Some contractors who participated in tax avoidance schemes in the past may be forced into insolvency as HMRC uses tough new powers to demand the payment of disputed taxes upfront.
Tough anti-avoidance climate
The current Government, and the Coalition which preceded it, have implemented a series of measures to clampdown hard on all types of tax avoidance activity.
The 2014 Finance Act introduced unprecedented new powers for HMRC to collect disputed taxes upfront via the introduction of Accelerated Payment Notices (APNs). This means that individuals and businesses have to pay what is deemed to be owed, even before their cases are even heard.
Significantly, these powers can be applied retrospectively, not just to new schemes created after the legislation was enacted in July 2014.
A timely example
Earlier this month, the long-running efforts of contractor Robert Huitson to overturn rules which allow HMRC to tax scheme users retrospectively, were dealt another blow, when a Tax Tribunal ruled that Huitson must pay almost £200,000 in tax and National Insurance Contributions he had avoided while contracting via an offshore intermediary.
Between them, the users of this particular scheme, marketed by Montpelier Tax Consultants, are expected to receive a combined demand for payment of around £200m.
Accelerated Payment Notices
The marketers of tax avoidance schemes are required to notify HMRC of their existence under the ‘Disclosure of tax avoidance schemes’ (DOTAS) rules.
The Government has published a list (last updated in July 2015) of scheme reference numbers, on which users may be charged an APN.
If you are a past member of a tax avoidance scheme and receive an APN, you will typically have to pay the disputed tax within 90 days – you may receive an extra 30 days if you ask HMRC to reconsider the sum in question.
Controversially, HMRC also has the powers to issue ‘follower notices’ urging users of certain schemes to pay back taxes, where the courts have ruled in the taxman’s favour in cases involving similar schemes.
In its initial impact assessment, the Government estimated that there was over £5bn owed by around 43,000 individuals prior to Budget 2014 when the new measures were first announced (including follower notices). This number only included users of schemes under investigation at the time, so the final tally may well be higher.
HMRC demands may result in insolvency for many
Insolvency trade organisation, R3, says that thousands of small business owners face an uncertain future due to the increasing number of APNs being issued – with another 40,000 expected to be sent out by the end of 2016.
The body’s spokesman, Paul Barber, said that generally “these businesses were acting in line with professional advice and had no reason at the time to think that these arrangements were not legitimate.”
Barber says while the tax advantages offered by offshore schemes were obvious, many firms used these vehicles to cut overheads and to ease their businesses through the recession, and that some may now be forced into insolvency as a result of the APN regime.
Barber also commented: “as yet it is unclear as to whether in some cases HMRC will seek to make directors personally liable under available legislation.”
- You can access a full list of all the tax avoidance schemes for which APNs have (or are likely to be) issued.
- Also refer to the original notice on APNs which was released as part of Budget 2014.