Key Points
- The Accelerated Payments provisions are.Included in the Finance Bill as expected.
- Potentially thousands of demands giving 90 days to pay tax could be issued in late summer.
- Contact us now for an initial review of your position and the options available to you.
The 2014 Finance Bill published on 27 March included the promised draft legislation on Follower Notices and Payment Notices. These measures represent a sea change in the approach to collection of tax in dispute cases and put the advantage firmly with HMRC. Businesses and individuals need to start preparing now for substantial payment demands this summer in relation to tax liabilities dating back up to 10 years. In this article we look at Payment Notices and we will issue a separate item shortly on Follower Notices.
Payment Notices for what are being called Accelerated Payments can be issued to users of Disclosed Tax Avoidance Schemes as long as HMRC has opened an enquiry or made an assessment that is under appeal. They can also be issued where a GAAR counteraction notice has been issued – which will be rare – or where HMRC has issued a Follower Notice. Follower Notices are issued when HMRC believes there is a relevant judicial decision in another case that means tax should be paid in similar cases.
Payment Notices can be issued for Income Tax (including PAYE), Corporation Tax, Capital Gains Tax, Stamp Duty Land Tax, Inheritance Tax and the Annual Tax on Enveloped Dwellings. VAT and NIC are not included at present but HMRC have stated that new legislation will be enacted to bring NIC into these rules.
The largest group that is likely to be affected by Payment Notices are those who have used tax avoidance schemes. HMRC believes there are 65,000 cases under enquiry and that over £1bn can be collected now rather than waiting for years to litigate cases; this is the main driver for the new rules.
There is no requirement for HMRC to have started litigation in the particular scheme or even a similar scheme to issue a Payment Notice. The amount due will be the tax that would have been payable to the best of HMRC’s judgement had the “tax advantage” not been sought. Payment Notices will give 90 days for payment to be made and although the taxpayer can make representations to HMRC, there is no right of appeal to an independent body like the tax tribunal. The decision on whether to confirm or amend the payment notice is that of HMRC alone. Therefore, the right to pay only the tax one has self-assessed is effectively withdrawn by the issue of a Payment Notice.
The normal rules on enforcement action to collect tax apply. If collection of tax has previously been postponed as part of an appeal the issue of a Payment Notice supersedes this and the tax becomes legally due for payment again 90 days later. There are special penalties for non-payment following the issue of a Payment Notice; 5% of the amount is charged if payment is not made by the payment date specified in the notice, another 5% 5 months later and a further 5% after 11 months.
If enacted, these provisions could cause enormous distress for those faced with unexpected payment demands at short notice. There are many unanswered questions concerning which schemes HMRC will target, what taxes they will try to collect in cases where they believe they have a choice, what happens if a company is insolvent, whether time to pay will be granted, how HMRC will calculate the tax it believes is due and how Payment Notices will affect those who might want to come to a voluntary settlement with HMRC instead.
Our experience so far is that the prospect of Payment Notices is causing companies and individuals to look again at the costs and terms of settlement with HMRC as an alternative. For others the issue of a large payment demand may put the future of a business in jeopardy or create a potential personal bankruptcy and they are considering much wider issues as a result.