James Bailey outlines new HMRC
powers in the Finance Bill and what it means for taxpayers.
Assuming certain clauses in the current Finance Bill make it through to
the Royal Assent in July, HMRC will have the power to demand tax and to close
cases with no effective right of appeal for the taxpayer.
The recent cleverly managed PR campaign against tax avoidance has
produced a climate of opinion which has made it possible for HMRC to be given
the power to decide the outcome of certain tax disputes without the taxpayer
concerned being allowed to have their view tested in the courts.
The new ‘dictatorship’ comes in two forms –’Accelerated Payment Notices’
and ’Follower Notices’.
Accelerated payment notice
At present, if there is a dispute between HMRC and the taxpayer about
how much tax is due, broadly speaking HMRC must wait for their tax until they
can get a court to say they are correct and the tax should be paid. It has to
be admitted that some of the more disreputable tax avoidance schemes actually
used this as a selling point – if there are millions at stake, a delay of a
year or two in payment is not as good as avoiding the tax completely, but it is
certainly worth having.
Once the Finance Act 2014 becomes law, in certain circumstances HMRC
can issue an ’Accelerated payment notice’ requiring the disputed tax to be paid
within 90 days. The taxpayer has no right of appeal, beyond “making
representations” to HMRC. If HMRC do not back down, the tax is payable and it
is not possible to appeal to the courts against such a notice.
These notices can be issued in three situations:
- where the tax avoidance scheme is one disclosed under the DOTAS rules (which apply to most tax avoidance schemes on the market); or
- HMRC are using the new GAAR (“General Anti-Abuse Rule”) to challenge the scheme; or
- the dispute is sufficiently similar to one decided in HMRC’s favour by the courts –see below.
Note that the rules apply to existing disputes as well as to ones
arising after this July, so if you are currently arguing about a DOTAS scheme,
you may well get such a notice.
Follower notice
These are even more sinister. Where HMRC believe that there is a
‘final’ decision by the tax tribunal or the Courts which, if applied to the
dispute they are having with you, would mean that they would win the argument,
they can require you, effectively, to give up and agree with them, either by
amending your tax return or withdrawing your appeal, as the case may be.
The requirement that a court decision be ‘final’ does not mean it must
have been made by the Supreme Court – it could have been made by a lower court
or even the tax tribunal if the taxpayer concerned could not afford to take it
any further.
Once again, the only appeal is to HMRC themselves, not to the courts,
and if you refuse to comply, and continue your litigation and lose, you will
face a penalty of between 10% and 50% of the tax that was in dispute – and you
will already have had to pay that tax anyway because of the ‘accelerated
payment’ powers.
You cannot appeal (except to HMRC), so we shall be relying on HMRC
being fair and objective in how they compare the decided case with yours.
Of course, they assure us that they will be benevolent dictators.
However, past experience leaves me with little confidence in their assurances.
Practical Tip:
Given the draconian powers now available to HMRC, do not have anything
to do with ‘off the peg’ tax avoidance schemes – most of them do not work and now
they will not even postpone payment of the tax.
