UK: HMRC – Settlement, Closure Notices, Protective Claims And Standstill Agreements

Last Updated: 14 February 2019
Article by Matthew Goodwin

The Loan Charge 2019 has become a much discussed topic amongst tax and financial services professionals over the last 2 years or so.  As its implementation comes closer, it has become clear is that HMRC is having difficulty dealing with the volume of enquiries.  But what is it doing about it?

What is HMRC looking at?

Whether it is Stamp Duty Land Tax avoidance schemes (in which case see here), Class E share schemes (in which case see here), EBT/EFRBS or other trust based schemes (in which case see here, here and here) or spread betting schemes (in which case see here), if HMRC considers you have breached the Disguised Remuneration rules in some way, or gained some other form of tax advantage you shouldn't have, they are likely to seek recovery.

Current schemes HMRC is taking interest include Blackstar's E-Securitisation scheme, Root2's Alchemy Scheme, OneE's EBT / EFRBs structures and Clavis Solutions Herald Resource EBT scheme.  Whilst related, the Loan Charge 2019 is a separate issue with different tax treatment.

What happens next?

It depends on the scheme you are involved in.  The first option open to you is settlement.


Whether you have an active open enquiry or not, settlement with HMRC is always an option open to you.  Where there is no open enquiry, this is known as voluntary restitution.  Whatever happens, you are virtually guaranteed a better deal in settlement than if HMRC is forced to pursue you through the tribunal and / or enforcement procedure.

Settlement can range from time to pay (in some cases with no maximum time period), to simply agreeing a figure for the tax HMRC thinks may be due.   Any figure proposed by HMRC requires scrutiny because, as with any organisation, HMRC makes mistakes, and when they do it is important to identify those mistakes (tax basis or simple arithmetic) and address them with HMRC.

Closure Notices

If you don't want to settle, but wish to resolve any HMRC enquiry hanging over your head, you may wish to consider applying to the First Tier Tax Tribunal (FTT) for a Closure Notice.  This is essentially an order by the FTT requiring HMRC to conclude its enquiry into your tax return within a certain number of months – usually between 3 and 6.

With the more widely used schemes this can be a good option to consider as until HMRC has convened a select board of internal governance / tax inspectors, they will have no uniform approach to how they treat certain schemes.  Forcing HMRC to make a quick decision can have positive results for taxpayers.

Whatever happens, a Closure Notice will certainly bring things to a head quicker than leaving HMRC to their own devices.  It can also be a powerful settlement tool when used in the correct way.


Of course, there is no immediate requirement for you to do anything.  If you have an open enquiry against you, but no sign of an Accelerated Payment Notice (APN) or Follower Notice (FN) (see here for more info), then there may be no harm in waiting for HMRC to conclude its enquiry.

The biggest drawback with this approach is that the longer any enquiry goes on, if HMRC determine tax is due, it will result in a larger tax bill as penalties and interest will continue to be applied.

The threat of an APN or FN are also very real – if your chosen scheme (or otherwise) satisfies the tests set out for either of these accelerated notices, then you need to be alive to the fact that you may have to make good the tax due on 90 days' notice.

Time Limits

Are there any time limits to be aware of?

Opening Enquiries

In normal circumstances, HMRC has 12 months from the date of filing the return to open an enquiry into a Self-Assessment tax return.  However, HMRC has four years to make a discovery assessment into that return.

In circumstances where the tax in question might be incorrect because of a "careless error" or "deliberate error" this time period is extended to six and twenty years respectively.  The logic being the longer period of time that has passed, the higher the burden of proof is on HMRC to prove its position against the tax payer. 

Protective Claims and Standstill Agreements

Where a Disguised Remuneration scheme has been used and HMRC has an open enquiry / discovery assessment against a taxpayer, there is no limitation period, therefore liability can continue to accrue whilst HMRC concludes the enquiry.

However, National Insurance Contributions (NIC) do not carry the same protections for HMRC.  In terms of recovering NIC from taxpayers, HMRC has a strict six year period from when the NIC should have been paid.

To protect itself from this, historically HMRC has simply issued protective claims through the County Court claiming that the NIC is due and payable at that time.  HMRC has then sought to place these clams in an indefinite stay until it has resolved its enquiries and can prove that the NIC is due.

Increasingly, however, HMRC's actions with respect to protective claims are being challenged as an improper use of the Court's process. Whilst legislation does exist to stay Court proceedings in certain circumstances, this is not a blanket approach.

As an alternative to this, HMRC has begun sending Standstill Agreements to taxpayers seeking to protect against the six year time period.  A Standstill Agreement is essentially a contract between two parties agreeing that time stops for the purposes of limitation for the period set out in the agreement.  This is beneficial to HMRC, with the only potential benefit to taxpayers being the avoidance of Court fees on top of any potential tax liability.

We suggest you seek advice before entering into any such Standstill Agreement.

What can I do?

Seek advice. Speak to someone who knows what you are going through and will take the time to advise you on the options open to you and help guide you through them.  A lot of our clients wish to focus on their business, but are being forced to spend time and energy on dealing with HMRC. 

It is also important to seek advice about possible claims against the professional adviser who put you into this position.  Whether that be an accountant, solicitor, tax adviser or financial adviser – if the risks of the scheme were not explained to you, you may have a claim against them for the losses you have suffered.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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