INSIGHT: U.K. Accelerated Payment Notices—the Controversy Continues…

Accelerated Payment Notices are always controversial. Since HM Revenue & Customs came up with this brainchild there is ongoing concern about the balance of power given to the U.K. tax authorities and the practical use and collection of tax using this method. Since these notices were put into tax law via the Finance Act 2014 there are mounting legal challenges and complaints regarding their use and effectiveness.

What is an Accelerated Payment Notice?

Accelerated Payment Notices (APNs) are a significant tool available to HM Revenue & Customs (HMRC) to force tax avoidance users to make an upfront payment on account of the amount of tax under dispute. This removes the cash flow advantage of participating in such arrangements.

HMRC may issue an APN if:

• HMRC is enquiring into the taxpayer’s tax return or claim, or there is an ongoing appeal regarding entries on a return or a claim; and
• a tax return/claim was submitted on the basis that the taxpayer could reduce their tax liability or get a repayment as a result of an avoidance arrangement; and
• the avoidance arrangement is caught by this legislation.

An arrangement is caught by the APN rules if:

• HMRC has or is issuing a Follower Notice to the taxpayer in relation to the tax avoidance arrangement; or
• the arrangement was notifiable to HMRC under Disclosure of Tax Avoidance Schemes (DOTAS); or
• a counteraction notice has been given by the General Anti-abuse Rule (GAAR) Advisory Panel in relation to all or part of the tax avoidance arrangement.

HMRC may choose not to issue APNs on all arrangements that are caught by the legislation. However, there is a published list of over 1,000 schemes with DOTAS numbers for which APNs will be issued, and this list is updated quarterly to add/remove schemes. The latest version of this list was published in April 2019 on the HMRC website.

Full payment must be made within 90 days of the date of the APN or 30 days after HMRC responds to any representations made following issue of the notice. This, in effect, prevents taxpayers postponing payment of tax whilst an enquiry or appeal is ongoing. Given the tight deadline, action and expert advice is often needed without delay.

Views For and Against

To be fair to HMRC, the debate at one end of the spectrum is that this is an essential power to tackle once-rife tax avoidance, which led to U.K. Prime Minister David Cameron initiating a serious crackdown from 2012 onward. This initiative collects much-needed cash for the U.K. Treasury to fund all the good things that we enjoy in the U.K. It is perceived to target largely wealthy taxpayers who have used complex and sophisticated methods to reduce their tax bills, such as film schemes, employee benefit trusts and loss generating investments.

At the other end of the spectrum, the debate is that this is an advance payment for an amount which is in dispute, and where HMRC has not won the case. It is an infringement of the taxpayer’s right to appeal. It also places a huge financial burden on the taxpayer, and, given the cost, it restricts their likelihood of pursuing an appeal. In layman’s terms, it is “bully boy” tactics by the tax authorities. The pressure to pay and lack of appeal under an APN means taxpayers are forced to concede.

What Happens if the Tax Remains Unpaid?

HMRC has significant powers to collect tax debts including:

• writing and telephoning the taxpayer to chase payment;

• using bailiffs to enforce payment of the debt including by confiscating and selling the taxpayer’s assets. The bailiffs will charge fees to the taxpayer for this;

• using new legislation enabling HMRC to take cash from the taxpayer’s bank accounts, albeit with safeguards; and

• applying to the courts to wind up companies or make individuals bankrupt, even where there is an outstanding appeal to the Tax Tribunal against the tax assessment.

Can an Appeal be Made Against an APN?

There is no formal right of appeal. However, representations can be made in writing to HMRC within 90 days of the date of issue of the APN. Generally, the grounds for making representations include where the conditions for issuing the notice were not met, or the amount of tax specified in the notice is incorrect.

HMRC must consider the representations before confirming, amending or withdrawing the notice, but there is no deadline by which this must be done. The taxpayer has 30 days to formally appeal against the imposition or amount of a penalty. The Tribunal may affirm, amend or cancel the penalty.

How Effective are APNs in Practice?

It seems clear that HMRC would trumpet the use of the APNs. As of March 2019, the notices have raised a total of 8.7 billion pounds ($11.4 billion) for the Treasury coffers since their introduction in 2014. However, revenue from APNs in 2017–18 is less than the prior year according to HMRC’s annual report; 0.8 billion pounds down from 1.3 billion pounds in 2016–17. So, the future funds generated from APNs may be in decline if this trend continues.

Recent statistics from March 2019 show that 8,600 of the 81,000 notices issued since 2014 had been withdrawn, with 2,600 cancelled in 2018 alone.

One of the relevant cases is Curzon Capital Limited published in January 2019. The tribunal found that this firm was not a “promoter” under the DOTAS rules. Therefore, APNs could not be issued in relation to their arrangements.

“Hot off the press” is the Court of Appeal decision to quash the APN and follower notices issued to Geoffrey Haworth, thereby overturning a high court finding in HMRC’s favor in a 2018 judicial review application: see Haworth v HMRC. HMRC is criticized in the judgment for issuing notices based on a previous court win where the principles and reasoning do not tie up sufficiently. This case may bring future challenges on similar grounds.

Certainly, one of the main reasons an APN will be withdrawn is that the arrangement was not notifiable (under the DOTAS rules disclosure of tax avoidance schemes). For more information about DOTAS, please see the HMRC website.

Planning Points

Recent case law and HMRC activity tells us that it is important not to accept an APN without checking it thoroughly first. In practice, the amount collected under an APN is often incorrect in terms of the actual tax liability to settle an open tax enquiry. This will add to the confusion and anxiety on receipt of an APN for individual taxpayers. If no challenge is made within the 90-day period then an APN is passed to HMRC‘s debt collection team.

The full force of debt collection powers will be used as for any other tax bill and the Treasury have confirmed that some individuals were made bankrupt as a result of APNs.

As such, it is always important to seek expert tax advice in relation to an APN, and avoid the “head in the sand” temptation.

Dawn Register is Partner in Tax Dispute Resolution at accountancy and business advisory firm BDO LLP. She manages voluntary disclosures and resolves complex tax investigations, is a recognized expert on tax administration and a regular presenter and writer.

She may be contacted at: dawn.register@bdo.co.uk