Accelerated Payment Notices (APNs) have now begun to be issued. Clients who previously entered into what they considered legitimate tax planning are now faced with a serious quandary over what to do in light of such notices.
The new rules apply to those with open enquiries or appeals in relation to a disputed ‘tax advantage’ where it would be reasonable to conclude that the obtaining of that tax advantage was one of the main purposes of any tax arrangements. It is believed that HMRC will be issuing some 42,000 APNs relating to approximately £7bn of disputed tax. It is suggested that approximately 2,500 a month will be issued over an eighteen month period.
The provisions, which came into force on 17 July 2014, are designed to remove the cash flow advantage participants of undertaking certain planning although the effect is retrospective: if you have undertaken tax planning historically and within the parameters of these provisions, you are affected.
Finance Bill 2014 requires those within the provisions to pay the disputed tax upfront where:
A follower notice has been issued or
The tax planning arrangements used were issued with a Disclosure Of Tax Avoidance Schemes (DOTAS) reference number and HMRC has opened an enquiry or
A General Anti-Abuse Rule (GAAR) counteraction notice has been issued
It would have been polite to have a little more forewarning of these provisions so potential participants could have considered the risks fully before proceeding. The provisions do not consider a participant’s ability to pay the tax upfront and this could have a detrimental impact on unsuspecting and ill-informed persons undertaking such planning. The provisions have little sympathy for those participants that received advice ahead of the introduction of accelerated payments.
Upon issue of an accelerated payment notice, those affected have 90 days to pay the disputed tax (or within 30 day of HMRC’s determination following an objection). The notices calculate the potential additional tax due having removed the effects of the avoidance arrangements put in place. HMRC are responsible for the calculation. The amount of tax under the notice may be objected to although the challenge is to HMRC and it is they who decide the outcome – there is no right of appeal!
Those caught within the provisions are therefore potentially subject to an unforeseen liability and it is likely that many have utilised previously perceived saved tax for further business development or even lifestyle thereby placing significant pressure on the ability to pay the accelerated payment.
The application of accelerated payment notices to DOTAS arrangements does not require any predicating tribunal or court judgement. Those caught could be faced with a payment notice and payment demanded before the outcome of the investigation or substance of the arrangements is known –ouch!
Penalties for not complying with the payment notices may also be levied where the payment is not made within the payment period. A penalty of 5% is levied. Where a further six months elapses, an additional penalty is charged. The penalties can be appealed against.
For those cases under GAAR, HMRC are likely to have already investigated the substance of the arrangements.
Non-payment of the disputed tax will result in a penalty for each six month period that the payment remains outstanding. Should the tax planning implemented ultimately be successful, then any disputed tax paid under the accelerated payment provisions will be repaid with interest.
Those issued with a notice may be considering the following:
Ability to seek resolution of open issues
The time to resolve the “dispute” whilst funds are held by HMRC