News added on 11.07.2014


Tax avoidance

Tax-avoidance schemes - “pay now, argue later” rules coming in

Legislation is coming into force later in July 2014 to enable HMRC to demand upfront payment of disputed tax relating to tax-avoidance schemes before the enquiry is settled. How will it work?

Finance Bill 2014 proposals. The Finance Bill 2014, to be enacted later in July 2014, proposes an upfront or “accelerated” payment of the tax in ongoing tax-avoidance scheme cases. This is designed to break the logjam of unresolved tax-avoidance cases involving high net worth individuals which, from reports this week, include Katie Melua, Sir Michael Caine, Anne Robinson and the Arctic Monkeys.

Will you be affected? You will be required to make an accelerated payment where the disputed tax arises from a scheme where the main (or one of the main) purposes of it is to obtain a tax advantage, and:

  •     there is a final judicial ruling in another case which would deny the tax treatment adopted; or
  •     where the arrangements have been disclosed under the "disclosure of tax avoidance schemes" rules; or
  •     where the tax treatment is subject to HMRC counteraction under the general anti-abuse rule.

Retrospective. What’s particularly harsh is that these rules do not only apply going forward. Even if you entered into a disclosed tax-avoidance scheme years ago, you are still likely to be sent a demand for tax providing the enquiry is still open.

When’s the tax due? It’s expected that HMRC will start to send out tax demands, known as “accelerated payment notices”, during the summer of 2014. Once received, you must make the accelerated payment within 90 days of receipt of the notice.

Penalties? A late payment penalty of 5% of the disputed tax is payable if the payment is not made by the deadline, and a further 5% at five and eleven months after the deadline.

Can it be challenged? Unfortunately, you have no right of appeal about the validity of the notice. However, as the rules are retrospective, there may be grounds to open a judicial review challenge on human rights grounds as they fundamentally change the usual procedures for legal disputes. Our advice would be to speak to the promoter of the tax-avoidance scheme to see what they recommend.

Tip. With only 90 days to pay and an average tax demand likely to be around £167,000, prepare for the worst now by ensuring you have sufficient funds available to meet expected payment notices.

HMRC will start sending out upfront tax demands during the summer of 2014. Once received, you have just 90 days to pay up or face an additional 5% penalty. Ensure you have sufficient funding in place to pay the bill.

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