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This publication is available at https://www.gov.uk/government/publications/issue-briefing-tax-avoidance-scheme-users-to-make-upfront-payments/issue-briefing-tax-avoidance-scheme-users-to-make-upfront-payments
From 17 July 2014, individuals and businesses involved in tax avoidance schemes have to pay HMRC the disputed amount of tax upfront while the dispute is resolved. This new power, called ‘Accelerated Payments,’ came into force as part of the Finance Act 2014. Accelerated Payments removes the cash-flow advantage that those who deliberately try to bend the tax rules by avoiding tax currently have over the majority of taxpayers who pay their tax up front. This briefing explains why this new requirement is important and how we are applying Accelerated Payments.
1. Why is this change important?
The vast majority of people pay the right amount of tax on time, but a small number of individuals and businesses try to avoid paying what they owe through tax avoidance schemes. Most of these schemes do not work, but until now people have been able to hold on to the disputed tax until their case is resolved, which in some instances can be a considerable length of time, often for many years.
This has given users of avoidance schemes a cash-flow advantage over people who pay their tax up front. The government has decided to take away the cash-flow incentive to use these schemes by making more people pay the disputed tax in advance, putting those who use tax avoidance schemes on the same footing as the vast majority of other taxpayers.
2. How will it work?
We are applying Accelerated Payments to schemes that are:
- formally notified to HMRC through the Disclosure of Tax Avoidance Schemes (DOTAS) rules
- counteracted by the General Anti-Abuse Rule (GAAR)
- similar to ones already defeated in court
The use of Accelerated Payments only applies to the use of tax avoidance schemes that we dispute, which generally fall into six broad categories:
- sideways loss schemes
- stamp duty land tax (SDLT) schemes
- self-employment schemes
- artificial loss deduction schemes
- capital gains schemes
- employment schemes
It is a legal requirement that HMRC must have opened an enquiry, or made an assessment, into a taxpayer’s case before we can issue an Accelerated Payment notice.
In the weeks before a taxpayer receives a payment notice, we are writing to them to let them know it is coming. We are also contacting promoters of schemes around six weeks before notices are issued so they can be prepared to support their clients.
Those who receive notices and wish to settle their claim instead of paying the Accelerated Payment notice are given the opportunity to do so. We want to resolve these cases as quickly as possible.
Accelerated Payments does not affect the vast majority of people, who do not seek to avoid tax. It also does not affect taxpayers who agree to pay the tax owed.
The new system does not affect anyone’s right to pursue their dispute with us if they feel they are legally entitled to the tax advantage claimed by the avoidance scheme. Should they win their case, we will repay the tax with interest. We win around 80 per cent of avoidance cases that taxpayers choose to take to court, and many more settle with us before reaching litigation.
Accelerated Payments simply changes where the disputed tax sits while a taxpayer’s case is being argued. The tax they pay upfront is the same amount that would have already been paid if they hadn’t used the avoidance scheme in the first place.
3. Who will be affected?
We expect around 43,000 taxpayers involved in avoidance schemes currently under dispute with HMRC to receive payment notices. We will be issuing notices to around 33,000 individuals and 10,000 businesses. The average income of an individual who may receive a notice is £262,000. Some cases involve wealthy individuals who are trying to avoid over £10 million of tax through the use of avoidance schemes.
Accelerated Payments does not affect genuine investment, including investment in films. Some investment schemes have to disclose their activity to us under the DOTAS rules, but if they are genuine investments there will be little or no tax in dispute, and so no demand for an Accelerated Payment. A clear characteristic of many schemes that we challenge is that the claimed tax relief is far greater than any actual investment made by the taxpayer. The new Film Tax Relief, introduced in 2007, has proved very successful at attracting inward investment, and there has been no reported avoidance activity using the relief.
4. What’s happening now?
Now that the legislation is in place we have started issuing Accelerated Payment notices. On 15 July we published a list of the DOTAS avoidance schemes whose users may be required to make an accelerated payment of tax. The list is being revised quarterly and the latest 2015 update has now been published. This provides a first warning for avoidance scheme users that they may need to prepare for a notice.
We expect to send the vast majority of notices to avoidance scheme users over the course of 2014 to 2015 and 2015 to 2016. They are being phased over the two years. We are giving avoidance scheme users receiving notices support where they need to discuss their case, or wish to settle their claim instead of paying the Accelerated Payment notice.
We would encourage those who are worried about paying the notice to come forward and discuss how they could settle their case with us. In cases of genuine hardship, we are considering alternative payment arrangements as we do with any debt. The priority in cases of genuine hardship is to get people onto a payment schedule so that the debt is paid as quickly as possible.
5. To find out more
Detailed information about how we are administering Accelerated Payments can be found here and Compliance checks: tax avoidance schemes - accelerated payments CC/FS24. Anyone wishing to settle an avoidance issue should contact HMRC immediately on 03000 530435.