Contractor guide to Accelerated Payment Notices (APNs)

HM Revenue & Customs has started issuing Accelerated Payment Notices (APNs) to corporates and individuals who participated in certain tax avoidance schemes, writes Dominic Arnold, head of tax investigations at chartered accountants Moore Stephens.

Introduced in the Finance Bill 2014, an APN forces the taxpayer to make payment to HMRC of tax currently under dispute within 90 days of being issued with a notice. APNs are being introduced to counteract the perceived cash flow advantage for the taxpayer of holding onto the disputed tax during an avoidance dispute.

Could I be issued with an APN?

An APN can be issued in circumstances where a tax enquiry is in progress or where an appeal has been made against an HMRC decision that has not yet been settled. HMRC would also need to have either issued a follower notice, or the arrangement you entered into was notifiable under the Disclosure Of Tax Avoidance Schemes (DOTAS) rules or be one where a general anti-abuse rule (GAAR) counteraction notice applies.

The APN regime has the potential to be the most wide-reaching and powerful tool in HMRC’s campaign to close down what they perceive to be the most abusive and aggressive tax avoidance schemes. Any individual or company who has taken part in a DOTAS notified arrangement is likely to be impacted.

Should I be concerned?

There is a common misconception that HMRC are only targeting celebrities and users of particular arrangements, such as film partnerships.

While these individuals certainly receive the most attention from the press, contractors who have used tax advantaged schemes need to be alert to the fact that depending on their individual circumstances, they could be asked to pay tax under dispute which they do not necessarily have the means to pay.

When HMRC consulted on the introduction of APNs, the tax profession raised serious concerns that the proposals were unnecessary and could be prone to HMRC error. One of the most controversial features of APNs is the absence of a right to appeal against HMRC’s decision.

However, the taxpayer has the ability to make representations to HMRC either against the validity of the notice or the amount specified in the notice within 90 days of being issued with an APN. Whether those representations have any impact is solely at the discretion of HMRC.

If representations are made, then the amount specified in the notice becomes payable on the latter of the original 90-day period, or 30 days after HMRC have made their decision. Failure to pay the tax due by the end of the payment period will result in a penalty of 5% of the amount unpaid. A further 5% penalty will be levied five months following the first penalty and then a further 5% penalty six months later if the tax remains unpaid. Clearly, ignoring an APN is not an option.

For individuals who have not yet received an APN but are concerned they may be caught by the new regime, consideration should be given to existing HMRC settlement opportunities that may provide them with a less costly alternative.

I have received an APN, what should I do?

It is important that documentation relating to the scheme is retained or where this no longer exists, copies should be requested if possible. This will help confirm whether the tax demanded under the APN is correct, as this could be a valid reason for HMRC amending an APN.

We advise individuals and companies who receive an APN to seek professional advice sooner rather than later. It is important that anyone who receives an APN understands the ramifications.

APNs could lead to personal bankruptcy and business insolvencies, but there might be an opportunity to secure a Time To Pay (TTP) arrangement. The best terms offered under a TTP arrangement are more likely to be given where dialogue with HMRC begins sooner rather than later.

Finally, as far as corporates are concerned, where tax has been withheld and funds have subsequently been distributed to director/shareholders, it is possible that HMRC will seek to treat any distribution as an illegal dividend and individuals could be forced to repay the funds back to the company. This will unsettle a lot of contractors who have participated in such schemes who will be concerned that their personal assets are at risk.

Editor’s Note: The author, Dominic Arnold, worked at the tax authority for 18 years in a range of investigation and compliance roles. Now at Moore Stephens, he specialises in resolving tax investigations and also assists taxpayers in making disclosures to HMRC.