Policy paper

Revenue and Customs Brief 28 (2013): avoidance cases – what happens to repayment claims?

Published 17 September 2013

This policy paper was withdrawn on 12 November 2018

This information is out of date. More information can be found on the tax avoidance page on GOV.UK.

Purpose of this brief

The purpose of this brief is to set out HM Revenue and Customs’ (HMRC) policy on withholding repayment claims in avoidance cases. HMRC aims to stop tax avoiders from acquiring an advantage, even a temporary advantage, over the majority of taxpayers who don’t try to get around the rules.

Who needs to read this?

Anyone involved in tax avoidance that leads to a tax repayment claim.

Background

In the year ended 31 March 2013, there were 32 decisions in the Tribunals and Courts in tax avoidance cases. HMRC won in 26 of those cases (82%) with over £1 billion protected. This excellent result reflects the intensive investigations we conduct into the tax returns of people who use avoidance schemes. Our thorough approach means that it can take some years for our enquiries to be resolved, particularly if we have to litigate.

The small minority who engage in tax avoidance should not gain a tax advantage during the period from the tax due date to the time when we complete our enquiries and resolve any dispute. It is important that anyone who is considering using a tax avoidance scheme should be aware of the steps we will take to make sure that they will not benefit from it. Not only do we challenge the permanent tax result that the avoidance scheme claims to produce, but we also look to deny interim or temporary ‘cash flow’ benefits from engaging in avoidance, particularly where a scheme claims to give rise to a tax repayment or some other form of personal tax relief.

Withholding of repayment claims

In appropriate circumstances, we withhold income tax repayments where the claims which produce them constitute (in our opinion) tax avoidance, and where we are challenging or considering challenging those claims by enquiry. If we are satisfied that a claim for repayment does not depend (or does not wholly depend) on tax avoidance, we do of course work with customers and their agents with a view to making an appropriate provisional repayment. Accordingly, if the repayment included (say) £100,000 in respect of a scheme and £50,000 in respect of other transactions, we would expect to repay the £50,000 quickly (unless of course there was some specific reason for us to doubt that it was correctly claimed). Similarly, if in our view the effect of a scheme is to inflate or accelerate a claim to relief artificially, we would work with customers and their agents with a view to making an appropriate provisional repayment to reflect the portion of the relief which was not in dispute.

Where possible in law, we also withhold giving effect to claims to other forms of personal tax relief which constitute (in our opinion) tax avoidance, and where we are challenging or considering challenging those claims by enquiry. We are not referring to National Insurance Contributions, where claims for repayment do not normally arise as a result of avoidance schemes. We are referring rather to examples such as claims made outside of tax returns, where we may enforce payment of a tax debt where the claim would otherwise have been given effect by discharge or set-off. Pending the Supreme Court’s determination of HMRC’s appeal against the Court of Appeal’s decision in the Cotter case (Maurice David Cotter [2012] EWCA Civ 81), we will not enforce debts which are on all fours with it without recourse to the Tax Tribunal. If we are satisfied that a claim for discharge or set-off does not depend (or does not wholly depend) on tax avoidance, we will work with customers and their agents with a view to giving appropriate provisional effect to the claim.

Where we withhold repayment claims or withhold giving effect to claims to other forms of personal tax relief, the tax avoidance scheme in question will be subject to HMRC’s anti-avoidance governance process under which the Anti-Avoidance Board (made up of senior officials from across HMRC) approves strategies for challenging avoidance schemes. This ensures consistency in handling similar (or apparently similar) avoidance risks.

If we withhold a repayment in any income tax case, our guidance makes it clear that there should be no undue delay in opening an enquiry. In some instances (for example mass marketed tax avoidance schemes) we may need to make use of the full enquiry window to ensure all enquiries and linked enquiries are opened into returns and claims made by users of the scheme. However, if the scheme user so wishes and they (or their agent) contact us before we open an enquiry into their relevant return or claim, we will confirm whether we have withheld a repayment or other personal tax relief because we believe it relates to a tax avoidance scheme which we are challenging or considering challenging.

Issued 17 September 2013