HMRC withdraws APNs from 2,000 Montpelier contractors

The taxman has been forced to apologise after admitting that Accelerated Payment Notices he sent to 2,000 Montpelier tax scheme contractors should never have been issued.

In a letter notifying the affected contractors, HM Revenue & Customs reminds that three conditions must be present for it to be able to issue an APN, a ‘pay-up front’ tax demand.

But one of those three – that the scheme must be notifiable under the Disclosure of Tax Avoidance Schemes (DOTAS) provisions – appears to have been overlooked by HMRC.

In fact, although Montpelier declared the scheme (IR 35 Manx Partnership) under DOTAS in 2004, it was “not in fact notifiable under the DOTAS provisions as they applied at the time.”

The HMRC letter also states: “Neither of the two alternative criteria for issuing an accelerated payment notice apply, and we have therefore withdrawn the notice.”

But affected contractors are unlikely to celebrate. The demands for up-front payment of tax were issued back in March 2015 and some recipients have had to sell their homes to pay up.

Others have re-mortgaged or emptied savings accounts to meet the demand, which were sometimes enforced by HMRC debt collectors or officials on the APN recipient’s doorstep.

Fortunately for such contractors, a refund of the sum their APN demanded appears to be a firm prospect, implies wording in the Finance Act 2014, specifically Section 227 (12).

It says: “Where an [APN] is withdrawn, it is to be treated as never having had effect (and any accelerated payment made in accordance with, or penalties paid by virtue of, the notice are to be repaid).”

However, when asked by ContractorUK about refund eligibility and any process for contractors to recoup funds they paid via an APN, the Revenue declined to shed any light.

A spokesman for HMRC said: “If an APN needs to be withdrawn this doesn’t mean there is no tax to pay.  The underlying tax dispute remains until it is settled or litigated.”

One affected contractor points out that while HMRC are technically correct to say that withdrawing the APN does not remove the potential future tax liability, the department will still “have to repay all of the accelerated payments.”

A tax specialist who advises contractors about APNs, which have collected over £1bn in tax since 2014 but have been refunded to the tune of £28million due to being issued wrongly, said HMRC would be trying to “manage the situation” with Montpelier APN recipients.

Despite the £28m refund total due to increase, HMRC is standing by APNs. “[These] notices are only issued in tightly defined circumstances that are set out in legislation,” the HMRC spokesman said, adding: “We remain tough on avoidance and the AP regime is a key part of our work on tackling avoidance.”

Although the HMRC spokesman declined to offer an apology to Montpelier APN contractors (even when reminded that some have had to sell their personal assets to pay up), the HMRC letter states: “We are sorry for the inconvenience caused.”