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Tax Avoidance Schemes: Accelerating Tax Payments to HMRC

3rd October 2014

Frustrated by the time consuming litigation process, HM Revenue and Customs (HMRC) now has two new tools to assist with the earlier collection of tax avoided or deferred by the use of tax avoidance schemes:

  • Follower Notices; and
  • Accelerated Payment Notices (APNs).
Follower Notices

Designed to improve the rate and speed at which tax is collected with regard to tax avoidance schemes which have, in HMRC's view, already been decided in another taxpayer's case, Follower Notices will give taxpayers a stark choice.

"Followers" must choose to settle with HMRC on the basis of the judicial decision which HMRC applies to their case, or continue to dispute that the tax is payable. If the taxpayer hasn't settled with HMRC on the issue of the Follower Notice, and HMRC is ultimately proven to be correct in its position and the disputed tax is payable, then the taxpayer will face a penalty of up to 50% of the disputed tax.

A number of conditions must be satisfied before HMRC can issue a Follower Notice:

  • there must be an open tax enquiry in progress;
  • the disputed tax must relate to relevant "tax planning arrangements";
  • HMRC must be of the opinion that a judicial ruling is relevant to those tax planning arrangements; and 
  • no previous Follower Notice must have been issued.

Once issued, a taxpayer has 90 days to comply with a Follower Notice, withdraw his claim to tax relief and pay the tax.

Other than Judicial Review, there is no right of appeal to HMRC or to the courts. It is however possible to make representations to HMRC, which again must be made within 90 days. There is no right of appeal against HMRC's decision on the representations received.

Accelerated Payment Notices (APNs)

In addition, HMRC now has the ability to issue APNs to users of tax avoidance schemes where:

  • the taxpayer has received a Follower Notice;
  • the tax planning arrangement has been notified to HMRC under the Disclosure of Tax Avoidance Schemes (DoTAS) regime; or
  • the arrangement is subject to a General Anti Abuse Regime (GAAR) counteraction notice. 

Payment of tax is due within 90 days of receipt of an APN, again with limited right of appeal. HMRC will repay the tax if, and when, the scheme is found to work, following litigation. This process is likely to take years.

HMRC has already begun to issue APNs to the users of a number of tax avoidance schemes, with the tax due for payment in the first few days of 2015. Many of the tax demands are for significant sums of money, which even in the best of cases may take the taxpayer some time to make available for payment. 

There is no "time to pay" facility and surcharges will apply for late payment.

Users of tax avoidance schemes, most of whom invested in good faith, should seek advice on the application of these new powers by HMRC and the options available.

Please contact Katharine Arthur, Head of Tax, for further information and advice.