In September 2014, HMRC issued the first wave of “Accelerated Payment Notices” (APNs) to around 2,500 individuals suspected of entering into what it calls “unacceptable tax avoidance schemes,” and will issue a further 43,000 notices over the next 18 months in an attempt to recover an estimated £7.1 billion in tax revenue.
Until the Finance Act 2014 came into force for the 2014-15 tax year, taxpayers involved in tax planning did not have to pay a disputed tax bill until deemed payable by a court of law. This must be correct: it is for the State to justify a tax, and no tax can be due until a dispute over its levy is resolved by proper legal process.
The APN regime has reversed this in certain cases. The disputed tax must now be paid up-front within 90 days of notice (under threat of “late payment penalties”) and will only be paid back by HMRC if and when the courts decide that the taxpayer was right all along.
The upshot of the new regime is that HMRC becomes the judge, the jury and the executioner: bullying taxpayers out of the justice system, acting retrospectively and imposing an extra administrative burden on the public finances. The extra loose change is not worth the cost.
Firstly, in the Response Document “Tackling Marketed Tax Avoidance” (27 March 2014), HMRC have admitted that requiring an up-front payment of tax is designed to restrict the “cash-flow advantage” taxpayers otherwise possess to fight assessments – and what is the taxpayer’s loss is HMRC’s gain. But while a victory for the Revenue may be palatable if won in the courts, it leaves a bad taste in the mouth when a person – whose tax affairs the courts would otherwise deem perfectly legitimate – is squeezed out of the justice system altogether. Although HMRC will claim that the new regime merely encourages potential avoiders to “throw in the towel”, in reality what it amounts to is a bullying technique designed to bleed dry the routes to justice.
Secondly, the government has brushed off concerns that the APN regime applies retrospectively, despite its application to DOTAS-registered schemes (schemes identified by HMRC as having a tax avoidance purpose) entered into before this tax year. Although HMRC argues that the regime is not retrospective because the regime “does not change the underlying tax liability,” the truth is that those who had planned their tax affairs and resultant cash-flows according to the law at the time will now face serious unexpected consequences, including possible insolvency. Therefore, despite HMRC’s protests, the application of the APN regime does represent an affront to the rule of law and should not be tolerated.
Indeed, HMRC concedes that judicial review challenges to the legality of the regime will undoubtedly be mounted and that “flexible legal resource options are being considered to meet the demands of this work.” The general taxpayer should therefore expect to foot the bill for this expected litigation, as a direct consequence of a legally questionable reform.
More specific concerns can be raised with the details of the APN regime, relating to the nature of the “late payment penalties” and so-called “follower notices” issued as a way for HMRC to satisfy the conditions necessary to issue APNs later down the line. These concerns will be considered more closely in a future blog entry.
While HMRC may need more tools to stamp out aggressive tax avoidance, the recently enacted Accelerated Payments Notice regime represents a reversal of constitutional orthodoxy and an extension of the Revenue’s powers beyond morally acceptable limits. In addition to the recently proposed powers for HMRC to directly access taxpayer bank accounts, the APN regime reflects a worrying trend of state expansion that has gone largely unnoticed outside tax circles.