Businesses that have taken part in one or more of the 800 tax avoidance schemes listed by HMRC in July 2014 can expect to receive demands this month for prompt payment, warns tax law firm Winckworth Sherwood.
Using new powers introduced through the Finance Act 2014, HMRC will start to issue Follower Notices and Accelerated Payment Notices to some 10,000 businesses it believes have taken part in deliberate tax avoidance schemes, giving them just 90 days to settle demands.
Simon Newsham, a Partner in the Tax team at law firm Winckworth Sherwood said: “This is the most significant of the many clampdowns by HMRC on those taxpayers that have engaged in tax avoidance schemes and practices. Business owners will be naturally concerned when they receive these demands and it is entirely possible that they will not be able to afford to pay straightaway.”
A Follower Notice can be issued by HMRC where it believes there has been a court or tribunal decision in a case that is similar to the tax treatment that has been claimed by the taxpayer. Where a Follower Notice has been issued, the taxpayer will be required to amend their tax return or claim or withdraw any appeal against an HMRC closure notice, assessment or determination.
Accelerated Payment Notices are issued where a taxpayer has entered into a tax avoidance arrangement that has been notified to HMRC under the disclosure of tax avoidance scheme rules (DOTAS) or where a counteraction has taken place under the general anti-avoidance rules (GAAR). Taxpayers who receive an Accelerated Payment Notice will have to pay the tax due to HMRC within 90 days.
Simon offers this advice to businesses that find a Follower Notice or Accelerated Payment Notice on their doormat:
· Don’t panic.
· Don’t ignore it! Don’t put it in the bin or file it somewhere hoping it will go away. You have 90 days in which to pay the tax or to make representations to HMRC – the clock is ticking!
· Do pick up the phone to a tax professional – a chartered tax adviser or specialist tax lawyer. There may be the possibility that HMRC have not followed due process (this could open up the possibility of seeking judicial review) or the quantum of tax in question may be significantly overstated.
· Do consider whether you have been mis-sold the product. Do you have a claim against the scheme provider or the financial adviser? You may even be entitled to compensation from the Financial Ombudsman, particularly if the investment was regulated and the financial adviser was unregulated.
· Do start collating all the correspondence and communications, including any emails, you received about the tax mitigation arrangements. These will be essential in supporting any negotiations with HMRC and helping to consider any potential claims against others and your rights to compensation.
· Ultimately, early engagement with HMRC is essential, particularly if a taxpayer needs time to pay the disputed tax and/or wishes to make representations. They key point to note is that neither a Follower Notice or Accelerated Payment Notice can be appealed, so a taxpayer needs to act very fast in order to consider the best action to take.
Simon adds: “It would not be surprising to see businesses taking legal action against those advisers who sold these products, nor would it be surprising to see businesses collapse following what could be very steep tax demands.”
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