Top accountancy firm predicts new tax powers may send businesses under
Those involved in marketed tax avoidance schemes will be cringing in anticipation of the new ‘Accelerated Payment’ rules that are about to come into force. New powers will enable HMRC to issue advance tax demands to individuals or businesses who are under investigation because of their use of a tax avoidance scheme, rather than waiting for a tax tribunal ruling.
Where an ‘Accelerated Payment Notice’ is served on a person, then the disputed tax has to be paid within 90 days. No right of appeal exists other than the ability to make representations to HMRC. Should HMRC not relent however then it is not possible to advance an appeal to the courts.
Notices can be issued in three circumstances:
- Where the tax avoidance scheme has been registered under the Disclosure of Tax Avoidance Schemes (DOTAS) rules; or
- HMRC challenge a scheme under the new General Anti-Abuse Rule (GAAR); or
- Similarities exist between a court case found in favour of HMRC and the one in dispute.
Where HMRC score a victory at a tax tribunal or the Courts, the ruling of which can be applied to an ongoing dispute, then the Revenue can issue the taxpayer with a ‘Follower Notice’. This notice will require a person to amend their tax return or agree to settle on the basis that the likelihood of the taxpayer’s scheme succeeding is remote. Again, rights of appeal are limited and to add insult to injury failing to comply could result in a penalty of between 10 – 50% of the tax in dispute, where a person continues with litigation and loses.
The Treasury estimates that potentially 33,000 individuals and 10,000 businesses could be handed such notices, with some as early as July.
The rules will apply retrospectively to any existing dispute that involves a scheme registered under DOTAS.
These draconian powers could lead to enforced bankruptcies or insolvencies according to David Elliott, restructuring partner at top ten accountancy firm, Moore Stephens, when speaking to ‘Accountancy Age’.
The media and some members of the public have been baying for the blood of tax avoiders but is this what we really want – to hand further powers to HMRC so that they can ride roughshod over businesses and individuals, some of whom have acted in innocence and ignorance?
This is clearly an abuse of power and a restriction of taxpayer rights.
HMRC do not seem to be sufficiently organised to deal with the additional administrative work, even though an extra 800 staff have been allocated to Counter Avoidance duties.
Once the Treasury have the money, we could see the resolution of these “disputes” drag on for several more years in many cases . . .
I think think this could be a retrograde step. When the DOTAS rules were introduced in 2006 it meant that certain tax avoidance strategies had to be presented to HMRC and given a number prior to being used. Under this scheme HMRC had prior notice of the scheme and when it was used the number appeared on the tax return. Now I suspect that the companies that are in the tax planning industry will be looking at strategies that do not fall within the DOTAS regime. So HMRC will not have any prior knowledge of the tax avoidance strategy that is being used and will be left in the situation where their already stretched resources will in the first instance have to understand the particular strategy that was being used.
The rule of law has gone out of the window. CoCo the Clown loses a tax case and HMRC then has unfettered power to issue Follower Notices for any tax dispute they deem similar even if HMRC has already lost other cases, and you then face a 50% penalty if you refuse to withdrew your Appeal even if you make a payment on account of the disputed tax! And no HMRC dont pay you a 50% penalty if you gambled your life and win your tax case. Legalised Robbery. Blatantly unfair.
MPs exempt from Tax Avoidance!!! WHY!!!????
Retrospective law changes should not be allowed – they are illogical and irrational and give no certainty. Also, Osborne fought for no retro in India when it was applied to Vodafone.