The “accelerated payments” story, especially in relation to certain celebrity tax avoiders, is one that might have caught the eye recently. HMRC has been relentlessly upping its tax-gathering game and the accelerated payment provisions are an important part of that strategy.
Since the Finance Act received Royal Assent on 17 July, HMRC now has full legislative powers to enforce provisions requiring individuals to make an “advance” payment of tax HMRC believes to be due where they have entered into a tax avoidance scheme which:
- Has been successfully challenged by HMRC with regard to another user of the scheme that the taxpayer receiving the accelerated payment notice has entered into, or
- Is being or will be challenged by HMRC and which has a Dotas (Disclosure of Tax Avoidance Schemes) reference number (SRN).
To help taxpayers identify whether they are affected, HMRC has recently published a list of Dotas SRNs which identify specific tax avoidance schemes. The list, to the as yet uninitiated, is just a bunch of numbers. There are no scheme names or descriptions. If an individual has invested in a scheme with one of these reference numbers, they can expect to receive an accelerated payment notice.
So what could an affected individual expect under the accelerated payment notice provisions?
- If the investor has put into a scheme with a Dotas SRN which is shown on the list released by HMRC on 15 July, they may receive an accelerated payment notice.
- The object of the accelerated payment notice system is to obtain “upfront” payments of tax from people who have entered into particular tax avoidance schemes that have a SRN under the Dotas provisions, the success of which are disputed by HMRC or will be disputed in the future.
- The tax payment specified in the notice received by the taxpayer will be based on the assumption the scheme has failed and the tax saving is not achieved.
- If it transpires (after the normal appeals process which continues to be available) that the arrangement entered into by the individual is successful the taxpayer will be repaid the tax that is disputed with interest.
- The Dotas provisions were introduced in 2004 to give HMRC advance warning of the use of a tax avoidance scheme and, where necessary, to enable it to take action to neutralise the tax avoidance that might otherwise result where the scheme satisfied certain conditions and particular “hallmarks”.
- If a scheme satisfies the above, the scheme promoter will be forced to disclose it to HMRC under the Dotas provisions. HMRC will then allocate a SRN to the scheme promoter and this has to be communicated to all individuals entering into the scheme. The investor should include this SRN in their tax return. HMRC then knows which individuals have entered into which schemes and it will know how the schemes work from the information provided by the scheme promoter in their initial Dotas submission.
- Those taxpayers affected may receive an accelerated payment notice. HMRC is reported as intending to send these out to about 43,000 taxpayers over the next 20 months. A letter of notification will be sent to taxpayers a couple of weeks before the formal notice to warn them that it is “on its way”.
- The accelerated payment notice will demand the amount of disputed tax is paid within 90 days. The taxpayer can request that HMRC reconsider the amount in question and extend the deadline by 30 days but there is no appeal against the notice.
- The taxpayers who may be particularly adversely affected by this demand are those who have borrowed to increase the sum invested in the scheme and so enhance the tax reliefs.
- The question has been raised as to whether it is legal and fair that HMRC should have these powers. It is certainly legal because the new Finance Act gives HMRC the authority to issue these notices. As regards it being fair, professional bodies have complained that it is not right to levy a payment of disputed tax before any tribunal decision without giving the taxpayer the right of appeal. Also the rules may be applied to people who invested many years ago and may have even disinvested from their tax avoidance scheme.
The Government response is to say that accelerated payments will put scheme investors “on the same footing as the majority of taxpayers who pay tax upfront”.
- If a taxpayer knows they have invested in a scheme that has a SRN on the list, they should seek professional advice as soon as possible and not wait for receipt of the notice. The receipt of the notice will set the 90-day clock ticking.
While having not carried out any formal research, I do not believe the vast majority of financial advisers/planners will have been involved in positively recommending and implementing schemes with SRNs under Dotas. That does not mean, however, that no clients will be affected by these new provisions. They could have entered into affected arrangements before being advised by their financial adviser or taken separate advice from a tax planning specialist, which the adviser may or may not have known about. Either way, it is important all advisers are aware of this latest initiative to improve HMRC’s “cashflow”.
Tony Wickenden is joint managing director at Technical Connection
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