HMRC has been forced to withdraw thousands of APNs in respect of a contractor Isle of Man tax avoidance scheme.

Some 2,000 Accelerated Payment Notices (APNs) issued to IT contractors who used Montpelier's IR35 Max Partnership tax avoidance scheme are affected.

Certain conditions must be met to allow HMRC to an issue an APN, these failed to meet Condition C: the arrangements were not Disclosure of Tax Avoidance Schemes (DOTAS) arrangements (section 219(4)(b) FA 2014). It transpires that the  scheme was notifed under DOTAS back in 2004, however it was not at that time notifiable.

Although any tax paid is now refundable as the APN is invalid, the legislation does not set any time limit for repayment. It seems more likely that HMRC will amend the APN rules rather than repay APN tax to contractors. HMRC holds the view that the scheme was abusive.

The tax planning here; the use of an Isle of Man partnership was blocked by section 58 FA 2008, with retrospective effect. This was challenged by a contractor who claimed that HMRC had breached his human rights in assessing him for over £100,000 in back taxes because at the time he participated in the scheme HMRC knew about the loophole but it had failed to act. The Court of Appeal ruled that HMRC's action was legal.