HMRC’s New Weapons For Their Battle Against Marketed Tax Avoidance Schemes

This year’s Finance Act has given HM Revenue & Customs (“HMRC”) several new weapons for their battle against marketed tax avoidance schemes.  Naturally, how such schemes are viewed is a matter of personal opinion, but it is clear that the general public is not generally sympathetic to their users, particularly when they are wealthy celebrities.  However, the question of whether or not the new tools at HMRC’s disposal are proportionate to the tax at risk is unclear and much will depend on the use that HMRC makes of them.

First up is a “follower notice”

These are designed to counter the mischief engineered by scheme promoters who, according to HMRC, delay litigation deliberately so that their clients obtain a significant deferral of their tax liability, and thereby a cash-flow benefit, even if the scheme itself is ultimately found to be ineffective.  HMRC can now use a follower notice where they believe the avoidance arrangements are ineffective as a result of a decision of the Tax Tribunal.  For example, a scheme may be marketed to taxpayers requiring that they join a limited liability partnership (“LLP”) in order to participate.  There will usually be a series of LLPs for taxpayers who join at different times and enquiries into earlier LLPs will naturally reach the Tribunals before later ones.  If a Tribunal decision in the case of an earlier LLP goes against the scheme, the follower notice will be used to require taxpayers in later LLPs to amend their tax returns to reflect the loss of relief expected as a result of the Tribunal decision.  They must do this within 90 days or face a penalty and the taxpayer concerned does not have a right of appeal, which HMRC says is necessary to stop the whole process being clogged up by crafty scheme promoters.

The second weapon HMRC is being given is an “accelerated payment notice”

This is a right to demand tax in dispute where the planning used has been notified to HMRC under the disclosure of tax avoidance scheme (“DOTAS”) rules.  Where a particular scheme is notified to HMRC under DOTAS, it is given a scheme reference number (“SRN”) and HMRC have now published a list of SRNs which they are proposing to attack.  Starting in August 2014, HMRC will phase in the issuing of accelerated payment notices to users of listed schemes over the coming 20 months or so.  The idea here seems to be pretty much the same as for follower notices, except in the case of accelerated payment notices there is no requirement for a Tribunal decision to have been given in the first place.  What is slightly disturbing is that many “schemes” disclosed under DOTAS have sought to give participators a tax advantage using existing statutory reliefs.  These schemes are HMRC-approved, but in some instances promoters have felt bound to disclose them as they are actively marketed as having a tax benefit, even though this benefit was intentionally provided by the government.

It seems that HMRC is acquiring powers that give it an advantage in the battle against tax avoidance whilst public antipathy towards people perceived as not paying their “fair share” is very high.  This would be of less concern if the debate on the granting of such powers was not being thoroughly clouded by HMRC and, by extension, government spin.  What is particularly worrying is that a consultation document has been published detailing how HMRC might be permitted to recover outstanding tax directly from the bank accounts of taxpayers.  This draconian proposal is extremely worrying and rather begs the question of why HMRC is not pursuing well-known companies like Starbucks and Vodafone with equal vigour.  Surely it is not because they are simply softer targets?

Carl Barwick – Tax Manager

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Westbury Accountants and Business Advisors is an accountancy practice based in London. Westbury have been providing Accounting and Tax solutions to small and medium sized businesses since 1936. Talk to the team at Westbury on 0207 253 7272 or visit http://www.westbury.co.uk.