In his Autumn Statement on 5 December, the Chancellor of the Exchequer announced proposals (followed by draft legislation on 13 December) to put in place a requirement for taxpayers to settle tax disputes and make payment of the disputed tax on receipt of a “Follower Notice” issued by HMRC stating that their case is on the same or substantially the same grounds as a case decided by a tribunal or court in favour of HMRC.
The draft legislation is to be taken forward as part of the 2014 Finance Bill and, subject to Parliamentary scrutiny, will become law on the date of Royal Assent to Finance Bill 2014 (‘FB 2014’).
The draft legislation is to be taken forward as part of the 2014 Finance Bill and, subject to Parliamentary scrutiny, will become law on the date of Royal Assent to Finance Bill 2014 (‘FB 2014’).
In a subsequent development, HMRC has now issued further proposals, in the form of a Consultation Document dated 24 January 2014 which aims to extend the scope of the FB 2014 ‘Follower Payment’ provisions to a much wider group of taxpayers. The critical aspect of these additional changes is that Payment Notices will be issued to DoTAS scheme users if an enquiry has been opened or an appeal made rather than waiting until a case has been decided by litigation. The policy objective is to ensure no cash flow benefit arises from entering into a tax avoidance scheme and to bring in cash from existing schemes where the result of litigation may still be years away.
The additional changes will affect individuals and companies who have entered into tax avoidance schemes which are subject to disclosure under the DoTAS provisions following Royal Assent to FB 2014. It is HMRC’s intention to issue, in time for Royal Assent – which can be expected at some point in July 2014 – a list of DoTAS schemes where a “Payment Notice” will be issued under the new legislation.
Payment notices will be issued by HMRC sometime after the date of Royal Assent and, under the outlined proposals, disputed tax will be due for payment 90 days following the date of the payment notice.
The proposals to extend the scope of the “Follower Payment” provisions are subject to a consultation process until 24 February and, to subsequent Parliamentary scrutiny prior to becoming law. The proposals already have ministerial support and, as part of the Government’s Action Plan to tackle tax avoidance, it seems likely the proposals will be enacted, in some form, in this year’s Finance Act.
Although it cannot be predicted with certainty at this stage, we believe there is a strong possibility that HMRC will issue Payment Notices for corporation tax in relation to certain Employee Benefit Trusts, Employer Financed Retirement Benefit Schemes and other schemes designed to reward employees without any charges for PAYE and NICs but, for which a corporation tax deduction has been claimed. Another option for HMRC would be to issue a Payment Notice for PAYE and NICs but, given the status of current case law on contributions to EBTs being ‘earnings’ for PAYE/NIC purposes, that seems a much less likely course of action.
Many companies will be forced by these new proposals to review their options in relation to EFRBS and other DoTAS arrangements.
There is a specific point concerning companies which have implemented EFRBS arrangements that is worth highlighting. Under the November 2013 ‘EFRBS Settlement Opportunity’, HMRC has offered companies two options to settle EFRBS’ disputes; either by payment of corporation tax or by payment of PAYE and NIC. Under the second option for the payment of PAYE & NIC it will often be preferable for the trust to be wound up by 30 June 2014 for funds to be extracted free of further PAYE & NIC at the time of settlement with HMRC. Companies that have up until now decided not to settle voluntarily with HMRC on the basis of cash flow may find their position is radically altered in view of the possibility of receiving a Payment Notice later this year.
Deciding whether or not to take up the EFRBS Settlement Opportunity is, typically, dependent upon a careful consideration of the advantages and disadvantages of settlement given the specific facts and circumstances of each case. In our experience there is no ‘one size fits all’ approach to the issue.
These new payment provisions are, inevitably, now going to be an important additional factor to consider in weighing-up the pros and cons of the decision on whether to register an interest under HMRC’s
November 2013 EFRBS Settlement Offer. Strictly, the registration process under these provisions closed on 31 December, but our experience to date is that it is unlikely that HMRC would reject a late registration provided it is made in good time to allow settlement by the 30 June 2014 deadline. However, given the normal timescale for settlement of enquiry cases, it has to be expected that this particular window will close within a matter of weeks rather than months. Whether that window closes before we have draft legislation on the proposals (at Budget 2014) is a moot point.
Unfortunately, the decision on whether to register an interest under the EFRBS Settlement Opportunity, already one which was subject to a considerable number of ‘ifs and buts’, has just become subject to even more uncertainty.
What has become clear is that a decision needs to be made urgently, one way or another. A ‘wait and see’ approach in relation to litigation of EBT lead cases (including HMRC’s appeal of the FTT’s decision in the ‘Rangers’ case which is due to be heard by the Upper Tribunal at the end of this month) is simply not going to be an option post Royal Assent to FB 2014, at least in terms of the payment of tax in dispute.