SEPTEMBER 2015 - Advance Payment Notices: HMRC's new weapon against disputed tax
Since returning to the world of tax after a break of some years, the most marked change I have observed is both the public’s and HMRC’s hardened attitude to tax avoidance. Today’s environment is a far cry from the long standing assertion, expressed in the Duke of Westminster 1936 as:
“Every man is entitled to order his affairs so that the tax attaching… is less than it otherwise would be”.
When I last worked in tax, avoidance and evasion were considered at the opposite ends of a broad spectrum, one of which was legal and generally acceptable, and the other both illegal and universally condemned. In today’s world the two terms seem inter-changeable in the eyes of the media, Government and the general public.
The first step in the process was enacted in Finance Act 2004 which initiated the idea of the “Disclosure of Tax Avoidance Schemes” (DOTAS). Promoters of tax avoidance schemes and persons entering into transactions under such schemes were thereafter required to disclose these schemes to HMRC. The idea behind this was that HMRC would have early intelligence of the existence of such marketed schemes and be able to investigate and challenge such schemes quickly.
Since 2004 the economic climate has changed considerably, with the financial crisis and the resulting hole in public finances. As the government looks to plug this hole, and with public opinion largely on its side, we have seen various anti-avoidance measures introduced, including a General Anti-Avoidance Rule (GAAR). The Revenue has not found it easy to win cases through the courts and the long time taken to get a definitive outcome in any specific case has clearly been frustrating.
With the arrival of Finance Act 2014, HMRC now have a new weapon, the power to issue “Accelerated Payment Notices” (APNs) which require a tax payer who has used a tax avoidance scheme to pay any disputed tax upfront. The notice is designed to remove any cash advantage arising during the period the scheme is under investigation by enabling HMRC to demand upfront the disputed tax. The APN is clearly a key weapon in HMRC’s battle against anti-avoidance.
Once an APN has been issued the tax payer has 90 days to settle the amount due, or, if an appeal is made against the amount demanded, the later of the 90 days and 30 days from the completion of HMRC’s review. The rights of appeal against such notices are very limited, relating to only procedural or computational matters.
Recently there has been a challenge to the legality of the APN’s by Ingenious Media, the promoters of various film partnerships. Partners in film partnerships organised by Ingenious Media took judicial review proceedings against the APNs that they have received, arguing that HMRC’s action in issuing the APNs was unreasonable, breached natural justice and represented an abuse of their rights under the European Convention on Human Rights to a fair trial and protection of property. They also claimed it took away the legitimate expectation they had when they joined the avoidance scheme that they wouldn’t have to pay tax before the dispute had been resolved. All these arguments were rejected by the Court.
HMRC estimate that 64,000 APNs will be issued by the end of 2016. Should a taxpayer receive an APN, it is recommended that professional advice is obtained. There could not be clearer evidence of the tougher attitude now adopted towards tax avoidance.