Accelerated payments powers become law

At the start of July, the controversial and highly publicised ‘Accelerated Payments’ measures included in the 2014 Finance Bill received Royal Assent. These measures give HMRC the power, in certain specific circumstances, to obtain payment of tax which is under dispute and hold that tax until the dispute is settled.

The result will be that disputed tax will sit with the Exchequer during any dispute, until that dispute is resolved, rather than with the taxpayer as has previously been the case under self assessment.

The circumstances where these measures will apply will be where:

• A ‘follower notice’ has been issued (a notice informing the taxpayer that HMRC intend to enquire into their tax affairs because of their involvement in a tax avoidance scheme); or

• Tax planning arrangements are being used that have been issued with a disclosure of tax avoidance schemes (DOTAS) reference number and HMRC have opened an enquiry; or

• A general anti-abuse (GAAR) counteraction notice has been issued.

What does this mean for the taxpayer involved?
The measures have immediate effect and apply to all current cases where there is an open enquiry or open appeal.

Prior to the introduction of these measures, it has been possible for taxpayers using tax schemes to reduce the tax they pay by including a claim for the scheme relief on their self assessment. If HMRC disagreed that relief was due, they needed to open an enquiry and await payment of the disputed tax until the enquiry was settled in their favour. These new measures therefore remove the cash flow advantage for the taxpayer of holding onto the disputed tax during a dispute with HMRC.

As a result, HMRC will no longer have to await the settlement of an enquiry in their favour, or a tribunal or court judgement in their favour before they are able to obtain taxes they believe are owed – the cash flow advantage will lie with the Exchequer rather than with the taxpayer. If, following agreement or judgement, it is found that the tax planning implemented is successful, the disputed tax paid to HMRC under these provisions will be repaid with interest. The rate of interest which is paid by HMRC on overpaid tax is however much lower than the rate of interest which they charge on underpaid tax.

How will this work in practice?
HMRC will calculate the additional tax due on the basis that the tax planning scheme used is not effective and will issue a payment notice for this additional tax. Once a payment notice has been issued, the taxpayer will have 90 days to pay the disputed tax, or a further 30 days where they request that HMRC should reconsider the amount of the payment notice. Non-payment of the disputed tax will give rise to a 5% penalty for each 6 month period that the payment remains outstanding.

Direct access to bank accounts
There is a proposal included in Budget 2014 for new legislation to be introduced from 2015 onwards that will give HMRC additional powers to take money directly from the bank accounts of taxpayers who owe tax of more than £1,000.

Whilst HMRC have said they will only use such powers where taxpayers have the financial means to pay and have been contacted multiple times for payment, there has been intense media concentration on these proposals. There are very real concerns over what safeguards, if any will be put in place to prevent mistakes being made, and with suggestions that such powers will put HMRC above the law.

For further advice on this issue, or if you would like to discuss any aspect of potential tax underpayments, please contact Anne Eager by emailing ae@rjp.co.uk.