THE TAXMAN’S proposed new powers to force businesses and individuals who have used tax avoidance schemes to pay the disputed tax upfront could trigger a wave of insolvencies, top ten accountants Moore Stephens has claimed.
Under the new ‘Accelerated Payment’ rules due to come into force in July, HMRC will be able to make taxpayers pay disputed tax in advance, rather than waiting for the outcome of a tax tribunal ruling.
The Treasury has estimated that 33,000 individuals and 10,000 businesses will potentially be given accelerated payment notices by HMRC. In the “very worst cases” receiving such notices could trigger bankruptcies or insolvencies David Elliott, restructuring partner at Moore Stephens, said.
“Receiving a demand to make upfront payment of tax could put some taxpayers under financial strain, and in the very worst cases, could even trigger personal bankruptcies or business insolvencies before the technical merits of the arrangement have been tested,” said Elliott.
“Even a remote prospect of being made bankrupt could mean that taxpayers feel under pressure to settle disputed cases rather than take an appeal to the courts.
The requirement to pay upfront will apply retrospectively to any dispute which is ongoing on the day the rules come into force if the tax planning scheme in question has been notified to HMRC under the Disclosure of Tax Avoidance Scheme (DOTAS).
Businesses that could be hit with an accelerated payment notice may already face a ‘contingent liability’. Any dividends that are taken out of the business by its shareholders ahead of the request for money could later be deemed illegal and therefore repayable, the firm warned.
“Directors, who are also shareholders, taking dividends from a company that has used a tax planning scheme may face claims against their own assets if the company is unable to pay an advance notice bill,” Elliott said.
Taxpayers could be sent the notices in July and payment could be due as early as this October.
Making Tax Digital will impose significant additional tax compliance costs on small businesses for little or no medium term benefit, tax and small business experts told MPs
MHA MacIntyre Hudson has partnered with cloud accounting software provider Xero ahead of the government’s requirement for digital records
The drive towards a fully digital tax regime is an admirable one, but mandation is simply wrong, according to one of the UK's most senior tax technology practitioners - Paul Aplin
The second largest improvement in ‘significant’ levels of financial distress since the EU Referendum was in professional services, found research from Begbies Traynor