Accelerated Payment Notices – the controversy continues
The controversy
We wrote about Follower Notices and Accelerated Payment Notices (“APN’s”) in our last posting. Since that time the controversy surrounding the new legislation has increased and it is fair to say that APN’s are currently exercising the minds of many taxpayers and their advisers.
When can HMRC issue an APN?
In a nutshell:-
- HMRC need to be enquiring into the tax affairs of a taxpayer or that taxpayer must have brought an appeal to the First-tier Tribunal (“FTT”);
- The Taxpayer must have secured a tax advantage from the arrangements in question;
- The Taxpayer has been given a Follower Notice; or
- The Taxpayer has entered into a DOTAS scheme; or
- The Taxpayer has been issued with a GAAR counteraction notice.
Contents of the APN
The APN must set out the taxpayer’s rights to make representations about the notice and, where the notice is given during an enquiry, it also has to stipulate that failure to comply with the APN may render him or her liable to a penalty.
What happens next?
The taxpayer has 90 days from receiving the notice to make representations to HMRC objecting either to the grounds on which the notice was given, or the amount that he or she has been asked to pay or both. HMRC are obliged to consider these representations, and having done so either confirm the APN (with or without amendment) or withdraw it. There is no right of appeal against either the original issue of the notice or HMRC confirming its refusal to withdraw it subsequent to the taxpayer making representations.
Penalties
There is a penalty of 5% for failure to pay an APN issued whilst an enquiry is in progress with further incremental increases of 5% at half yearly periods thereafter. There is, however, a right of appeal against the penalty.
The tax debt
Once the above process is completed, the amount specified in the APN becomes payable, and is a tax debt and collectable by HMRC through the civil recovery process. This includes an action in bankruptcy against the taxpayer.
What can the taxpayer do?
The APN and Follower Notice legislation is draconian and taxpayers have no right of appeal to the FTT unless a penalty is in point. The legislation is particularly unfair when it is targeted against those who entered into arrangements that required to be declared under DOTAS because, under these circumstances, it is effectively retrospective in its operation because those arrangements will pre-date, often by substantial periods, the introduction of the new legislation. The result is that APN’s may potentially be susceptible to challenge, in an action for judicial review, as breaching human rights principles. Although retrospective legislation is not prohibited by human rights law there is a strong presumption against it. In 2003, in the case of MA and 34 Others v Finland, the European Court of Human Rights stated that the key question was whether the backdating struck a ‘fair balance between those affected by the change, both positively and negatively.’ We suggest that legislation that imposes an accelerated payment of tax long after a taxpayer has entered into an arrangement, where that arrangement has been disclosed to HMRC under DOTAS, is unfairly weighted against the taxpayer and in favour of the State. Each case will need to be considered on its own merits, however, and there will be cases where taxpayers confident of their position decide that a preferable route is to pay the tax demanded under the APN and proceed to ask the FTT for a closure notice to progress their appeals at the earliest possible opportunity.
And so the controversy goes on….
We are in the earliest stages of HMRC’s Follower Notice and APN programme and it is likely that the debate will continue will for a long time to come.
Levy & Levy – the tax investigations and resolution specialists in London and Tunbridge Wells.