The government has announced a consultation on a radical extension to its plans to introduce ‘accelerated payment’ provisions which, if implemented, would require tax to be paid upfront in disputes about tax avoidance. The money would be given back to the taxpayer only if they were later able to persuade HMRC that the tax was not due or to succeed in litigation.
Under current rules HMRC is only generally able to claim disputed tax from a scheme user if it has succeeded in a tax tribunal appeal by that user of the scheme say Harris & Co accountants Northampton, the tax specialists for smalland medium sized businesses.
HMRC has been consulting since 2011 on proposals to remove the cashflow advantage from users of tax avoidance schemes. Until this new consultation, the tax authority had only been proposing that accelerated payment would be required where HMRC issues a ‘follower notice’ to users of a scheme to say that the scheme has already been proven to fail in other litigation. HMRC is now consulting on requiring accelerated payment merely where the taxpayer has used a scheme disclosable under the Disclosure of Tax Avoidance Schemes (DOTAS) rules, or in cases in which HMRC has decided to proceed to counteraction by way of the General Anti-Abuse Rule (GAAR).
The proposed extension would apply to users of pre-existing schemes, not just to those who enter into a scheme after the proposals become law. If this retrospective aspect of the changes becomes law, HMRC will effectively be moving the goalposts during the dispute. Anyone who has entered into an existing DOTAS-registered tax scheme could receive a notice immediately after Royal Assent is given to the Finance Bill 2014 (likely to be sometime in July 2014), giving the taxpayer 90 days in which to pay the tax in dispute, even though the scheme is still under enquiry or being litigated.
If an accelerated payment is required, it will change the dynamic in the dispute as there will be a greater spur for taxpayers to get on with the litigation in order to establish whether the scheme is legally effective. HMRC"s hope is that because they have had to pay all the tax, the taxpayers merely decide to give up the fight. One has to ask whether moving the goalposts in this way is lawful?
For new schemes these changes have the potential to be, as the government intends, a ‘game changer’. Buyers of tax schemes are much less likely to be interested if they have to pay the tax upfront, especially as the promoter usually expects its fee to be paid upfront.
However, because these rules would primarily bite on schemes disclosable under DOTAS, promoters may be more willing to take an aggressive position on what falls within the reporting regime. There are also concerns that the changes could drive promoters offshore, since the obligation to disclose under DOTAS then falls on scheme users, who may be provided with debatable advice about disclosure by the promoter. The measures may therefore have the perverse effect of driving tax avoidance more ‘underground’.
Many tax professionals have been lobbying for an ‘amnesty’ for historic planning. HMRC"s position has been to distinguish amnesties given to tax evaders (such as the Liechtenstein Disclosure Facility) because the evaders are usually not known to HMRC and it needs to provide an incentive for them to come forward. As it knows the identities of most avoidance scheme users, and is currently winning 80% of tax avoidance litigation, HMRC says it simply cannot countenance any kind of give-away.
However, there are 65,000 known taxpayers embroiled in tax avoidance schemes and, even with these planned measures, it will take HMRC a very long time to collect in all the cash and finish the litigation – especially if the extension of accelerated payment is the subject of a legal challenge. Surely the pragmatic solution would be to recognise this fact and offer a discount against the tax? Cleaning up legacy planning through voluntary measures would free up HMRC"s limited resources to focus on using the new weapons at its disposal to stop new forms of tax avoidance taking hold.