This summer, HMRC is planning to issue 35k - 45k notices to individuals and companies to pay tax that they believe is owed from unlawful tax avoidance schemes.
You've seen the headlines about Jimmy Carr, Gary Barlow and other celebrities (see the headlines from the Telegraph above and Independent below). This is all part of HMRC's tax avoidance clampdown.
If you get either an Accelerated Payment of Tax notice or a Follower notice, what does it mean and what should you do - and can you take action against the people who got you into this position?
Your first questions are likely to be
• Can I ignore it?
• If not, can I appeal?
• And can I do a deal with HMRC to pay this over time?
In this blog I will look at your options, what you need to do quickly and a bit of the context to all this.
1. What are Accelerated Payment of Tax notices and Follower notices?
Earlier this year the Government changed the rules on tax avoidance schemes and now, where there are tax disputes with HMRC on the effectiveness of a tax avoidance scheme, they require the tax to be paid up front.
Previously the legal challenge process could mean eight years or more of not paying tax, freeing up that cash for other investments. As an example, if an individual took out a tax avoidance scheme in June 2010, they would complete a tax return in January 2012; it could be picked up and investigated by HMRC in 2013/2014; the scheme is then challenged but the appeal process might easily last until 2018 if not later and only then, if the scheme is found not to work, would the individual or company be made to pay the tax shortfall.
Now, as soon as HMRC is notified of a person or company seeking to rely on tax avoidance they will issue a notice to the individual or company to pay the tax they believe is due within three months. If a challenge or appeal is eventually successful, the money may be returned, but the process and timings have been turned on their head. You pay out at the start of the legal challenge - which takes away some of the incentives for these schemes.
Where a scheme has already been challenged in court and HMRC have won, they will now issue a Follower notice to say 'we think you are in the same category as this case'.
2. Can I ignore an Accelerated Payment of Tax notice or Follower notice?
You have one of these notices, can you ignore them? Simply, no.
3. Can I appeal an Accelerated Payment of Tax notice?
In 2010, HMRC admitted to 18m tax errors. Inevitably, there will be some mistakes in the 45,000 letters going out this summer.
If you do not think the letter should apply to you, you should appeal and quickly.
4. Can I do a deferred payment deal with HMRC?
If you need time to sell assets in order to pay your tax bill, you will have to move very quickly to agree this. HMRC are not likely to be lenient as in their view the tax should have already been paid.
5. Who got me into this mess?Can I sue the tax avoidance adviser?
Tax planning and avoidance is a grey area. The government has always used tax to incentivise certain behaviours - encouraging us to drive 'green' cars with lower vehicle tax or give up smoking and drink less with higher taxation on cigarettes and alcohol. Is investing in a pension tax avoidance or sensible saving for old age?
So while some of these schemes may now seem outrageous when in the media spotlight, they may have seemed good tax planning when initially presented.
When I see clients who have been sold an aggressive tax avoidance scheme and then been challenged by HMRC, many have never looked into the details of the scheme - often they have been introduced by trusted advisers some of whom may have received a referral fee for recommending the scheme.
Do you want to consider challenging the advice you have received? On the one hand, the tax was always going to be owed so there is no loss just because you are now having to pay this. But most people will have paid fees and incurred other costs, so there will be losses. You may want to consider individual action - or a number of people involved in the same arrangement may get together for Group Action.
It will be an expensive summer for many. HMRC estimates they will be seeking up to £7bn from these notices. Split between 45,000 individuals and companies, the average payment due will be over £150k - though many will have to pay into the millions. If you get a letter, this is not one to put in a drawer and forget about. HMRC are determined to get this money into the Government's coffers.
Simon Concannon is author of The Little Green Book on Employee Share Schemes - free to download from itunes