Last week I looked at the phenomenon that is the follower notice – one of the very effective ways that HM Revenue & Customs has at its disposal to get money into its accounts earlier. I am going to look at the fundamentals of the more well-known HMRC cashflow generator, the accelerated payment notice.
Accelerated payment notices require the taxpayer to pay any tax in dispute to HMRC on account in advance of the conclusion of their tax enquiry or tax appeal. You can see why HMRC loves them. And it has been very very successful in using them.
An accelerated payment notice may be issued if tax is being disputed (that is, there is an open enquiry or appeal in process) and:
- a follower notice has been issued;
- the arrangements have been notified to HMRC under the Disclosure of Tax Avoidance Schemes rules (note that HMRC has published the Dotas numbers of those schemes to which it intends to issue these notices which will be under continual review); or
- the arrangements are the subject of a General Anti-Abuse Rule counteraction notice
The taxpayer has 90 days to make representations to HMRC if they believe the accelerated payment notice is not valid. However, there is no appeal procedure once HMRC has confirmed the validity of the notice. This leaves a judicial review into HMRC’s decision to issue the accelerated payment notice as the only potential remedy and, since the threshold for judicial review is high, such a challenge is likely to be rare.
Making representations will delay the imposition of the payment as HMRC needs to consider these before confirming or revoking its decision. Once the taxpayer has received HMRC’s final decision, they have a further 30 days to pay the disputed tax on account to HMRC.
Once the issue of an accelerated payment notice has been confirmed by HMRC, the taxpayer has no option but to pay the disputed tax to HMRC on account by the date specified. If the taxpayer does not make the payment by the due date they will incur a penalty of 5 per cent of the disputed amount and, if that sum remains unpaid at five and 11 months following the due date, additional penalties of the same amount will arise on each of those occasions.
It is the accelerated payment notice that has had the greatest prominence in the press through their issue to many well-known public figures in relation to their involvement in tax-reducing and avoiding schemes, including those purporting to generate tax losses or save tax through film schemes. And therein is another very important and effective component in the HMRC drive against aggressive tax avoidance – naming and shaming, of both individuals and companies.
The follower and accelerated payment notice rules are modified specifically for partnerships to reflect that:
- partnerships typically have a representative member that will act on behalf of the partnership as a whole;
- the tax arrangements in dispute may be both at the partnership level (for example, whether the partnership is carrying on a trade) and the individual partner level (for example, whether interest is deductible on a loan to acquire a partnership interest) and follower notices and accelerated payment notices can be issued accordingly; and
- many of the tax avoidance schemes for which follower notices and accelerated payment notices are likely to be sent will involve partnerships
Where corrective action is not taken by the partnership as a whole, any follower penalty which arises will be the responsibility of each partner of the partnership by reference to their appropriate share (broadly, their share of profits or losses of the partnership).
The legislation does not make this a joint and several liability. But since corrective action in relation to a partnership dispute can only be taken by the representative member, an individual partner may find themselves liable for their share of a follower penalty even though they may have wanted to take the corrective action but the majority of partners have decided not to.
All of this has happened and been implemented relatively quickly. The challenge of the judicial review involving three partnerships; Ingenious Film Partners 1 and 2 and Ingenious Games, has failed. The process is a reality and many will be touched by it.
It brings us back to my frequently quoted mantra for financial planners in this new world: “Boring is the new exciting”.
Tony Wickenden is joint managing director of Technical Connection