Accelerate payment for Tax avoiders.

HM Revenue and Customs can require some users of disputed tax-avoidance arrangements to pay the contested tax before the underlying enquiry or appeal has been finally decided. This is done through an Accelerated Payment Notice, commonly known as an APN. The rules were introduced by the Finance Act 2014. Their purpose is to remove the cash-flow advantage previously enjoyed by taxpayers who retained disputed tax while lengthy avoidance cases proceeded through the courts. An APN does not, by itself, prove that the taxpayer has acted unlawfully or that HMRC will ultimately win the tax dispute.

What Is an Accelerated Payment Notice?

An Accelerated Payment Notice requires a person to pay an amount representing the tax advantage that HMRC believes has arisen from disputed avoidance arrangements. The payment is made before the underlying tax dispute has been finally determined. The original enquiry or appeal continues separately. The taxpayer can still argue that the arrangements produced the claimed tax result, but HMRC normally holds the disputed amount while that argument is resolved.

When Can HMRC Issue an APN?

HMRC can issue an Accelerated Payment Notice only where the statutory conditions are satisfied. Broadly, there must be an open tax enquiry or appeal concerning the tax advantage, together with one of the following:

• The arrangements were disclosed under the Disclosure of Tax Avoidance Schemes rules, commonly called DOTAS;
• A relevant Follower Notice has been issued; or
• A counteraction notice has been issued under the General Anti-Abuse Rule.

The fact that arrangements have a DOTAS scheme reference number does not automatically mean that they are unlawful. However, it can bring them within the accelerated-payment regime where the other legal requirements are met.

Which Taxes Can Be Covered?

Accelerated-payment rules can apply to several forms of tax and National Insurance contributions, depending on the arrangements involved. These may include:

• Income Tax;
• Corporation Tax;
• Capital Gains Tax;
• Inheritance Tax;
• Stamp Duty Land Tax;
• National Insurance contributions; and
• Tax accounted for through PAYE.

A person may receive more than one notice where a scheme was used during several tax years or produced advantages involving more than one tax.

What Must the Notice Contain?

An APN should identify:

• The disputed tax arrangements;
• The statutory basis on which the notice has been issued;
• The amount HMRC requires to be paid;
• How the amount has been calculated;
• The payment deadline;
• The right to make representations; and
• The consequences of late payment.

The amount stated is an estimate of the disputed tax advantage. It is not necessarily the final amount that will become payable when the tax case is concluded.

Can You Appeal Against an APN?

There is no ordinary statutory right of appeal against an Accelerated Payment Notice. However, the recipient can make written representations to HMRC where they believe:

• The legal conditions for issuing the notice were not satisfied;
• The notice was issued to the wrong person;
• The amount has been calculated incorrectly;
• The arrangements identified are not the arrangements used; or
• Another factual or procedural error has occurred.

Representations must generally be made within 90 days of the notice being given. HMRC must consider the representations and decide whether to confirm, withdraw or amend the notice.

When Must the Accelerated Payment Be Made?

The amount will normally be payable within 90 days of the notice. Where valid representations are made, the payment deadline will generally be the later of:

• The original 90-day deadline; or
• Thirty days after HMRC notifies the taxpayer of its decision on the representations.

The precise deadline shown on the notice should be checked carefully. Ignoring the notice does not pause the underlying enquiry or prevent HMRC from pursuing the accelerated payment as a debt.

What Happens If You Cannot Pay?

A taxpayer who cannot pay the full amount by the deadline should contact HMRC immediately. HMRC may consider a Time to Pay arrangement based on the taxpayer's financial circumstances. It may ask for details of:

• Income and expenditure;
• Bank accounts and savings;
• Property and investments;
• Existing borrowing;
• Business cash flow; and
• The amount and timing of proposed instalments.

A payment arrangement is not automatic. HMRC will consider whether the proposal will clear the debt within a reasonable period and whether assets or borrowing are available. Professional tax advice may be needed before submitting financial information or agreeing to payment terms.

Penalties for Late Payment

Penalties can be charged where an Accelerated Payment Notice is not paid on time. The legislation provides for percentage-based penalties at different stages after the payment deadline. HMRC may also take ordinary debt-enforcement action. Depending on the circumstances, enforcement may include:

• Debt-collection activity;
• Taking control of goods;
• Deductions from accounts or income where legally permitted;
• Court proceedings;
• Charging orders against property;
• Insolvency proceedings; or
• Enforcement against company assets.

A taxpayer may be able to appeal against a late-payment penalty where there is a reasonable excuse or another statutory ground, even though there is no ordinary appeal against the APN itself.

What Happens to the Underlying Tax Dispute?

Paying an APN does not settle or withdraw the taxpayer's original case. The enquiry or appeal continues until:

• The taxpayer and HMRC reach an agreement;
• The taxpayer withdraws the claim to the tax advantage;
• HMRC closes the enquiry and the taxpayer does not appeal;
• A tribunal or court determines the dispute; or
• The case is resolved through another lawful procedure.

The taxpayer should therefore continue dealing with all enquiry letters, information requests, closure notices and appeal deadlines. Paying the accelerated amount does not remove the need to protect the underlying appeal.

What If the Taxpayer Ultimately Wins?

If the dispute is resolved in the taxpayer's favour, HMRC must normally repay the accelerated amount that is no longer due. Interest may also be payable in accordance with the applicable repayment-interest rules. If HMRC succeeds, the accelerated payment is applied against the final tax liability. Further tax, interest or penalties may still be payable if the final liability exceeds the amount previously paid.

Follower Notices

A Follower Notice is separate from an Accelerated Payment Notice, although the two may be issued together. HMRC may issue a Follower Notice where it considers that a judicial ruling in another case is relevant to the taxpayer's arrangements and would deny the claimed tax advantage. The notice requires the taxpayer to take corrective action, which may involve:

• Amending a tax return or claim;
• Withdrawing an appeal;
• Agreeing with HMRC; or
• Otherwise relinquishing the disputed tax advantage.

A person who does not take the required corrective action may face a substantial penalty if HMRC ultimately establishes that the relevant ruling applied. Receiving a Follower Notice does not mean that the taxpayer should automatically concede. Specialist advice is important when assessing whether the earlier judicial decision genuinely determines the present case.

Representations Against a Follower Notice

Representations may generally be made within 90 days where the recipient believes:

• The statutory conditions were not met;
• The judicial ruling is not relevant to their arrangements;
• The notice was issued outside the permitted period; or
• The notice contains another material error.

HMRC must consider the representations and confirm or withdraw the notice. The deadline for taking corrective action may be affected while representations are being considered, but the dates in the notice and HMRC's response should be checked carefully.

Partnership Payment Notices

Special rules apply where avoidance arrangements were used through a partnership. HMRC may issue notices related to the partnership dispute and require relevant partners to make accelerated payments reflecting their respective shares of the disputed advantage. Partners should obtain separate advice where their personal position, allocation of profits, or involvement in the arrangements differs from that of the partnership or other partners.

Legacy Tax-Avoidance Arrangements

Accelerated-payment rules were introduced partly to address tax disputes that were already open when the Finance Act 2014 took effect. This meant that notices could apply to arrangements entered into before the legislation was introduced, provided the statutory conditions for issuing a notice were satisfied. The rules did not retrospectively make lawful conduct unlawful. They changed the payment timing while existing tax disputes were being resolved.

Tax Avoidance and Tax Evasion

Tax avoidance and tax evasion are not the same. Tax evasion involves dishonesty, such as deliberately concealing income, creating false documents or knowingly providing incorrect information. It is a criminal offence. Tax avoidance arrangements seek to obtain a tax result by interpreting or exploiting legislation. Some arrangements may be defeated by the courts, counteracted by anti-avoidance rules or give rise to penalties, even where the taxpayer did not commit criminal tax evasion. A scheme being marketed by an accountant, adviser or promoter does not guarantee that HMRC or the courts will accept it.

Promoters of Tax-Avoidance Schemes

HMRC has separate powers concerning promoters and suppliers of tax-avoidance arrangements. These can include powers to:

• Require information and documents;
• Issue conduct notices;
• Publish information about promoters and schemes;
• Impose financial penalties;
• Seek injunctions;
• Require disclosure of scheme reference numbers; and
• Take action where arrangements continue to be marketed after being defeated.

A taxpayer remains responsible for their own tax affairs even where they relied on professional advice or assurances from a scheme promoter.

Claims Against Tax Advisers or Scheme Promoters

Where an avoidance scheme fails, a participant may consider whether they have a claim against the adviser, accountant, financial adviser or promoter who recommended it. Potential issues may include:

• Negligent tax advice;
• Misrepresentation of the risks;
• Failure to explain HMRC challenges or relevant court decisions;
• Incorrect assurances that HMRC approved the scheme;
• Failure to disclose commissions or conflicts of interest;
• Unsuitable financial advice; and
• Breach of contract.

The fact that HMRC has issued an APN does not automatically prove negligence by the adviser. Evidence will be needed about the advice given, the risks explained, and what a competent professional should have done at the time. Limitation periods apply, so legal advice should be obtained promptly.

What to Do If You Receive an APN

Do not ignore the notice. You should:

• Record the date it was received;
• Check the 90-day deadline;
• Confirm the tax years and arrangements covered;
• Compare the calculation with your returns and existing HMRC correspondence;
• Check whether the statutory conditions appear to be satisfied;
• Obtain advice from a tax professional experienced in avoidance disputes;
• Make representations promptly where appropriate;
• Consider your ability to pay and contact HMRC before the deadline if necessary; and
• Continue protecting the underlying tax appeal.

A general accountant may not have experience with APNs, Follower Notices or tax litigation. The appropriate adviser may be a specialist tax solicitor, a tax barrister, or a suitably experienced chartered tax adviser.

Judicial Review

Because there is no ordinary appeal against an APN, a taxpayer may consider judicial review where HMRC has acted unlawfully, irrationally or procedurally unfairly. Judicial review is not a general appeal against HMRC's calculation or opinion. It is a specialised public-law remedy and must be brought promptly. A taxpayer considering judicial review should obtain urgent legal advice before the relevant deadline expires.

Finding a Tax Disputes Solicitor

Accelerated Payment Notices can involve substantial liabilities and strict deadlines. Specialist advice may be required concerning:

• Whether the notice is valid;
• Representations to HMRC;
• The calculation of the disputed advantage;
• Time to Pay negotiations;
• Late-payment penalties;
• Follower Notices;
• Tax Tribunal appeals;
• Judicial review; or
• Professional negligence claims against advisers.

To find a Tax Law, Tax Disputes or Professional Negligence Solicitor, use the search facility at the top of this page. We recommend contacting a firm with direct experience of HMRC avoidance investigations and accelerated-payment cases.

Tax avoidance 2014