Last month the spotlight was turned on Her Majesty's Revenue and Customs (HMRC) after its decision to backtrack on around 2,000 Accelerated Payment Notices (APNs) relating to taxpayers who were part of Montpelier IR 35 Manx Partnership arrangements.
Whilst the conditions for issuing the APNs were not satisfied in this case, the reality is that many taxpayers, including businesses, have already felt the impact of the initiative with many forced to sell their assets in order to pay the amounts demanded from the payment notice. To date, HMRC has issued more than 32,000 APNs and collected more than £1billion of tax since the payments were introduced in 2014.
Prior to the introduction of APNs, taxpayers were aware of HMRC’s ability to recover tax, together with penalties and interest where, following an inspection or enquiry, the taxpayer has been found to have underpaid tax.
However, under the 2014 Finance Act, HMRC was granted significant new powers allowing payment of disputed tax arising from the use of avoidance schemes to be requested prior to the conclusion of investigation.
The estimated tax liability, whether in respect of income tax, corporation tax, VAT, PAYE, or a combination of taxes, will generally be due for payment within 90 days, making affordability a huge concern for taxpayers.
APNs are calculated to a rough estimate and as a result, the final settlement of the tax will likely be very different to the original assessment. This is not always in the taxpayer’s favour and could result in a payment even more significant than first expected. Unfortunately this then has the potential to affect the taxpayer’s cash flow on two occasions, firstly when the APN is issued and secondly when the final amounts including interest and penalties are due.
The APNs do not include penalties or interest themselves, but late payment of an APN can result in surcharges and potential enforcement action being taken to recover the tax or National Insurance Contributions.
All participants in avoidance schemes should take the opportunity to review planning arrangements and consider whether early settlement may be advisable. Perhaps more importantly, if funds to pay the disputed tax upfront are limited, it may be necessary to consider requesting time-to-pay arrangements with HMRC to minimise the scope for late payment penalties.
The key advice is not to ignore the matter, particularly in light of HMRC increasing the capacity of its APN team to enforce payment.
It is expected that all APNs will be issued by March 2016, so if you have entered into any avoidance arrangements, whether before or after APN was introduced in July 2014, now is the time to seek professional advice on the risks of non-settlement with HMRC and the commercial impact of an APN on your company’s cash flow.