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Upfront payments for disputed schemes to start this year

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19th Mar 2014
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The Chancellor’s Budget speech included an impassioned section on tax avoidance that also stirred up considerable controversy and concern among tax professionals as he signalled the introduction of pre-emptive payments in disputed cases.

“We will now require those who have signed up to disclosed tax avoidance schemes to pay their taxes, like everyone else, up front,” George Osborne said.

“This will apply in future to schemes covered by our general anti-abuse rule (GAAR) too.”

Perhaps in response to accountants who objected to the lack of any appeal mechanism in the proposals set out in a January consultation document, the Chancellor continued: “If people feel they’ve been wronged, they can of course go to court. If they win, they get their money back with interest.

“We have already consulted on this idea – now we will implement it. The OBR confirm that this will bring forward £4bn of tax receipts. And it will fundamentally reduce the incentive to engage in tax avoidance in the future.”

Having established the principle of accelerated payments in its autumn statement, the Finance Bill will now extend them to schemes under the disclosure of tax avoidance schemes (DOTAS) regime and those rejected by HMRC under the GAAR.

From the date that Finance Bill 2014 receives royal assent, HMRC will be able to issue a “notice to pay” to any taxpayer caught up in an open enquiry, or where they have appealed against HMRC’s stance on arrangements that fall within DOTAS, or are ruled out of bounds by the GAAR advisory panel.

Where a notice has been issued, the taxpayer will have 90 days to pay the disputed amount, with a further 30 days allowed if they ask HMRC to reconsider the amount of the notice.

“Where the matter is under appeal, the measure will operate so as to remove any postponement of the disputed tax. Penalties will apply for late payment,” states the HMRC tax information note (TIIN) outlining the measure.

The impact assessment of the measure suggested that through 2014-15 and 2015-16, payment notices would be issued to around 43,000 taxpayers involved in avoidance schemes currently under dispute with HMRC.

The affected individuals have a mean gross income of £262,000 and 85% of them have multiple sources of income. To emphasise the gulf between them and the wider population, the TIIN explained that the average income for taxpayers is £29,000.

As a result of expected legal challenges, the government would also have to ensure that its departgments “have the necessary resources to deliver this key policy successfully”, the document added.

Rebecca Benneyworth was one of several experts who saw a hardening of lines at HMRC.  “The worry when you pay up front is that HMRC can say you’ve got to pay the money now and then go to court,” she said.

“It’s not simply to do with schemes that are doomed to fail where someone is seeking a cashflow advantage. It seems that HMRC could issue notices on schemes like the Rangers FC employee benefits trust case - even though the Revenue lost to Rangers.”

CIOT president Stephen Coleclough added to the chorus of disapproval from the profession:  ”These measures introduce a significant retrospective change to the DOTAS regime without providing adequate taxpayer safeguards in the collection of the disputed tax in advance.  Extending these measures beyond follower cases to DOTAS schemes raises serious questions about the breadth and proportionality of these proposals.

“The fact that there has been disclosure under DOTAS indicates an intention to be open and transparent with HMRC. It is unreasonable to now introduce a retrospective change of law leading to an accelerated payment of tax.

“It is now incumbent on HMRC to publish a list of DOTAS schemes to which this legislation will apply as quickly as possible”.

AccountingWEB member Kung Fu Kipper also felt the rules go too far from a tax perspective. “HMRC are poor arbiters of good commercial sense - they exist by propagating themselves and are driven by maximising revenues at the point of collection only and not by maximising revenue by the promotion of a good and sustainable commercial environment. Squeezing until the pips squeek, does not grow a good orange.”

But that view was not universal. ShirleyM responded: “There has to be a damn good deterrent, which we do not have currently. Even when a fully artificial scheme fails, there isn't much more to pay than the tax that would have been due anyway. That isn't much of a deterrent at all!”

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