Out-Law News | 14 Sep 2015 | 1:10 pm | 2 min. read
HM Revenue and Customs (HMRC) has issued over 25,000 APNs since August 2014 to users of schemes which demonstrate certain 'avoidance hallmarks'; requiring them to pay the tax associated with that scheme before a tribunal or court has decided whether or not the scheme is effective.
The announcement came as Pinsent Masons, the law firm behind Out-Law.com, filed an appeal against the High Court's dismissal of a judicial review of the policy, brought by members of limited liability partnerships (LLPs) set up by Ingenious Media plc to invest in films, last month. The individuals had claimed that the notices were not issued lawfully because HMRC had adopted an "industrial process" for issuing the notices, rather than exercising the discretion called for by the legislation that implemented the new power.
"HMRC says that it currently wins 80% of the tax cases it takes, but its past record is not necessarily an indicator of future success," said tax expert Heather Self of Pinsent Masons. "And even on those figures, this means that HMRC will eventually have to repay some £200 million of the £1bn collected so far. APNs are a payment on account, and the cash will be repaid if the taxpayer ultimately wins the underlying technical dispute."
Introduced in July 2014, APNs allow HMRC to demand the payment of disputed tax associated with a tax avoidance scheme up front – before a tribunal or court has decided whether or not a scheme is effective. The Ingenious Media case concerned the use of partner payment notices (PPNs), which are similar to APNs but used where the notice is given to a member of a partnership or an LLP.
APNs and PPNs can be issued where schemes demonstrate certain 'avoidance hallmarks', such as the scheme being subject to disclosure requirements under the Disclosure of Tax Avoidance Schemes (DOTAS) rules. They can also be issued in relation to schemes that were entered into before the APN and PPN legislation came into force. Before HMRC gained the new powers, it had to win a tribunal case before it could demand disputed tax in these cases.
The individuals in the Ingenious judicial review case had argued that, when it issued the PPNs, HMRC had given no consideration to relevant circumstances, as required by the legislation that introduced the new power. For example, the new powers were designed to address situations where HMRC had no pre-existing power to hold onto cash pending the outcome of a tax dispute, which was not the case here as HMRC had checked the claims over 10 years ago and could have refused to repay them pending further investigations, they said.
They also argued that the notices were issued in breach of their legitimate expectation that they would not have to pay any tax in dispute until after the First Tier Tribunal had decided on all relevant issues. The case considering the substantive issues is currently being considered by the First Tier Tribunal.
David Gauke, the financial secretary to the Treasury, described the new power as "a real game changer".
"It is no longer possible for these individuals to avoid tax and sit on the money while their affairs are investigated," he said. "This first £1bn received in accelerated payments shows that we are turning the tables on those looking to avoid paying their fair share."
Taxpayers are unable to appeal an APN, but retain full rights against the underlying tax liability. If the case is taken to litigation and the taxpayer ultimately wins, HMRC has to repay the tax with interest. HMRC currently wins "around 80% of avoidance cases that people litigate", according to its enforcement and compliance director, Jennie Granger.