Under measures introduced in July 2014 HMRC may issue Accelerated Payment to tax scheme users in order to demand tax up-front and Follower Notices to force compliance in cases where a similar tax dispute has already been ruled on by the courts.

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What are Accelerated Payment Notices?

An Accelerated Payment Notice is a notice issued by HMRC to taxpayers who have used tax avoidance schemes that fall within the Disclosure of Tax Avoidance Schemes (DOTAS) rules or are counteracted under the General Anti-Abuse Rule (GAAR).

The notices will be issued to request upfront payment of the tax avoided under such schemes where the scheme arrangements are subject to dispute.  From HMRC’s perspective the idea is that the disputed tax should be held by the Exchequer during the dispute, removing the cashflow advantage for the scheme participant.

An Accelerated Payment Notice may be issued with or after a Follower Notice.

Both measures act as deterrents to prevent taxpayers relying on schemes and will improve HMRC’s cashflow in cases which might otherwise take years to settle.

These provisions apply to income tax, corporation tax, capital gains tax, inheritance tax, stamp duty land tax and annual tax on enveloped dwellings.

Follower Notices

Before, or at the same time, as issuing an Accelerated Payment Notice, HMRC must issue a follower notice.  There are a number of conditions that must be met, principally that there must be a current tax enquiry or appeal in respect of the relevant tax, and significantly, HMRC must be aware of a judicial ruling which is relevant to the tax arrangements.

The Follower Notice forces a taxpayer to make corrective actions to amend a tax return in HMRC's favour where it considers that a taxpayer has not followed a judicial ruling. 

HMRC may charge penalties of up to 50% of tax due where a taxpayer does not act on a Follower Notice.

When will these be introduced?

The  legislation is contained within Finance Act 2014. The measure has affect from the date the Finance Bill 2014 received Royal Assent (17 July 2014) and will be applicable to all cases where there is an open enquiry or an appeal on or after the day of Royal Assent. This gives retrospective effect to the legislation as it includes judicial rulings prior to enactment.

Who will be affected?

A notice can be issued to a person who has participated in a scheme or arrangement where there is an open enquiry or appeal, and HMRC are of the opinion that there is a relevant judicial ruling, which includes FTT decisions.

What are HMRC proposing?

The notice will require the taxpayer to pay the tax in dispute within 90 days, or a further 30 days where the taxpayer requests that HMRC should reconsider the amount of the payment notice. Where the matter is under appeal, it will remove any postponement of the disputed tax. Penalties will apply for late payment.

Will there be any right of appeal/safeguards?

The taxpayer has 90 days from the date of issue to object on the grounds that the relevant conditions have not been met or to the amount specified in the notice. HMRC will then determine whether to confirm or withdraw the notice, or confirm or amend the amount specified.

General comments

There have been a number of concerns raised over the proposals, not least by the scheme promoters.  Several influential professional organisations have also expressed concerns with the new measures. Criticisms include lack of consultation time available to the main bodies to review the detailed proposals, whether the measures are sufficiently targeted at the minority of scheme promoters identified by HMRC, the retrospective nature of the legislation and a lack of right of appeal in follower cases.