Controversial measures to tackle mass marketed tax avoidance schemes were set out in this year's Finance Bill.
The measures have now been approved and will become law in mid to late July. They are part of a continuing drive by HM Revenue & Customs (HMRC) to deter people from entering into tax avoidance schemes by removing the cash flow advantages.
Under the proposals HMRC will, in certain circumstances, be able to issue 'accelerated payment' notices to taxpayers. These notices will demand advance payment of tax even if the matter has not been settled at the time.
The taxpayer can still fight his case and recover the money if he wins, but the price of doing so is 'pay now, dispute the tax later'.
The accelerated payment notices apply to most taxes including income tax, capital gains tax, corporation tax and inheritance tax.
HMRC will be able to issue an accelerated payment notice to a taxpayer who:
- has entered into arrangements which give rise to a tax advantage
- the tax advantage is the subject of an ongoing enquiry or appeal, and
- one of the following applies:
- an arrangement falling within the 'Disclosure of Tax Avoidance Schemes' (DOTAS) regime has been used
- the matter in dispute is, in HMRC's view, sufficiently similar to a matter which has been decided by the Tribunal or Courts in HMRC's favour (Follower Notice), or
- HMRC seeks to counteract a tax advantage by use of the General Anti-Abuse Rule (GAAR)
Under the DOTAS rules, HMRC allocates a Scheme Reference Number (SRN) to promoters of tax avoidance schemes who have notified HMRC of the arrangements. Promoters then provide the SRN to users of the schemes who enter the SRN on their tax returns.
This applies where a final decision in a tax case has been reached and HMRC considers that the decision in the judgment applies to other taxpayers so as to cancel a claimed tax advantage. If this is the case HMRC can issue a Follower Notice to other taxpayers. This will enable it to issue an accelerated payment notice (at the same time or after the issue of the Follower Notice).
Under the GAAR, HMRC can counteract (by the issuing of a counteraction notice) a tax advantage claimed by a taxpayer. However, the GAAR only applies to arrangements that have been entered into on or after 17 July 2013.
Following the issue of an accelerated payment notice, the taxpayer has 90 days in which to pay the amount demanded, or can challenge the amount charged by the notice by making representations to HMRC.
If the taxpayer decides to challenge the notice, HMRC will consider the representations he makes and either confirm or reduce the amount that the taxpayer is obliged to pay (which may be different from the amount demanded by the original notice), and the taxpayer will have to pay that amount by the later of (i) 90 days after the issue of the original notice; and (ii) 30 days after HMRC confirms the amount due.
Penalties apply for the late payment of the sums demanded. However, it may be possible, in appropriate cases, for formal "time to pay" arrangements to be put in place. Such time to pay arrangements will override the due dates and penalty provisions for late payment that would otherwise apply.
Whilst the primary objective of the measure is to tackle schemes aimed at high net worth individuals, the proposals are also wide enough to catch corporates. A real concern is the impact that an unexpected tax demand could have on individuals who may not have the resources to settle the demand, as well as the retrospective nature of the legislation. Taxpayers will have to consider carefully any demands that arise as a result of these new provisions.
HMRC anticipates that this new proposal will be subject to legal challenge. It is worth noting that there are plans to recruit a significant number of new judges for the first tier and upper tier tax tribunals to deal with the expected appeals.