The UK Finance Act 2014, enacted in July 2014, contains new legislation to deal with cases of purported tax avoidance, which marks a radical departure from previous policy in this area.
Until Finance Act 2014, it was generally the case that where a taxpayer contested a direct tax assessment made by a tax authority, the appeal would suspend the need for paying the disputed liability (although interest would continue to run should the taxpayer prove to be unsuccessful). As part of its strategy to combat what it perceives to be unacceptable tax avoidance, the UK government has introduced legislation that reverses this principle in certain cases.
Under the new legislation, the UK tax authorities may issue so-called accelerated payment notices provided certain conditions are satisfied. In particular, notices may be issued where the arrangements giving rise to the tax dispute were earlier disclosed to HMRC under the disclosure of tax avoidance regulations ("DOTAS"). Under those regulations, avoidance arrangements promoters (or scheme users where there is no promoter) are required to notify of tax avoidance arrangements if they meet certain conditions. Once notified, the arrangements are given a scheme number, and a taxpayer entering into the arrangements is required to include the scheme number in his tax return.
HMRC has already issued a large number of accelerated payment notices for arrangements that are being litigated and that were disclosed under DOTAS. There are very limited grounds for appealing an accelerated payment notice once it has been issued. The only grounds for appeal (outside the notice having been issued when the required conditions were not met) are that the amount of tax set out in the accelerated payment notice is incorrect. If the taxpayer believes this is the case, he has a limited amount of time to make representations to HMRC. If no representations are made or if they are dismissed, the amount specified must be paid within 90 days of the issue of the accelerated payment notice or the representations being dismissed.
Finance Act 2014 also contains provisions under which HMRC may issue so-called follower notices. These notices can be issued where a court ruling has been handed down in relation to a particular matter and HMRC believes that the ruling is relevant to an inquiry or appeal. Although on its face the legislation is not limited to marketed avoidance schemes, HMRC has stated that it would apply the legislation mainly in this area. Taxpayers receiving follower notices are not required to settle their case, but they will face specific penalties if they do not.
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