Investment Tax Reliefs - APNs And The HMRC Clampdown

Accelerated Payment Notices (APNs) were introduced in Finance Act 2014. Individuals and businesses involved in tax avoidance schemes must pay HMRC the disputed amount of tax upfront, until the dispute is resolved. This means that tax ‘saved’ must be paid upfront and (hopefully) reclaimed later. HMRC expected to raise £4 billion in advance tax, but the actual figure could well be double, as more previously unchallenged schemes are brought into the tax net, such as business premises renovation allowance (BPRA) and film schemes.

Aimed at those users involved with tax avoidance schemes, where there was a cashflow advantage in delaying tax payments, often for many years, APN legislation forces the disputed tax to be paid up front (i.e. pay now, claim it back later, if successful).

Accelerated payments are being applied to schemes that are:

The APN should only apply to tax avoidance schemes that are disputed, and these include:

An APN can only be issued if HMRC has opened an enquiry, or made an assessment into a taxpayer’s case that is under appeal. There may be an enquiry opened into another matter, which might also open the door for APNs. If a partner is in a partnership, the applicable notice is a partner payment notice (PPN).

In its briefing of 3 November 2014, HMRC stated that some 43,000 taxpayers would be affected (by the end of 2016 this will be 64,000), but would not affect ‘genuine’ investment, including investment in films. This has not proved to be the case (e.g. see ‘Film Scheme Investors to be hit by big tax bill, says HMRC’ – International Adviser, 21 November 2016). There is clear evidence of a much wider attack on alleged tax avoidance schemes, previously thought not to fall under DOTAS, such as BPRA and film schemes.

HMRC has been sending notices to taxpayers to settle their tax claims instead of paying an APN. These warning letters have the strong implication that tax avoidance is wrong (tax avoidance can be legal; tax evasion is illegal), and that taxpayers should withdraw from arrangements already made or pay the tax. This casts doubt in the mind of the investor as to the efficacy of the arrangement, creates unforeseen cash flow problems and racks up costs with lawyers and accountants. 

HMRC can also seize funds direct from your bank account if you owe more than £1,000. APNs can be issued for retrospective investments, before the legislation came into force. There is no appeal against an APN, although investors and promoters can apply for judicial review (although this can be a costly process). 

Tax due under an APN is to be paid within 90 days from the date of the notice. You have 90 days to make representations to HMRC and then only on procedural or computational grounds (e.g. it was not a DOTAS scheme, or the accelerated payment claim calculation was incorrect), not because it is considered unjust or inappropriate. The payment date then becomes the later of the original date (90 days) or 30 days after HMRC complete their review. 

Penalties are charged for late payments of tax including APNs, beginning at 5% of tax unpaid after 90 days. There is a maximum penalty of 50% of the tax due for failing to comply with the follower notice. However, no penalties are charged if there is a ‘time-to–pay’ agreement prior to the payment date.

If it is found that the scheme is legitimate, the accelerated payment will be repaid with interest. Note that APNs apply to National Insurance contributions, as well as other taxes.

There are few ways to combat an APN once issued against you. This has resulted in many affected taxpayers withdrawing from their investment and retracting their tax claim, or simply paying the APN and settling the dispute later. Professional advice is strongly recommended for taxpayers who receive an APN.