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Accelerated tax payment provisions to be extended to NIC avoidance schemes

New provisions requiring accelerated payment of tax in certain tax avoidance schemes, which became law last week, will be extended to National Insurance Contributions (NICs) two months after the National Insurance Contributions Bill 2014 becomes law, the government has announced .

The accelerated payment provisions give the UK's HM Revenue and Customs (HMRC) the power to demand upfront payment of any disputed tax associated with avoidance schemes by issuing an 'accelerated payment notice'. Previously HMRC had to win a tribunal case before it could demand disputed tax in respect of these schemes.

The provisions currently apply to income tax, capital gains tax, corporation tax, inheritance tax, stamp duty land tax (SDLT), and the annual tax on enveloped dwellings (ATED). In relation to these taxes, the provisions apply from 17 July, the date the Finance Act 2014 became law.

HMRC's statement said: "The government’s intention has been to extend these measures to NICs at the earliest opportunity".

The new rules allow HMRC to issue an accelerated payment notice (APN) where a tax scheme has been notified to HMRC under the Disclosure of Tax Avoidance Scheme (DOTAS) rules or where HMRC has issued a 'follower notice' to a taxpayer who has entered into a scheme where HMRC have won a ruling against a taxpayer in another similar case. A follower notice will require the taxpayer to either settle their dispute or face a large penalty if their dispute with HMRC is ultimately unsuccessful. Follower notices will also be extended to NIC schemes.

Ray McCann, a tax expert at Pinsent Masons, the law firm behind Out-law.com, said "The move to extend the APN rules to NICs may in fact prove even more controversial if HMRC look to collect PAYE and NIC from users of a range of employee trust schemes".

McCann said that many employee benefit trusts (EBTs) and employer-financed retirement benefit schemes (EFRBS) have been disclosed under DOTAS, but HMRC has been largely unsuccessful in persuading the Tax Tribunals that loans made to beneficiaries are earnings. Earlier this month the Upper Tribunal decided in a case involving Rangers Football Club, that loans made to players and other employees who were beneficiaries of an employee trust were not earnings for tax purposes.

"Given the very broad approach of the law relating to APNs, HMRC could in theory issue a payment notice in circumstances where it had no realistic prospect of successfully pursuing the disputed tax and NIC liability through the courts." McCann said.

Last week HMRC published a list of the reference numbers of DOTAS notified schemes where it will require payment of tax before any dispute over the efficacy of the scheme is resolved.

As well as schemes entered into in the future, the rules apply to tax schemes that were entered into and notified under DOTAS a number of years ago. Jason Collins, of Pinsent Masons said last week: “What has really concerned the legal and accountancy community is that HMRC is changing the law retrospectively. That has completely upended the rules that govern these tax disputes.”

HMRC has issued guidance this week on how the accelerated payment notice and the follower notice rules work. In relation to APNs the guidance confirms that taxpayers will be contacted  by  HMRC before an APN is sent out.

HMRC estimates that accelerated payment notices relating to existing avoidance cases currently under dispute will be issued to approximately 33,000 individual taxpayers concerning £5.1 billion of tax and NICs and around 10,000 companies for £2.1bn of tax and NICs. However, there is currently no breakdown of the figures to show specifically those taxpayers using NIC avoidance schemes.

The National Insurance Contributions Bill was introduced into Parliament last week. It also contains provisions to simplifying the collection NICs paid by the self-employed, applying new information powers and penalties to high-risk promoters of avoidance involving NICs and a Targeted Anti Avoidance Rule to prevent people from circumventing new legislation tackling avoidance involving employment intermediaries and offshore employers. It is expected to have its second reading debate in the House of Commons on 8 September 2014, but it is not known when it will become law.

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