Jacquelyn Kimber and Kirsty Horobin of Newby Castleman LLP review the rules for accelerated payment notices (APN), and explain how you can challenge one.
Rules were introduced in Finance Act 2014 giving HMRC the power to issue notices to taxpayers demanding payment of tax (and national insurance contributions, if applicable) which HMRC believes represent the effect of a tax advantage gained from tax avoidance arrangements, where the arrangement is currently under enquiry or appeal.
Prior to these rules being enacted, in most cases involving a dispute of tax, no tax was payable until the tax enquiry or appeal had been concluded, meaning the tax benefit of the disputed arrangement lay with the taxpayer rather than HMRC. Should the tax subsequently be found to be payable, interest applied from the “normal” due to date to the date of payment.
An APN can be issued by HMRC in the following circumstances:
- Where a follower notice has been issued;
- The arrangement is notifiable under the disclosure of tax avoidance schemes (DOTAS) rules and a DOTAS scheme reference number has been issued; or
- A general anti-abuse rule (GAAR) counteraction notice has been issued.
APNs can be issued in respect of the following taxes:
- Income tax
- Capital gains tax
- Inheritance tax
- Corporation tax
- Stamp duty land tax
- Annual tax on enveloped dwellings
Accelerated partner payment notices (APPNs) apply to partners where the deemed tax advantage arose from activities of the partnership, and these follow closely the rules applicable to APNs.
What the notice will say
The APN will include details of the conditions that HMRC believes are satisfied in order to make the APN valid. It will also detail the amount payable and how this has been calculated, and information on how to make representations to HMRC should the recipient of the APN disagree.
Paying the amount due
On receipt of an APN, the taxpayer has 90 days in which to take action. If the taxpayer accepts the APN, the amount demanded should be settled, in full, within the 90 day period. The amount can be settled over a number of payments as long as the full amount has been received by HMRC before the end of the 90 day period.
APNs are also included within HMRC’s direct recovery of debt provisions allowing HMRC to collect debts which exceed £1,000 directly from taxpayers’ bank accounts where certain criteria are met.
How to challenge
There is no right of appeal against an APN. However, the taxpayer may make representations to HMRC if they wish to dispute either the amount demanded or the validity of the APN, if they believe that the conditions for issue have not been met. These representations must be made in writing within the 90 day period.
HMRC will issue a reply which may confirm or withdraw the APN. If the APN is confirmed and the taxpayer still disagrees, with no right of appeal, a judicial review is the only route available to the taxpayer. If the APN is confirmed and the taxpayer wishes to make payment, the payment must be settled by the later of 90 days from receipt of the original APN or 30 days from the letter from HMRC confirming the APN.
Failure to pay the amount due or lodge representations with HMRC within the 90 day period can result in late payment penalties, and surcharges being levied by HMRC. Enforcement action may also be taken to recover the tax due.
The manner in which penalties are levied varies dependent upon the type of tax in question and whether a tax enquiry is currently in progress. However, taxpayers will find themselves in a penalty situation fairly quickly if the tax is not paid within the 90 day period. The taxpayer may appeal against any penalties applied, and apply to have them cancelled should they have a reasonable excuse for the failure to pay on time.
Conclusion of dispute
The issue of an APN does not conclude the matter with HMRC nor is it confirmation that the tax planning resulting in the deemed tax advantage has been unsuccessful: it is merely a payment on account. Should the taxpayer go on to win their case, any tax paid under the APN will be refunded with interest. However, this will be subject to any further appeal being made by HMRC which may delay any repayment. Conversely, if the taxpayer loses his case, additional tax may become payable over and above that already paid under the APN.
The payment of tax in advance of the enquiry or appeal being concluded, HMRC state, takes away the cash flow advantage gained through use of the tax avoidance scheme in question. It is also an attempt to discourage taxpayers from the use of such schemes. Since the introduction of HMRC’s powers to demand payment of tax in advance, rather than wait for the enquiry or appeal to be finalised, many taxpayers may instead look to negotiate a settlement with HMRC in order to conclude the matter.