UK and International Tax news
Tax Avoidance Scheme Users To Make Upfront Tax Payments
Wednesday 23rd July 2014
Following Royal Assent of the 2014 Finance Bill, HMRC has issued a briefing note which confirms that, from 17 July 2014, individuals and businesses involved in tax avoidance schemes will have to pay HMRC the disputed amount of tax upfront while the dispute is resolved. This new power, called ‘Accelerated Payments,’ has come into force as part of the Finance Act 2014.
HMRC will apply Accelerated Payments to schemes that are formally notified to HMRC through the DOTAS rules counteracted by the GAAR, similar to ones already defeated in court.
The use of Accelerated Payments only applies to the use of tax avoidance schemes that HMRC disputes, which generally fall into six broad categories:
- sideways loss schemes
- SDLT schemes
- self-employment schemes
- artificial loss deduction schemes
- capital gains schemes
- employment schemes
It is a legal requirement that HMRC must have opened an enquiry or made an assessment into a taxpayer’s case before it can issue an Accelerated Payment notice.
Before a taxpayer receives a payment notice, HMRC will write to let them know it is coming and will also contact promoters of schemes so they can prepare to support their clients. Those who receive notices and wish to settle their claim instead of paying the Accelerated Payment notice will be given the opportunity to do so. HMRC states it is keen to resolve these cases as quickly as possible.
The new system will not affect anyone’s right to pursue their dispute with HMRC if they feel they are legally entitled to the tax advantage claimed by the avoidance scheme. Should they win their case, the tax will be repaid with interest.
HMRC advises that it wins around 80% of avoidance cases that taxpayers choose to take to court and many more are settled before reaching litigation.
Accelerated Payments will therefore change where the disputed tax sits while taxpayers cases are being argued. The tax they will pay upfront is the same amount that would have already been paid if they had not used the avoidance scheme in the first place.
HMRC expects around 43,000 taxpayers involved in avoidance schemes currently under dispute to receive payment notices The average income of an individual who may receive a notice is £262,000. Some cases involve wealthy individuals who are trying to avoid over £10 million of tax through the use of avoidance schemes.
HMRC points out that Accelerated Payments will not affect genuine investment, including investment in films. Some investment schemes have to disclose their activity to HMRC under the DOTAS rules, but if they are genuine investments there will be little or no tax in dispute, and so no demand for an Accelerated Payment should arise.
A clear characteristic of many schemes that HMRC challenge is that the claimed tax relief is far greater than any actual investment made by the taxpayer. The new Film Tax Relief, introduced in 2007, has proved very successful at attracting inward investment, and there has been no reported avoidance activity using the relief.
HMRC has published a list of over 1,000 DOTAS avoidance schemes whose users may be required to make an accelerated payment of tax. This will provide a first warning for avoidance scheme users that they may need to prepare for a notice.
HMRC expects to send the vast majority of notices to avoidance scheme users over the course of 2014-15 and 2015-16, and will give avoidance scheme users receiving notices support where they need to discuss their case, or wish to settle their claim instead of paying the Accelerated Payment notice.
HMRC has stated that it encourages those who are worried about paying the notice to come forward and discuss how they could settle their case. In cases of genuine hardship, HMRC will consider alternative payment arrangements.Contact Us