People who signed up for tax avoidance schemes could be facing massive bills as the tax authorities get tough, says Jason Collins
HUNDREDS of Scottish business owners and contractors could be facing personal insolvency as the result of a get-tough crackdown on tax avoidance schemes.
HMRC intend to issue controversial new Accelerated Payment Notices to an estimated 33,000 individuals who they claim are liable for billions of pounds of unpaid tax, giving the individuals concerned only 90 days to settle what could be sums of up to £1 million each.
In the past some financial advisers were a bit gung-ho in encouraging clients to sign up to a range of schemes and unfortunately that legacy is about to revisit them in a very unpleasant way.
The individuals who innocently opted in to tax avoidance schemes are sitting on a financial time-bomb and this is inevitably going to lead to immense financial stress and in some cases even insolvency proceedings.
Whilst the media spotlight has been shone on High Net Worths and celebrities who have invested in these tax planning schemes, there are thousands of business owners and modestly well-off self-employed contractors who have been sold tax planning schemes and will be facing the same demands for money.
Earlier this month HMRC published a list of more than 800 tax avoidance schemes that it may target for accelerated payments. Until now HMRC had to win a tribunal case before they could demand disputed tax but the Finance Act 2014, which received Royal Assent on 17 July, will give it the powers to demand an up-front payment within 90 days.
This will undoubtedly lead to thousands of taxpayers facing sudden demands for cash payments from HMRC that they may not be able to afford, or they may not be able to access readily available liquid assets. The end result could mean a rise in insolvencies.
Whilst HMRC will say it warned users back in 2007 that it would use all its litigation firepower in order to discourage people from entering into schemes in the first place, this strategy was buried away in the detail of a document on their website, and we very much doubt promoters brought it to their customers’ attention when encouraging them to sign on the dotted line.
What has really concerned the legal and accountancy community is that HMRC is changing the law retrospectively and this has completely up-ended the rules that govern these tax disputes and was not set out in the original strategy.
HMRC has said that from next month (August 2014) it will, over a 20-month period, issue “Accelerated Payment Notices” (APNs) warning recipients they will be required to pay the disputed tax up-front.
Once the APN is issued, taxpayers will have 90 days to pay HMRC – unless they make representations that the notice should not have been issued to them, in which case, if timed right, they will get a further 30 days.
It is helpful that HMRC has framed the schemes where it plans to issue APNs, but it now needs to publish its timetable for the issue of notices in relation to the individual schemes.
Those affected need to know whether they have a few months or a couple of years to come up with the tax.
Other changes in law being made at the same time as the introduction of APNs will enable HMRC to issue a “follower notice” to a taxpayer who has entered into a scheme where HMRC have won a ruling against a taxpayer in another similar case.
A follower notice will require the taxpayer to either settle their dispute or face a large penalty if their dispute with HMRC is ultimately unsuccessful.
HMRC will also be able to issue an APN where it has issued a follower notice or for a scheme where a counteraction notice has been given under the General Anti Abuse Rule (GAAR), which was introduced last year.
In our view HMRC need to take into account the fact that many of these individuals will not have fully realised what they were buying into and it needs to consider offering beneficial settlement terms in order to bring this tsunami of litigation to an end.
In the meantime, if you are concerned that you may be about to receive an APN, you should take immediate action to review you position and seek appropriate legal advice. Expert legal opinion could go some way to lessening the trauma of a sudden tax demand. • Jason Collins is partner and head of tax at Pinsent Masons www.pinsentmasons.com