Tax Avoidance Schemes and the Accelerated Payment Notices

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Posted in:Banking and Finance|July 17, 2014 | Join the mailing list

There has been a lot of media attention over the last week with regards to tax avoidance schemes and the accelerated payment notices that are about to be received.  How this could affect you is set out below.

One of the budget announcements in 2013 and repeated in 2014 is the Government’s desire to stop people abusing the tax laws to limit their amount of tax they should pay.  This does not concern “normal” or legitimate tax avoidance, such as using your exemption
or using your ISA to its maximum level; this is concerned with schemes set up and designed to artificially create tax exemptions.  

None of the tax avoidance schemes are set up knowing that they are “illegal”, but many are so contrived in the steps taken to create a loss to come within a tax exemption that they are found by HMRC and subsequently the tax tribunals to be in breach of the
requirements of such schemes.  The critical distinction is the artificiality of the schemes.  So, for instance, there are some very notable tax exemptions that apply to people who invest in the UK film industry.  These exemptions are designed to make it more
attractive to people to invest and thereby help increase the amount of film making in the UK.

Unfortunately, many tax experts have used these exemptions to create schemes whose sole purpose is tax avoidance..  Many take abnormal or artificial steps to purposefully create losses that can then be used to off-set against a person’s tax liabilities.

In an effort to combat this, the Government has brought in a plethora of technical rules.  The latest rules to apply mean, in general, that if you are a member of a certain class of tax avoidance scheme you will receive an accelerated payment notice.  Under
the notice you will be notified by HMRC how much tax would be saved through the scheme and to pay this sum to HMRC now.  If HMRC challenges the scheme through the Tribunal service (or is already doing this) HMRC/the Treasury will retain (and have use of) those
tax monies.  If HMRC loses their challenge to the scheme the money will be returned to you.  If HMRC win their challenge, they keep the money. This is a classic instance of “pay now, argue later”.  You may also receive a Follower Notice, which is issued where
a final judicial determination has been made against one scheme member and the person receiving the notice (a demand for payment for the “avoided tax”) is in the same scheme.

We would recommend taking immediate advice following receipt of accelerated payment notices and follower notices issued pursuant to Disclosure of Tax Avoidance Schemes (DOTAS) rules or where counteracted by HMRC under the General Anti-Abuse Rule (GAAR).

You should also be aware of the very substantial penalties for not complying with these notices.

These notices will all become applicable when the Finance Bill receives royal assent, which is expected to be on 22nd July 2014. Please see our

Tax Avoidance Schemes page
and the following for more information.
Accelerated payments of tax associated with schemes covered by the DOTAS rules or counteracted under the GAAR Download.

For more information about any of the above or for practical advice on this or any other aspect of banking and financial disputes, please contact
Kalvin Chapman
of the Berg Banking Litigation Team on 0161 833 9211 or email him at
KalvinC@berg.co.uk

(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.)

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