This note is about the provisions to be introduced by Finance Act 2014, which have been widely (but often inaccurately) reported in the press. It is mainly relevant to anyone who is currently in dispute with HMRC about participation in any kind of tax avoidance scheme, especially one which has been registered with HMRC under the Disclosure of Tax Avoidance Schemes (“DOTAS”) rules.
Follower notices
These can be issued only where there has been a Tribunal ruling or court case which (a) is final (i.e. can no longer be the subject of any further appeal) and (b) establishes a point of principle or reasoning which (in HMRC’s view) would deliver a “knock-out punch” to the tax avoidance scheme you have undertaken. It is to be expected that this will be the case only where that very scheme has been litigated by another taxpayer; but it is possible that HMRC will feel able to issue follower notices where they have defeated a scheme that shares all relevant characteristics with yours. Where a follower notice is issued you are, essentially, required to throw in the towel and concede to HMRC that your scheme doesn’t work. In principle you have the right to fight on: but if you do so, a penalty of up to 50% of the tax at stake will be levied. There is no appeal against a follower notice: you are able to make “representations” but these are effectively limited to inviting HMRC to reconsider whether the legal decision on which they rely truly delivers the necessary “knock-out punch”.
Accelerated Payment Notices
These can be issued in three circumstances. One is where a “follower notice” has been issued: the second is where a notice has been issued under the General Anti-Abuse Rule: the third (which is likely to be the most common one) is where the tax scheme in which you have participated is registered under DOTAS.
Where an APN is issued, you are obliged to pay tax as if the scheme did not work. As with a follower notice, there is no appeal: you are, as with a follower notice, able to make “representations” – but these are effectively limited to asking HMRC to ensure that they have computed the additional tax accurately.
Unlike a follower notice, an APN does not bring the enquiry to a close: it is merely a means of accelerating payment of tax pending completion of the HMRC enquiry. If when the enquiry is closed less tax is found to be due that has been paid under the APN or otherwise, the overpaid tax will be repaid, together with interest (currently at 0.5% pa)
HMRC have recently published a list of DOTAS schemes in respect of which they say they “may” issue APNs, starting in August 2014. The list may be seen here. The fact that a scheme is listed does not necessarily mean that an APN will definitely be issued: indeed we are aware that in some cases listed HMRC has already explicitly agreed with the scheme promoter that an APN will not be issued while negotiations continue.
Settlement opportunities
Although HMRC’s “settlement opportunity” is not directly connected with APNs or follower notices, it’s worth mentioning here. For some types of avoidance scheme, HMRC have indicated that they will settle “out of court”. HMRC’s outline of their offer is here. Generally the terms offered are not conspicuously concessional: broadly speaking they are based on neither a “best case” nor a “worst case” outcome, but reflect a position which HMRC hope to achieve or exceed should the case go all the way to a Tribunal hearing. Accepting any settlement offer may thus turn out to have put you in a better or a worse financial position than if you had pursued the case through to a Tribunal. There is no express deadline for accepting any settlement opportunity but HMRC indicate that “as litigation nears it will become more likely that we will consider the dispute is no longer appropriate for this settlement opportunity”. The decision whether to accept a settlement offer is ultimately a judgment call and will to some extent depend on your individual appetite for risk.
If you would like to discuss your options in the light of Advance Payment Notices, Follower Notices or Settlement Opportunities; or if you have other questions in relation to tax avoidance arrangements you have entered into, please contact us.