Tax avoidance scheme users need to acquaint themselves with HMRC’s processes
Over the past few years accelerated payment notices have been in the news.
They have been used as very effective cash flow generators for HM Revenue and Customs in tax avoidance cases where HMRC would otherwise have had to wait until the end of the assessment and appeals process to secure the tax, penalties and interest owed.
The gradual expansion of the number of schemes that require a disclosure of tax avoidance schemes reference number will mean that the use of APNs looks set to continue.
However, maybe – just maybe – HMRC will not have it all its own way on the APN front. It has recently been reported in the press that HMRC withdrew 6,000 APNs in 2017, twice the amount withdrawn in 2016.
APNs were introduced in 2014 and allow HMRC to collect a payment of tax in advance from people it deems to be using tax avoidance schemes before the outcome of any dispute has been settled. There is no right of appeal and payment is required within 90 days of the receipt of the APN. Late payment can result in a penalty of 5 per cent of the tax stated in the APN.
HMRC is said to have issued more than 80,000 APNs since 2014, and maintains that even where an APN is withdrawn it does not mean there is no tax to pay.
However, it is important that users of tax avoidance schemes familiarise themselves with HMRC’s processes, or take expert professional advice, so that they are in a position to check the validity of a demand under an APN before making any payment.
HMRC gives a tax avoidance scheme a scheme reference number when a promoter notifies HMRC of the scheme under the DOTAS rules. And it regularly publishes an updated list of these scheme reference numbers.
Taxpayers have to use the SRN to identify their use of an avoidance scheme when completing their self-assessment return, and may subsequently receive an APN requiring them to make an upfront payment of tax. Guidance can be found in the follower notice and accelerated payment guide.
HMRC publishes regular warning updates on current avoidance issues – which it calls spotlights – highlighting tax avoidance schemes currently in the spotlight.
HMRC has also published an updated factsheet covering follower notices and APNs.
HMRC will often investigate cases representative of a particular scheme. Followers are people who have either used the same scheme that was used in a representative case, or a different scheme but where a principle in that scheme is sufficiently similar to the scheme used in a representative case.
Where HMRC defeats a representative case it is allowed, subject to certain conditions, to issue follower notices to the followers, telling the taxpayer that they will be liable to a penalty if they do not settle their dispute with HMRC. The amount of the penalty for not taking corrective action on time is equal to 50 per cent of the tax or national insurance in dispute (this is called the “denied advantage” in the follower notice). Conditions under which HMRC can send a follower notice to a taxpayer are as follows:
- Condition A – there is a current compliance check (referred to in the legislation as a tax enquiry) into the taxpayer’s return or claim, or there is an open appeal;
- Condition B – their return, claim or appeal is made on the basis that there is a particular tax advantage resulting from their chosen arrangements;
- Condition C – HMRC believes that the final judicial ruling is relevant to their chosen arrangements (because they have used the same or a similar scheme)
- Condition D – HMRC has not previously sent the taxpayer a follower notice for the same scheme, the same tax advantage, the same tax period and the same final judicial ruling – unless it had previously sent one and then withdrawn it.
If a Court or Tribunal made the final ruling before the legislation was introduced on 17 July 2014, HMRC can send a follower notice at any time up to and including 16 July 2016, or 12 months after the return or claim is received, or the appeal is made, whichever is later.
If a court or tribunal made the final ruling after the legislation was introduced, HMRC can send a follower notice up to 12 months after the later of the date on which:
- the Court or Tribunal made the final ruling;
- HMRC received the return or claim, or the appeal was made.
APNs are an essential part of the wider anti-avoidance measures available to HMRC but the vast majority of the plans and strategies deployed by financial planners do not require a DOTAS reference number and are highly unlikely to be APN-able, so to speak. As I have said before, “boring is the new exciting” but boring is often far from simple. Advice is essential to optimising outcomes.
Tony Wickenden is joint managing director of Technical Connection. You can find him Tweeting @tecconn