With the government preparing to claim back up to £7bn from tax avoidance schemes in the coming weeks, Simon Concannon, international tax adviser at Walker Morris, has warned anyone who receives an accelerated payment of tax notice to act fast.
HMRC is planning to issue up to 45,000 notices to individuals and companies requiring them to pay tax that HMRC believes it is owed from tax avoidance schemes that are being challenged.
The new accelerated payment of tax notice (and a linked notice referred to as a follower notice) has been brought in following a string of headlines about a range of celebrities who have used various schemes to avoid paying tax.
Under the clampdown, individuals and companies will be expected to pay tax upfront if HMRC believes they have invested money in a disputed scheme. If you receive an accelerated payment of tax notice, you will normally have just 90 days to pay.
Previously, the legal challenge process could mean many years of not paying tax before the courts decided the tax was due, freeing up that cash in the meantime for other investments. As an example, if an individual took out a tax avoidance scheme in June 2010, they would complete a tax return in January 2012; it could be picked up and investigated by HMRC in 2013–14; the scheme is then challenged but the appeal process might easily last until 2018 if not later and only then, if the scheme is found not to work, would the individual or company be made to pay the tax shortfall.
Concannon said: ‘Now, as soon as HMRC is notified of a person or company seeking to rely on tax avoidance, they can issue a notice to the individual or company to pay the tax they believe is due within three months.
‘If a challenge or appeal is eventually successful, the money will be returned, but the process and timings have been turned on their head. You pay out at the start of the legal challenge — which takes away some of the incentives for these schemes.’
Concannon warns that anyone receiving a notice cannot afford to ignore it, and if you believe a mistake has been made you must appeal quickly.
He added: ‘If you need time to sell assets in order to pay your tax bill, you will have to move very quickly to agree this. HMRC is not likely to be lenient as in its view the tax should have already been paid.
‘It will be an expensive summer for many. HMRC estimates it will be seeking up to £7bn from these notices. Split between 45,000 individuals and companies, the average payment due will be more than £150,000 — although many will have to pay into the millions.
‘If you get a letter, this is not one to put in a drawer and forget about. HMRC is determined to get this money into the government’s coffers.’