Disputes over taxes: Notices issued to followers and expedited payment demands
The UK tax authority, HM Revenue & Customs (HMRC), has the power to issue an Accelerated Payment Notice (APN), requiring tax payment upfront before a dispute about the efficacy of a tax scheme is settled. This article provides an overview of APNs and related notices, such as follower notices, and the implications for taxpayers.
APNs apply to various taxes, including income tax, National Insurance contributions (NICs), capital gains tax, corporation tax, apprenticeship levy, inheritance tax, stamp duty land tax, and the annual tax on enveloped dwellings. These notices require the taxpayer to amend their return, enter into an agreement with HMRC to settle the dispute, or give HMRC notice of the necessary corrective action and the additional tax payable.
In 2021, statistics showed that representations had been made in respect of over half of APNs and follower notices issued, leading to 10% of notices being withdrawn and around 20% amended. However, there is no right of appeal against an APN, but a recipient has 90 days to send written representations objecting to the notice on certain grounds. Similarly, there is no right of appeal against a follower notice; only a right to send written representations objecting to the notice on procedural grounds or that the judicial ruling is not relevant to the circumstances.
HMRC can issue a follower notice when an enquiry or tax appeal is in progress for arrangements where it is reasonable to conclude that obtaining a tax advantage was the main purpose. For a follower notice to be issued, HMRC must have a relevant judicial ruling that, if applied to the arrangements, would deny the taxpayer the asserted advantage. The judicial ruling must be a final determination, such as a decision from the Supreme Court, where there is no right of appeal.
If a taxpayer does not settle their case after receiving a follower notice, they risk a substantial additional penalty. The 50% penalty for failing to settle the dispute after receiving a follower notice has been replaced with a 30% penalty, effective from 10 June 2021. Additional penalties can be imposed if a tax tribunal or court strikes out the taxpayer's appeal or makes a statement that the taxpayer has acted unreasonably.
Special provisions apply for scheme participants who have invested through a partnership. Follower notices are issued to the representative partner, and penalties are assessed on individual partners if the partnership does not comply. There are no specific provisions allowing tax to be paid in instalments, but HMRC will consider requests for its normal 'time to pay' discretionary relief.
HMRC publishes a list of Disclosure of Tax Avoidance Schemes (DOTAS) scheme reference numbers of schemes where it intends to issue APNs, updated quarterly. The usual position in direct tax disputes is that the disputed tax can be postponed, but APNs overrule this by requiring payment within 90 days of the notice. There are penalties if the accelerated payment is not made within 90 days of the issue of the notice.
In conclusion, understanding APNs and follower notices is crucial for taxpayers involved in disputes regarding tax schemes. It is essential to seek professional advice and carefully consider the implications of these notices to ensure compliance with HMRC's requirements and avoid potential penalties.
