What is HMRC’s power when it comes to tax collection and recovery of debt?

Within the last few years, as part of the government’s anti-avoidance measures, HMRC have the ability to collect tax they believe is due from tax avoidance schemes formerly assumed to be compliant by users. This is relevant to both companies and individual taxpayers and can result in serious financial difficulty caused by the notifications sent out by HMRC relating to tax investigations and payments. The tax office can also use Accelerated Payment Notices (APN’s) to demand the upfront payment of tax when investigations are still ongoing.

In addition to the above, Follower Notices (FNs) use the results of previously successful legal challenges against certain tax avoidance schemes in order to demand taxpayers adjust their tax to make it favourable to HMRC and pay the amount due in 90 days

Lucas Johnson can provide professional advice if you have received an Accelerated Payment Notice or a Follower Notice. Our expert team can assist you in understanding why HMRC have targeted you and guide you through your options.

What is the DOTAS regime?

DOTAS, or the Disclosure of Tax Avoidance Schemes, is the requirement of those who promote new or innovative tax avoidance schemes to inform HMRC of them of they fall under the disclosure rules, therefore allowing HMRC to keep track of these schemes.

Once this is registered, a unique reference number (SNR) is issued to each scheme, this SNR must then be included on the tax returns of the scheme’s users. This allows HMRC to track the scheme users and demand the tax is repaid. DOTAS is recognised as HMRC’s early warning system, this is in line with the overall aim of the tax office which is to shut down as many tax avoidances schemes as possible. This is largely done using APNs and FNs.

Accelerated Payment Notices (APNs)

Accelerated Payment Notices are HMRC’s demands for tax payments within 90 days with recipients having no right of appeal. HMRC have dispatched thousands of APNs, the majority of which have gone to taxpayers who believed their scheme was compliant with legislation and would not fall into a contentious group.

These APNs can cause severe financial challenges for companies due to the short timeframe in which you can pay and companies being unable to budget for these unforeseen tax payments. For many businesses, insolvency can become the end result. For those who have been using tax avoidance schemes for several years, they may receive multiple APN’s for each year of use and each type of tax – in these circumstances an APN is often sent with an FN.

What are Follower Notices?

Once a judicial ruling has been made in favour of HMRC, a Follower Notice is sent to the taxpayers using that scheme or any schemes with similar arrangements. This notice will be a request that tax affairs are settled, this may be sent with an APN.

As stated earlier, if you receive a Follower Notice, should a taxpayer dispute liability and then loses this case, there is an additional penalty of up to 50% of the tax that is due.

This is a ‘two pronged’ attack used by HMRC and means that the tax office can generate a liability from what may be an undisputed tax avoidance scheme for many years – using a Follower Notice and then enforcing this with an Accelerated Payment Notices.

Direct Recovery of Debt (DRD)

HMRC can recover tax arrears from a company bank account, this is under new guidelines introduced in the 2015 Finance Bill.

If the below conditions are met HMRC can recover the tax under these rules:

•            The amount of tax owed is £1,000 or more

•            This is in relation to an Accelerated Payment Notice, or the debt has been ‘established’ by HMRC via an enquiry or other investigation

•            It is certain that the taxpayer has received notification of the debt, and is aware that they must pay

However, there are safeguards in place to protect taxpayers, including that HMRC must ensure that the account(s) has at least £5,000 remaining following a DRD. HMRC contact the bank to acquire the taxpayers account details, the bank is then obliged to freeze the amount being recovered.

It is critical that a company director contacts HMRC if they receive a tax demand and are unable to pay this. This may allow time to organise a Time to Pay Arrangement void Direct Recovery of Debt.

If you are concerned that you cannot pay the tax demanded in an Accelerated Payment Notice, call one of our experts for professional guidance.

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