HMRC New Powers

H M Revenue & Customs

H M Revenue & Customs

The Finance Bill has now received Royal Assent, which means the proposals for Accelerated Payment Notices (APN) and Follower Notices (FN) are now legally binding.

What are Accelerated Payment Notice?

An APN is 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).  HMRC published on 15 July a list of scheme reference numbers confirming which avoidance scheme users may receive an APN.  The list can be found at

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

An APN may be issued with or after a FN (explained below).  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 Notice

Before or at the same time as issuing an APN, HMRC must issue a FN.  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 FN 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 FN.

Who will be affected?

A FN 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 first-tier tribunal decisions.

What are HMRC proposing?

The FN 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.

Are 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 FN notice. HMRC will then determine whether to confirm or withdraw the notice, or confirm or amend the amount specified.

There is no guidance on who will receive notices first.  However, in giving evidence at a Treasury Select Committee, Lin Homer, Chief Executive of HMRC, provided a number of key points, which clarified how HMRC will be approaching the APN regime.  This suggests the impact of the APN regime may, for the time being at least, be milder than had been expected.  Of particular note, she stated that:

  •    at this stage HMRC would only be issuing APNs on cases where there has already been a tribunal decision in  HMRC’s favour; and
  •    HMRC have yet to decide whether any other cases (i.e. cases without a tribunal decision in their favour) will actually be subject to APNs at all.

This last bullet point seems contrary to the purpose of the legislation and the guidance.  However, it is likely that any clients who have entered into arrangements shown on the HMRC list and who have either an open enquiry or an appeal in progress will receive an APN within the next 20 months.

Should you have any concerns regarding a planning arrangement you have entered in to, please do not hesitate to contact Harbour Key Limited.

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16 July 2014

Harbour Key Limited

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