Tax Avoidance Schemes: HMRC Changes The Rules

REVIEWING YOUR PARTICIPATION IN TAX AVOIDANCE SCHEMES AND ADVISING ON YOUR OPTIONS

H M REVENUE & CUSTOMS (HMRC) INTENDS TO ISSUE PAYMENT DEMANDS TO OVER 43,000 INDIVIDUALS AND COMPANIES PARTICIPATING IN "SCHEMES" TO COLLECT OVER £7 BILLION IN TAX BEFORE 5 APRIL 2016. THE DEMANDS WILL ONLY PERMIT 90 DAYS TO PAY, SO ACTION IS NEEDED NOW BEFORE NOTICES ARRIVE.

WHY IS HMRC TAKING THESE STEPS?

HMRC has so far won over three quarters of cases taken to the Courts on schemes and it wants to deter taxpayers from entering into new schemes and encourage those who are already participants to withdraw from them.

HMRC aims to reduce the cash flow advantage that individuals, companies and partnerships obtain from participating in tax avoidance arrangements whilst the scheme is still under dispute. Other HMRC notices will force taxpayers to amend their tax returns to remove entries regarding schemes sooner after the Courts decide that a scheme does not work.

This applies to schemes implemented before and after Finance Act 2014 as long as they meet the criteria for notices set out below.

WHY ACT NOW?

Acting now before you receive a follower notice (FN) or accelerated payment notice (APN) means that you have more time to consider your options. HMRC is offering settlement opportunities for a limited period only. If you need Time To Pay, the sooner you come forward, the better.

ACCELERATED PAYMENT NOTICES

HMRC may issue an accelerated payment notice (APN) to a taxpayer 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
The tax return or claim was submitted on the basis that the taxpayer could reduce their tax liability (or claim a repayment) as a result of a tax avoidance arrangement; and
The tax avoidance arrangements are caught by this legislation.

The arrangements are caught 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 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 but has published a list of over 1,000 schemes with DOTAS numbers for which APNs are likely to be issued.

The payment must be made within 90 days of the date of the APN or 30 days after HMRC issues a determination against any representations made following the notice's issue. This, in effect, prevents taxpayers postponing payment of tax whilst an enquiry or appeal is ongoing.

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 taxpayer's assets. The bailiffs will charge fees to the taxpayer for this; and
Applying to the Courts to wind up companies or make individuals bankrupt. The Courts recently agreed that this can happen in limited circumstances even where there is an outstanding appeal to be heard by the Tax Tribunal against the tax assessment.

In addition, the Treasury intends to introduce new legislation enabling HMRC to take cash from taxpayer's bank accounts, albeit with safeguards, including visiting the taxpayer first.

FOLLOWER NOTICES

HMRC may issue a follower notice (FN) to the taxpayer 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
The tax return or claim was submitted on the basis that the taxpayer could reduce their tax liability (or claim a repayment) as a result of a tax avoidance arrangement; and
The courts decided in another case that the avoidance arrangement is ineffective.

The FN requires the taxpayer to amend their return to remove the entries relating to the tax avoidance arrangement so that the liability becomes the amount that it would have been if the arrangement had not been utilised.

The amendment must be made within 90 days after the date of the FN or 30 days after HMRC issues a determination against any representations made following the FN's issue.

WHAT ABOUT INTEREST AND PENALTIES?

HMRC will charge interest from the due date that the tax should have been paid until it is paid.

HMRC can charge tax geared penalties if notices are not complied with before the deadline. HMRC may also charge a tax geared penalty for including a scheme on your tax return in error following their recent wins in cases such like B P Litman & related appeal [2014] UKFTT 089 (TC).

CAN AN APPEAL BE MADE?

Representations can be made in writing to HMRC within 90 days of the date of the APN or FN on grounds such as the conditions for issuing the notice were not met or the amount of tax specified in the notice is incorrect. Representations may also be made where it appears that an FN was not issued by the deadline or the court's ruling is not relevant to the tax avoidance arrangements in question.

HMRC must consider the representations and either confirm, amend or withdraw the notice (whether it is an APN or an FN) but there is no deadline by which this must be done. The taxpayer has 30 days after a penalty is charged to appeal against the imposition or amount of the penalty. The tribunal may affirm, amend or cancel the penalty.

WHEN TO GET ADVICE

HMRC enquires into your scheme participation;
Before an APN or FN is issued;
Immediately when you receive an APN or FN;
You are contacted by HMRC offering a settlement opportunity;
Re-structuring or sell a business;
As a second opinion;
If you have cash flow problems; or
Going through a divorce.

WHAT ARE YOUR OPTIONS?

Your options are to:

Withdraw from participating in the scheme before an APN or FN is issued (with or without a settlement opportunity and possibly using contract settlements or the Liechtenstein Disclosure Facility);
Pay the tax within 90 days of the APN being issued, with or without a Time To Pay arrangement, and continue participating in the scheme so that you benefit if the scheme ultimately succeeds;
Amend your tax return within 90 days of a FN being issued, albeit that this ends your participation in the scheme;
Seek a formal Time To Pay arrangement with HMRC; or
Make representations to HMRC against the APN or FN.

HOW CAN BDO HELP?

Consider whether the tax avoidance scheme may be caught by these provisions
Advise you on the benefits and risks of exiting from a scheme or remaining in it
Negotiate your withdrawal from schemes
Check the notices and make representations to HMRC
Negotiate Time To Pay
Advise you about other payment options to manage your cash flow if you participated in several schemes
Review old HMRC enquiry correspondence and procedures.
Manage appeals
Review the use of 'discovery' provisions
Manage the LDF process to unravel tax avoidance
Re-calculate tax computations and loss relief
Negotiate penalties

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.