Demand for payment notice

Tax Avoidance – “Eclipse”, APNs and tax avoidance schemes

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Posted in:Banking and Finance, Litigation|April 27, 2016 | Join the mailing list

The long-running “Eclipse” tax avoidance case has now reached the Supreme Court.  The case is unlikely to have a decision soon.  However, on the first day of the hearing before the Supreme Court, Eclipse sought to challenge its classification as an “aggressive tax avoidance scheme”.  The Supreme Court rejected this, and its appeal went ahead on the costs issue alone.

HMRC currently has four cases at the Supreme Court. Two on VAT[1], Eclipse (see here [2] for case summary) and one[3] on recovery of input tax.

Eclipse is a long running case, but the Supreme Court decision will be unlikely to have any impact upon tax avoidance cases, as it is technical rules that are applied by Tribunals that are being appealed, not the decisions regarding the suitability of the Eclipse scheme itself.  The final decision on the tax avoidance scheme run by Eclipse was made in December 2013[4] and related to the “tax return for the period ended 5 April 2007”.

Eclipse led to a large number of film production companies not being classified as “real” trades, as they were classified as being first and foremost aggressive tax avoidance schemes.

The result of the tax issue in December 2013 bolstered the then coalition Government’s plans to create new rules to stop, hamper or damage tax avoidance.  This resulted in the Finance Act 2014, which created Accelerated Payment Notices (“APNs”), partner payment notice (“PPNs”) and Follower Notices.  We have written about those a number of times (see here[5], here[6] and here [7]for a selection).  On 18 January 2016, following a Freedom of Information request by berg, HMRC confirmed that from the inception of the Finance Act 2014 to 18 January 2016 HMRC had issued 39,000 APNs and PPNs together with 450 Follower Notices.

There are cases that will be heard at the Court of Appeal in regards to APNs, PPNs and Follower Notices, but the cases so far do not make it likely that a challenge to the Finance Act 2014 would be likely to succeed.

APNs- what can be done?

There are a variety of means by which you can deal with an APN/PPN/Follower Notice.  It is likely that you will have to reach an agreement with HMRC to settle the demand.  However, that is by no means the end of the matter.  Just because a notice has been issued does not mean that HMRC will ultimately rule that the scheme was at fault.  The Notices are only intended to stop consumers having the benefit of the avoided tax whilst HMRC investigates.  Once a decision is made it is likely that the scheme operators would mount challenges to the majority of decisions.

Had the accountants and IFAs acted in your best interests you (in normal circumstances) ought to have also been offered less aggressive tax avoidance measures.  The decision would then rest with you as to whether you wished to take the high risk measures or the lower risk, but lower returns, measures.

You as the tax payer must forfeit that money, but the designers of the schemes and the accountants and IFAs that sold the schemes must be challenged as to whether it was suitable or relevant to sell you that particular scheme.  There are many ways of mitigating tax and building your affairs in order to mitigate your ultimate tax liability.  Most tax avoidance schemes were (and some are) aggressive.  You reap benefits from the aggressive schemes by means of less tax liabilities.  But that high return comes at a high risk that HMRC may ultimately find it is not a scheme within the rules.

Had the accountants and IFAs acted in your best interests you (in normal circumstances) ought to have also been offered less aggressive tax avoidance measures.  The decision would then rest with you as to whether you wished to take the high risk measures or the lower risk, but lower returns, measures.

As such, it is essential that if you receive an APN, PPN or Follower Notice that you:-

  1. Seek urgent advice from a tax accountant but not the accountant that sold you the scheme.
  2. Seek urgent legal advice from berg as to what your rights are.
  3. Ensure that you mount a challenge if possible or pay the Notice within the prescribed time-frame, otherwise significant charges and interest may be added by HMRC.

We have found that many people receiving a notice have approached the accountants and IFAs that sold them the scheme.  Whilst accountants are subject to high professional and regulatory standards there is the obvious point that it is not in theirs or the IFA’s interests to pass you over to a legal advisor. In addition to the tax advice you need, you almost certainly need legal advice.

berg has been a commercial litigation firm for 35 years.  The litigation team are thought leaders and have been at the forefront of the law for many years..  Our solicitors regularly appear in the media discussing litigation issues including those relating to tax avoidance.  Alison Loveday, the firm’s Chief Executive, is regularly asked to give her opinions on BBC news radio and in printed media.

To understand your legal rights, please contact a member of our commercial litigation team.  We work with specialist tax accountants.  We are not tied to any and can freely advise you on your rights

To find out more about the issues raised in this post, or to discuss any queries regarding tax avoidance schemes and payment notices get in touch with our Litigation team on help@berg.co.uk or call +44 (0) 161 829 2599.
The information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by berg or any of its partners or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

 

[1] Commissioners for Her Majesty’s Revenue and Customs (Respondent) v Investment Trust Companies (In Liquidation) and others (Appellants) – two cases case numbers UKSC 2015/0058 & UKSC 2015/0057

[2] https://www.supremecourt.uk/cases/uksc-2014-0114.html

[3] Airtours Holidays Transport Limited (Appellant) v Commissioners for Her Majesty’s Revenue and Customs (Respondent) UKSC 2014/0215

[4] Eclipse Film Partners  (No. 35) LLP v HMRC [2013] UKUT 639 (TCC) (20 December 2013)

http://www.bailii.org/cgi-bin/format.cgi?doc=/uk/cases/UKUT/TCC/2013/639.html&query=(Eclipse)+AND+(Film)+AND+(Partners)

[5] 15 March 2016 “Tax Avoidance, APNs and the 2016 Budget”

Tax Avoidance, APNs and the 2016 Budget

[6] 23 December 2015 “Ingenious Films – APNs and PPNs expected over Christmas”

Ingenious Films – APNs and PPNs expected over Christmas

[7] “If you’ve received an Accelerated Payment Notice (APN)”

If you’ve received an Accelerated Payment Notice (APN)

 

 

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