undertake pre-emptive reviews where avoidance schemes are suspected. For SMEs, this means an increased likelihood of being contacted for explanation, even without evidence of wrongdoing, and the need to maintain full documentation to justify tax positions taken.

Could we see more disclosure to professional bodies

It’s not just investigative and DOTAS reform that is on the cards. The Government are now exploring giving HMRC more powers of disclosure to regulatory bodies that relate to possible disciplinary proceedings as a result of professionals being found to have acted inappropriately with tax avoidance advice. HMRC already has the power to disclose certain matters to regulators, however, they are now exploring the possibility of disclosure powers even when the behaviour of a tax advisor might not meet the misconduct threshold. The rationale is that it would be then up to the professional body to decide on any action, and it would raise the standards of advisor’s work; however, it does illustrate the importance of SMEs picking reputable advisors.

What SMEs should be doing now

With the regulatory landscape shifting, SMEs must act prudently. Key legal steps include:

• Reviewing all current and historical tax arrangements with a legal advisor.
• Conducting a risk assessment of any schemes promoted by third parties.
• Ensuring all disclosures under current DOTAS rules have been properly made.
• Documenting the commercial rationale for tax planning decisions.

As the legal and regulatory landscape evolves, SMEs must remain vigilant. Early engagement with legal counsel is essential—not only to ensure compliance but to also protect the business and its advisors from reputational and regulatory fallout. The message from the Spring Statement is clear: the government is serious about enforcement. SMEs must be equally serious in their legal response.

About Primas:

Primas Law has offices in Manchester, Cheshire, Liverpool and London. The firm specialises in corporate and commercial law including property, litigation, insolvency, construction and employment law. The firm’s focus is on “quality as the priority” for thousands of clients based across the UK.

For further information, visit: www.primaslaw.co.uk