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Accelerated Payment Notices - Received a Letter from HMRC?

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Accelerated Payment and Follower Notices


With Accelerated Payment Notices firmly in the spotlight, we caught up with Julie Palmer, Regional Managing Partner at Real Business Rescue, for her thoughts on APNs and the challenges faced by directors. Julie has over 20 years' experience advising directors on issues with HMRC to ensure a constructive outcome.

Thousands of individuals and businesses across the UK who sought tax advantages through Disclosure of Tax Avoidance Schemes (DOTAS) are bracing themselves for an Accelerated Payment Notice (APN) demanding payment within 90 days.

HMRC has begun its mail-out of APNs to around ‘10,000 corporates’ in order to reclaim £2.1bn of disputed tax lost to the Treasury though tax avoidance schemes and the General Anti-Abuse Rule (GAAR).

The unwavering demand, which features no right of appeal, will cause consternation for thousands of directors and sole traders who may now struggle to meet their tax liabilities and, potentially, lead to insolvency proceedings.

Background to Accelerated Payment Notices

The furore over tax avoidance schemes began to escalate in 2012 and by the Budget announcement the following year, the Treasury announced its intention to give HM Revenue & Customs (HMRC) ‘the power to issue a notice to a taxpayer to the effect that a previously decided case also determines their dispute, and that they should therefore settle their own dispute.’

By the Autumn Statement 2013, the Government announced that ‘accelerated (upfront) payments would apply to those taxpayers who did not settle in response to the notice’ and that there would be ‘further consultation in relation to how the accelerated payments measure could be applied more widely to taxpayers who have used avoidance schemes.’

By the Budget announcement in 2014, accelerated payment demands were extended to schemes falling within tax avoidance schemes (DOTAS) and other schemes that HMRC counteracts under the GAAR.

Follower Notices also require a level of understanding; these are issued by HMRC with, or before, an Accelerated Payment Notice and act as a deterrent from tax avoidance schemes. HMRC must issue a Follower Notice if they intend to send an APN.

HMRC says that a number of conditions must be adhered to when it comes to Follower Notices; primarily that there 'must be a current tax enquiry or appeal in respect of the relevant tax,' and that the taxman must be 'aware of a judicial ruling which is relevant to the tax arrangements.'

The Follower Notice forces a taxpayer to make corrective actions to amend a tax return in HMRC's favour where it considers that a taxpayer has not followed a judicial ruling. HMRC may charge penalties of up to 50% of tax due where a taxpayer does not act on a Follower Notice.

Who is Likely to Be Affected?

HMRC has sent out over 44,000 Accelerated Payment Notices to individuals and businesses across the UK; 34,000 individuals and 10,000 businesses. According to HMRC, the notices will ‘have no impact on business and civil society organisations who are undertaking normal commercial transactions.’
In short, if you’re paying your tax the right way there will be no comeuppance. However, HMRC goes on to say:

‘It (APNs) will only impact on the small number of businesses that are using avoidance schemes affected by this measure. It is estimated that Accelerated Payment Notices relating to existing avoidance cases currently under dispute will be issued to around 10,000 corporates for £2.1bn of tax under dispute under this measure.’

Direct Recovery of Debts (DRD)

It’s likely that you will have had dialogue with HMRC before receiving this notice and so it won’t have come out of the blue; yet this demand for retrospective tax payment is certain to cause concern for thousands of people who may struggle to find the money within the 90 day deadline.




What’s more, the new accelerated rules have been given Royal Assent which is a further boost for HM Revenue & Customs in its attempts to recover unpaid tax. This sign-off will shortly provide the taxman with the power to draw money directly from bank accounts and building societies, including ISAs, through HMRC’s new DRD (direct recovery of debts) proposal.

Legislation providing the green light for DRD is expected to be announced any time soon and the general consensus is that nothing will stand in its way following the roll-out of similar legislation in Australia, France, Sweden, Holland and the United States.

The Budget announcement earlier this year emphasised the importance of DRD and how it ‘will focus on debtors who owe at least £1,000 and have been contacted multiple times by HMRC to pay'. Nevertheless, HMRC’s official line is that ‘multiple’ can equate to as little as four demands including both telephone and written communication. HMRC also stated that, when exercising DRD, it will ‘ensure that a minimum credit balance of £5,000 is available to the debtor across all accounts'.

For clarity, this figure represents a combined total. Considering that HMRC will have likely sent a number of demands for most debts (even those under dispute) and the sums involved are likely to be over £1,000, this is a fairly inconsequential gesture and doesn’t really narrow the list of potential targets under HMRC’s powerful new weapon. In fact, figures show that of those owing more than £1,000, over 73% have more than £10,000 credit combined across their bank, building society and ISA accounts.

Even if you have less than £5,000 in your personal or business account, it is unlikely that HMRC will be deterred in their quest to recover tax through DRD. Though the taxman would undoubtedly prefer to draw funds in one fell swoop, it has been announced that DRD can be utilised to recover debts through instalments if ‘HMRC’s analysis of the taxpayer’s account suggests regular deductions could be made’.

On the subject of joint accounts, HMRC also adds: ‘these are not excluded from DRD’ and it has been made clear that 'where a debtor holds an account with another person, 50% of the credit balance could be used to pay the debt'.

I Have Received an Accelerated Payment Notice – What Now?

Around 44,000 taxpayers (including 10,000 businesses) are expected to receive an APN in August 2014. At the time of writing in mid-August, we have already received a flurry of phone calls stemmed by deep concern over the severity of the demand and its unswerving nature offering no right of appeal.

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"As HMRC powers become ever more forceful, supported by public opinion that everybody should pay their due taxes, it is more important than ever to engage with them at an early stage with an experienced advisor."
Close Quote

You may have put your faith into what you believed to be a legitimate and lawful tax scheme or simply received bad advice from your accountant, leaving you marooned in a precarious financial situation; whatever circumstances surround your APN, it’s important to act fast – particularly if your liabilities now exceed your assets. In this instance, it’s unlikely you’ll be alone.

“Given that the amounts in question can run into millions of pounds, this could lead to a “cash flow crisis” for taxpayers who receive these demands,” said Dawn Register, specialist at a leading UK tax consultancy.

“I can see this being a major issue for many wealthy investors who are often asset rich, but cash poor. For those who would have to liquidate assets – including property – to meet HMRC’s demands, three months is a tight window,” she added.

Julie Palmer, Regional Managing Partner at Real Business Rescue, commented:

"Directors and sole traders faced with an Accelerated Payment Notice is an issue that we are increasingly being asked for advice on. We expect this issue to gather more pace and urgency the closer we get to the payment deadline.

"We have already helped many directors by liaising with HMRC on their behalf. We can offer advice on restructuring and refinancing to release funds from a company to meet demands for payment.

"As HMRC powers become ever more forceful, supported by public opinion that everybody should pay their due taxes, it is more important than ever to engage with them at an early stage with an experienced advisor."

If you have received an Accelerated Payment Notice and need guidance or advice due to concerns over your company’s ability to pay, our licensed insolvency practitioners can offer a free one-to-one consultation in your area. Contact Real Business Rescue for more information.
 

It became apparent to us that the Penyards name trades on its reputation as a long-established business in the area and that a speedy sale out of administration was the best course of action.
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