Unravelling the DOTAS Controversy – so what’s next?

Unravelling the DOTAS Controversy – so what’s next?

12:57 PM, 3rd March 2024, About 2 months ago 53

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UPDATE – 03/03/2024

The Chartered Institute of Taxation has published and submitted the following to HMRC.


ORIGINAL POST – dated 16th Feb 2024

HMRC has issued Scheme Reference Numbers for both the Substantial Incorporation Structure and the Capital Account Restructure under DOTAS legislation.

The scheme reference number for the Substantial Incorporation Structure (SIS) is 53560969.

The above also applies to the Beneficial Interest Company Transfer structure (BICT), the previous name for SIS before rebranding.

The scheme reference number for Capital Account Restructure (CAR) is 07626525.

Cotswold Barristers and Property118 are in the process of contacting all affected clients to explain what this means to them and what they need to do.

To say we are unhappy about being branded Tax Avoidance Promoters would be a huge understatement, not because having a DOTAS Scheme Reference Number “is like having a ‘Kick Me’ sign on your back” for business purposes (Dan Neidle’s words), but if we don’t successfully appeal, it could have adverse knock-on effects to our clients and potentially thousands of other landlords and their professional advisers further down the line.

Below is a brief summary of what’s going on.

On 13th September 2023 a sensationalist journalist called Dan Neidle began publishing a series of damning articles branding Property118 as Tax Avoidance Promoters. The articles contained several inaccuracies and untruths based on flawed research and his refusal to meet with us in person or via video conference. What he really wanted was clicks to his website to satisfy his own ego and make a point to his former employers. We looked into suing him for libel, but that resulted in us receiving advice that led us to conclude it was not financially viable for us to bring a claim against him at that time.

The articles he wrote attracted further negative media attention that became so overwhelming HMRC had to act.

It has been speculated that HMRC is so under-resourced and fearful of being ridiculed by the same investigative journalist that they want an independent Tax Tribunal to make a decision for them. Whilst this might sound farfetched to some, it cannot be denied that it provides a logical explanation for HMRC issuing the Scheme Reference Numbers, despite their logic for doing so contradicting their own tax manuals. A selection of examples of these contradictions are summarised in this article. Our full case will be presented to the Tax Tribunal in far greater detail in due course, but as you’ve already read this far it’s highly likely that you have developed intrigue and curiosity.

Substantial Incorporation Structure “SIS”

Both HMRC and even Dan Neidle agree that incorporation is not Tax Avoidance. However, the way that incorporation should “normally” be implemented is something we don’t see eye to eye on. It is the way that SIS is structured to negate uncommercial refinancing at the point of incorporation that they have a problem with. However, SIS is designed to comply with the spirit and the letter of the law, as well as the HMRC manuals including Extra Statutory Concessions granted by HMRC beyond which legislation compels them to.

The SIS substantially performs the incorporation business sale and purchase contracts on a deferred completion basis. This means that the conveyancing of properties into the company is delayed until it is economically viable for the company to arrange new financing.

Several reasons given by HMRC for issuing the SRN numbers for SIS contradict their own published manuals. CG65745 is one such example, which clearly states:

The transferor is not required to transfer business liabilities to the company but often does so. This is normally done in practice by the company giving the transferor an indemnity in respect of those liabilities.

In strictness, business liabilities taken over by the company represent additional consideration for the transfer and relief under TCGA92/S162 should be restricted. However, ESC/D32 enables any business liabilities taken over by the company to be ignored when quantifying `other consideration’ in recognition of the fact that the transferor is not receiving cash to meet any tax liabilities on the transfer and that the shares in the company are worth less than if the business had been transferred unfettered by liabilities.


Where liabilities are taken over by a company on the transfer of a business to the company, the Revenue are prepared for the purposes of the ‘rollover’ provision in TCGA 1992 s 162, not to treat such liabilities as consideration. If therefore the other conditions of s 162 are satisfied, no capital gain arises on the transfer. Relief under s 162 is not precluded by the fact that some or all of the liabilities of the business are not taken over by the company.

The concession applies only to business liabilities. Personal liabilities of the transferor taken over by the company should always be treated as part of the consideration. In particular any tax liability arising from the business transferred is a personal liability.

The concession applies only for the purpose of establishing the extent of `other consideration’. It does not operate in the computation of the net cost of the shares, see CG65740

If it was necessary for the legal title of the properties to be transferred to the company at incorporation it would also be necessary for any existing liabilities secured against them to be repaid. If that was the case, the existence of this manual, especially the use of the words “normally”, “indemnity” and “taken over” would serve no logical purpose.

HMRC manuals are reviewed for necessary updates at least every few months. However, the words in this manual have not changed over the last several years. The concession referred to in the manual has been extant for over 50 years. It has recently been argued by some tax professionals that the manual is not reflective of modern practices. We disagree. It might not reflect the advice given by those individuals to their clients, but it does reflect the advice given by Cotswold Barristers on how to follow the guidance given in HMRC manual CG65745. Therefore naturally the Substantial Incorporation Structure follows this guidance.

There are plenty of other HMRC manuals that support our position, for example:

SDLTM07700 – where a contract is substantially performed before it is formally completed, the contract is treated as if it were itself the transaction provided for in the contract.

CG12700 – what counts as a disposal for the purposes of incorporation? Exchange of contracts (beneficial interest).

CG12704 – what is explicitly not treated as a disposal for the purposes of incorporation? Completion of contracts (legal interest).

It is therefore misleading to claim that SIS does not ‘achieve’ incorporation in the same way as a ‘normal’ incorporation, or that the desired commercial benefits are not achieved.

Therefore, if the only distinguishing feature between what HMRC and Dan Neidle are referring to as a ‘normal’ incorporation and SIS is the exchange with delayed completion aspect to avoid raising new finance to replace the old (which is an entirely commercially driven decision) and ignore the guidance given in HMRC manual CG65745 for the company to take over the liabilities of the existing business (which would be senseless), then why should SIS be considered a tax avoidance scheme, if ‘normal’ incorporation is not?

Capital Account Restructure “CAR”

This planning utilises bridging finance on either side of the incorporation transaction to leave the company with a debt to its owners that can be subsequently repaid to them tax-free.

It’s easy to see why people might consider this to be Tax Avoidance at face value, but when the detail is understood it’s clear that it isn’t.

One of the points we will be making when we take this matter to an independent Tax Tribunal is that positive capital account balances have already been subjected to taxation, either before the money was invested into the business or because the capital had been accumulated as a result of the owners leaving profit in the business after paying CGT or income tax, which has not subsequently been withdrawn. The owners can withdraw these funds from any unincorporated business without further taxation at any time (prior to incorporation), even if that necessitates the unincorporated business increasing its liquidity by taking on interest-bearing loans. This is confirmed in HMRC manual BIM45700.

The purpose of bridging finance within the Capital Account Restructure is to provide unincorporated businesses with sufficient cash to fully withdraw the owners’ positive capital account balances from their business prior to incorporation. The amount of bridging finance is always limited to the value of positive capital account balances.

In most cases, the business owners loan the cash that they withdrew pre-incorporation to the incorporated business (company), which then uses the cash to repay the bridging finance. They don’t have to, but to do so maintains a lower level of indebtedness in the company, meaning better cashflow, higher profit, and of course more corporation tax for HMRC. Alternatively, the business owners could raise further mortgage finance in the company (subject to liquidity and profit levels allowing) and either use that money to repay their Directors Loan or simply use the funds raised by the company to repay the bridging finance and retain their own cash.

The latter options would result in lower cashflow, less profit, and less corporation tax for HMRC, whereas the former would have the opposite effect. Therefore, loaning the cash to the company to repay the bridging finance it has taken over actually results in more corporation tax for HMRC.

The outcome of the Capital Account Restructure is that the business owners’ rights to withdraw their own capital after incorporation are exactly the same as they were before incorporation. To put it another way, it ensures that they do not suffer taxation on the same money twice.

Both Dan Neidle and HMRC believe the above falls foul of DOTAS because of the circular nature of the financing. As mentioned above, it is not a requirement for the capital withdrawn from the business to be loaned to the company to repay the bridging finance; the company could borrow funds from any other source (e.g. increased mortgages) to repay the bridging finance, thus leaving the cash withdrawn from the unincorporated business in the hands of the business owners.

Another argument presented by Dan Neidle and HMRC is that bridging finance is often borrowed and repaid on the same day in the implementation of the Capital Account Restructure. However, the bridging finance terms we arrange offer a period of up to 30 days for repayment. The fact that it is considered commercially viable for business owners to re-inject their own cash into their company as opposed to the alternative of elongating the process and servicing debt is perfectly logical in most circumstances.

The consequence of a business owner failing to withdraw their positive capital account balance from their business prior to incorporation is that they lose the ability to do so after incorporation without being taxed again on money they have already been taxed on when they want to withdraw it.

This advice is actually stated as good practice for all professional advisers to recommend in the UK’s leading tax textbooks published by Lexis Nexis. As Simon’s Taxes states at B9.112:

“If there is a substantial capital account in the unincorporated business, the business owner(s) should be advised to draw this down before incorporation, otherwise that capital will be locked into the value of the shares.”

In the 1997 case of Judgments – Commissioners of Inland Revenue v. Willoughby (1st and 2nd Appeals) link Lord Nolan said:

it would be absurd in the context of section 741 to describe as tax avoidance the acceptance of an offer of freedom from tax which Parliament has deliberately made. Tax avoidance within the meaning of section 741 is a course of action designed to conflict with or defeat the evident intention of Parliament.”

More to follow in due course. Meanwhile, please share and comment on this injustice.


Please see below, published by the Chartered Institute of Taxation and submitted to HMRC. We encourage our clients to share this with their professional advisers.


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Lee Chapman

13:32 PM, 16th February 2024, About 2 months ago

So are you saying hold off until this is all sorted out. I have 4 properties and was thinking about adding 2 more in a few years and then incorporating.

Now i just don’t know what the best option is. And throwing money at consultancy does not sound like good business sense right now.

Mark Alexander - Founder of Property118

13:44 PM, 16th February 2024, About 2 months ago

Reply to the comment left by Lee Chapman at 16/02/2024 - 13:32
Hi Lee

Unfortunately, your question is not particularly clear.

If you are asking whether you should consider incorporation I definitely think you should defer that decision until after the Tax Tribunal. However, based on the limited information you have provided I think it is highly unlikely that incorporation would be a viable option for you anyway.

If you are asking whether you should buy further properties, that is a commercial decision for you. However, buying those properties in the wrong ownership structure could have terrible tax consequences for you further down the line, so booking a Tax Consultation with us now is vital if you are planning to decide more. That way you will be appraised on the best structure to acquire those properties in and we can help you to consider all your options in regards to the four properties you already own.


15:50 PM, 16th February 2024, About 2 months ago

Speaking to a fellow landlord, he said that in a great many cases, it would not be viable for a landlord to incorporate and he was concerned that people would be paying tax consultation fees, to be told for them it was not viable.
Did I read it correctly that if this was the case then there would not be a fee to pay?


16:33 PM, 16th February 2024, About 2 months ago

Dan Neidle's attitude stinks. Reminiscent of Alison Rose

Mark Alexander - Founder of Property118

16:36 PM, 16th February 2024, About 2 months ago

Reply to the comment left by Lordship at 16/02/2024 - 15:50
No that is is not the case.

We offer a guarantee of total satisfaction.

Incorporation is rarely a viable option for smaller landlords but there is still a lot we can do to help them, and especially if they plan to purchase further properties.

If they are not satisfied with the guidance provided then we would refund of course.


16:59 PM, 16th February 2024, About 2 months ago

My challenge has been substantial latent gains otherwise we would have incorporated a couple of ago..Our work around as the kids are getting into mid teens, is to move to LLP the half of the portfolio that is running and will run in future as SA, the remaining half that won't work for SA and also that won't be liable for latent gains we were going to BICT to Ltd co, but should we park that element it for the time being?

Mark Alexander - Founder of Property118

17:02 PM, 16th February 2024, About 2 months ago

Reply to the comment left by JohnCaversham at 16/02/2024 - 16:59
I suggest you speak to your Consultant. You need to incorporate the “whole business” to qualify for incorporation relief. This might be possible and it may also be possible to split the businesses. However, there are many more factors to consider.


19:53 PM, 16th February 2024, About 2 months ago

Agree with Mark and comments. Me thinks our TEAM know what they are talking about, Having to deal with a scorned ex is never the easiest path lol We all know pigs dont know pigs stink,that EGO means Evil Going On. I appreciate the professional sensitivity towards this Fake News headliner and it just sums up my opinion its not worth arguing with someone who had the ink and paper and everyone has access via social media these days just like the newspapers of old,,to follow the path of a Troll who sit there in their underpants QWERTING away. I do not condone this loser one iota, and I hope once things are settled by the ol Tax book our Kings councel and best barristers for tax law in the country again imho Like the great victory over the building societies who tried to up the interest rates. I hope long term we can hold this person accountable for his attack on our livelihoods and yeah I dont mind contributing if our poor ol Barristers and Financial Gurus cant afford, it will be worth the money to put the pressure on him and watch him squirm as his insipid words come back to attack him in court.The truth will set us free for sure be in no doubt us landlords are not in defensive mode but fighting mode, the challenges we have had to face has turned us into veterans of winning, especially against losers who again sit there in there underpants typing poison, who really wants their loser words lol ....Viva la 118/Cotswolds Advisers and all love n peace Smiley xxx💖👏👏👏

Darren Peters

20:04 PM, 16th February 2024, About 2 months ago

"Our full case will be presented to the Tax Tribunal in far greater detail in due course."

What is the likely timeline for the Tribunal to begin, how long might it take to make a ruling, would the ruling of the Tribunal be accepted by HMRC or could it go to a higher court? Ditto P118; canP118/Cotswold appeal a Tribunal decision?

Mark Alexander - Founder of Property118

21:00 PM, 16th February 2024, About 2 months ago

Yes the Tax Tribunals outrank HMRC.

Likelihood is this will be won or lost at the Upper Tier Tribunal because both sides have the ability to appeal a First Tier Tribunal decision. An Upper Tier Tribunal hearing is what we are really hoping for, even accepting that would require us to lose at First Tier Tribunal. The reason is that an Upper Tier Tribunal ruling becomes case law.

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