HMRC has been forced to withdraw 2,000 Accelerated Payment Notices (APNs) demanding payment of disputed tax after admitting the demands should never have been issued.
In an embarrassing U-turn, the tax authority, which faced criticism this week for allowing HSBC to get away ‘scot free’ over allegations its Swiss bank helped UK clients evade tax, withdrew the pay up front tax demands after one of the conditions necessary for issuing an APN was not satisfied.
HMRC uses the notices, introduced under the 2014 Finance Act, to demand tax that it believes someone owes before the underlying dispute has been adjudicated on by an independent tribunal or court. Taxpayers then have 90 days to pay HMRC the fee demanded, but are not allowed to appeal the decision.
The U-turn related to taxpayers who participated in the Montpelier IR 35 Manx Partnership arrangements, with HMRC originally issuing notices to taxpayers involved in the scheme in April 2015.
HMRC has now admitted that the APNs should not have been issued because although the arrangements were notified to the tax department, they were not ‘notifiable’ to HMRC, under the DOTAS regime.
Adam Craggs, partner and head of tax disputes at London law firm RPC, said that many taxpayers have already felt the full force of APN’s, with some being forced to sell their assets in order to pay the amounts demanded from their payment notice.
“This case demonstrates the very real risks involved in giving such a draconian power to HMRC with no right of appeal to an independent tribunal or court,” said Craggs. “Many tax advisers and representative bodies argued at the time the APN legislation was proposed that there were insufficient checks and balances in place.”
Craggs added that there should be “independent judicial oversight of HMRC’s exercise of its powers”.
“This case vindicates the objections raised by many in the tax profession – disputed tax, like any other amount in dispute, should only be payable once a tribunal or court has decided it is payable. One party should not be able to demand payment from the other party in advance of their dispute being determined. Such a system accords with the rule of law and is how most people consider the justice system should operate in England and Wales,” he said.
A spokesperson from HMRC said: “We don’t comment on individual cases. APNs are only issued in tightly defined circumstances, set out in legislation. We act quickly to correct the position once we become aware that things are not correct. If an APN is withdrawn that doesn’t mean there is no tax to pay. The underlying tax dispute remains until it is settled or litigated.
“We have issued over 32,000 APNs and collected over £1bn of tax since Accelerated Payments (AP) were introduced in 2014. We remain tough on avoidance and the AP regime is a key part of our work on tackling avoidance.”
Companies must report on their complex financial structures including offshore accounts and notify HMRC
An examination by the Public Accounts Committee (PAC) has revealed serious concerns relating to HMRC’s plans
The mornings after the night that was the British Accountancy Awards; and Andrew Tyrie's latest thoughts on Making Tax Digital timing
The ACCA has announced a partnership with UK research and development tax reclaim specialist RD Tax Solutions