In the next couple of weeks, HMRC will be given controversial new powers to demand payment of tax in ongoing enquiry cases, and in some circumstances to deal a “knock-out punch” in an enquiry without ever going to court. The new powers are outlined below: if you think you may be affected, please get in touch with your usual BKL contact or use our enquiry form.
Accelerated Payment Notices
The new rules mainly apply to tax avoidance schemes which have been issued with a DOTAS (Disclosure of Tax Avoidance Scheme) registration number. If you have participated in such a scheme HMRC can simply treat the scheme as ineffective and require you to pay tax (or deny you a tax refund) accordingly. If a court subsequently holds that the scheme does indeed work you will get your money back plus interest (currently just 0.5% pa) – but be prepared to wait for years before the scheme gets to court. HMRC have already published a list of DOTAS schemes on which they say they “may” issue notices, starting in August 2014.
Follower notices
At least with an Accelerated Payment Notice the enquiry remains open and you may perhaps get your money back one day in the distant future. By contrast, the second part of the rules gives the HMRC the right to knock out your claim altogether if a court has given a final ruling in a case which (in HMRC’s opinion) is “relevant” to your scheme (that is, broadly, establishing a principle which would govern your case). If that happens it’s “game over” for all practical purposes.
Settlement opportunities
For some years now HMRC have offered what they call a “settlement opportunity” in tax avoidance cases; this is likely to become higher profile with the new rules. Basically, HMRC will often offer to settle “out of court” on standard terms. The terms offered are not exactly a fire-sale; they are based on neither a “best case” nor a “worst case” outcome, but reflect a position which HMRC hope they would be able to achieve or exceed if the case went to court. The advantage for you in settling is that it brings certainty and it will result in a lower cost than if HMRC go to court and win hands-down. The disadvantage is that if the courts eventually find that the scheme does work you will have paid tax (and interest) unnecessarily. 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 call your usual BKL contact.