You will recall (I hope) that my last article ended on the hopeful note that it is my belief that the disclosure provisions in respect of mass-marketed tax-avoidance schemes will apply to very few arrangements that will be mainstream for most financial advisers.As well as some of the provisions – even after changes in the pre-Budget report – being limited to reasonably well defined financial and employment products aimed at avoiding income tax, capital gains tax or corporation tax, there are filter tests too. Before considering these, it is worth remembering that the pre-Budget report announced that disclosure will apply from April 2006 to income tax, capital gains tax and corporation tax without the need for the arrangements to be founded on employment or financial products. It also seems that the filter tests will be reviewed to reflect “recent developments in avoidance behaviour”. It is worth noting that to be caught by these provisions, any avoidance scheme must have the desire to avoid tax as the sole or main reason for the scheme. For the purpose of these provisions, one is referred to section 709 ICTA 1988. In connection with this provision, tax avoidance has been defined by Lord Justice Parker in Sema Group Pension Fund (2003 STC 95) as being “where the position of the taxpayer vis a vis the Revenue is improved in consequence of the particular transaction or transactions”. Let us return, then, to the filter tests. Having determined that you are within the ambit of the disclosure provisions by virtue of tax avoidance being the sole or main objective of the arrangement and that the arrangement seeks to avoid one of the specified taxes (and, before the pre-Budget report, that the arrangement falls within the definition of one based on employment or financial products), you then have to apply the filter tests as a final test to see whether there is a requirement to disclose. I reiterate that these are to be reviewed following the pre-Budget report. What follows is based on the tests as they stand. The most important of the filter tests – and clear evidence that HMRC is looking to secure disclosure of innovative tax-avoidance arrangements – is the premium fee test. By virtue of this test, it must be proved, for disclosure to be necessary, that the fee that is actually charged or which could be charged for the arrangement is one that would be at a level that would reflect the uniqueness or novelty of the tax-avoidance arrangement. The additional fee – the premium fee – should be arrived at by virtue of the nature of the transaction. It should be related to the fact that tax is expected to be saved and may even be contingent on tax being saved. If the premium fee test is not satisfied, then the arrangement will only be disclosable if one of the other two filter tests is satisfied. It is generally felt that this is unlikely if the premium fee test is not satisfied. For the sake of completeness, however, we should look at the other two filter tests. The off-market test is one that is substantially introduced to cover arrangements where a separate premium fee is not charged but is built into a specific financial product charge. The HMRC guidance notes to the disclosure provisions give an example of a bank offering tax-avoidance planning on financial products where the pricing reflects what would otherwise be a premium fee. The third filter test is that there should be confidentiality. The confidentiality arrangement should be such that the client is under an obligation not to disclose the scheme to any other advisers. Reassuringly, I believe that for most financial planners, under the rules as they stand, the disclosure provisions will not be of great concern. This will probably also be the case for many ordinary providers of retail financial products. We shall have to review this conclusion once the review has taken place. If all the tests (whatever they end up being) are satisfied and disclosure is required, then it is necessary to determine on whom the requirement to disclose falls. Well, it would seem that the main requirement to disclose falls on the promoter of the arrangement who makes available for implementation or designs proposals and arrangements of a type within the regulations or where a person manages the implementation of the arrangements. However, this latter management test will not be satisfied unless the advice is directly connected to the expected tax advantage. As a result, should any financial planner find themselves in a position where a scheme is being employed for which disclosure appears to be required, it is essential that – assuming the financial planner has not devised the arrangement – a discussion is held with the deviser to determine whether that person has made a disclosure and has a reference number for the scheme and, if not, why not. As a result of this discussion, it may emerge that the proper course is for the planner advising the client to make a disclosure. Much will depend on the facts but a conversation needs to be held to ensure that the requirement to disclose is properly addressed and the necessary action is taken. If disclosure is made, a reference number is issued and a client who uses the scheme should have this communicated to them in order that they may include the number in their tax return.