Settlement of Tax Avoidance Schemes

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Pannu Tax provide expert advice on the issues and settlement of tax avoidance schemes to clients throughout the UK.

Background and context

The resolve of the UK Government and HMRC in clamping down on perceived 'abusive' or 'aggressive' tax avoidance schemes and increase the tax take is self-evident. Since 2008 we have seen a raft of new measures, using a "carrot and stick" type approach, designed to discourage taxpayers from entering into marketed tax schemes or transactions with a strong tax motive (the "stick"). These have included:

  • Strengthening the rules which require advisors to disclose tax schemes to HMRC;
  • Introducing legislation to force the upfront payment of tax from those involved in certain types of marketed tax schemes or arrangements where there has been a final tax decision (see below);
  • New anti-avoidance legislation to try to end schemes like Employee Benefit Trusts ("EBTs") including the 2019 Loan Charge provisions;
  • Introducing a 'moral' element into the public and media debate on paying the 'right amount' of tax;
  • Greater success in litigating against tax schemes or arrangements.

With the impending Loan Charge provisions many clients with outstanding loans from disguised remuneration schemes are seeking advice on their options. For many the cost of settling with HMRC is likely to be cheaper than paying the Loan Charge as well as providing certainty and finality to what can be extensive and historic HMRC tax enquiries. Further details of the Loan Charge provisions and potential issues can be found here.

Accelerated Payment Notices - Paying the tax upfront

If you have a tax scheme that has been disclosed to HMRC under the Disclosure of Tax Avoidance Scheme ("DOTAS") regime then, if you haven't already, you may well receive an Accelerated Payment Notice ("APN") from HMRC. This notice effectively requires you to pay up front (within 90 days) the tax HMRC says is due (or saved) as a result of you entering into the tax scheme.

These new rules were introduced by HMRC as part of its tax avoidance clamp down and is intended to increase the commercial pain for taxpayers who purchase marketed tax schemes. Prior to this legislation a taxpayer could enter into a tax scheme knowing that the likelihood of paying any tax (even if the scheme ultimately failed) was potentially many years away. Many business owners entered into marketed tax schemes to obtain this cash flow advantage, especially during the recent difficult economic climate. The APN regime was introduced to remove this potential cash flow advantage.

Before issuing an APN there are a number of conditions in the legislation which HMRC has to satisfy. You should always ensure that these conditions have been properly satisfied and reviewed by your advisor within the 90 day window. While there is no automatic right of appeal against an APN, representations can, and where appropriate should, be made.

HMRC has also introduced the Follower Notice ("FN") regime to stop taxpayers from seeking to avoid or delay paying tax after their scheme had been defeated by a decision in the Tax Tribunal or Courts. Prior to this legislation a taxpayer could delay paying tax to HMRC by seeking to argue that any final Court decision was not applicable because, for example, the facts were different. The FN regime now allows HMRC to issue a notice if they believe that there is a final decision on a tax scheme or on a tax technical issue or principle which is relevant to your tax scheme.

If you receive a FN you are required to amend your tax return to reflect HMRCs view within 90 days or face a penalty for non compliance. Again, HMRC has to meet a number of conditions per the legislation before a FN can be issued. Testing that HMRC has properly met the statutory conditions should be done at an early stage following receipt of the notice.

What does this mean for me if I have a historic tax scheme?

For clients wishing to settle, time is of the essence and action needs to be taken before 5 April to avoid falling foul of the Loan Charge provisions. At the very least registration of the intention to settle has to be made and sufficient information provided to HMRC to enable settlement to be pursued before 5 April. If this does not happen then the Loan Charge will apply.

For those who decide not to settle but to pay the Loan Charge, it is important to note that payment does not mean an end to HMRC enquiries or demands for tax. Our view is that we are likely to see a more aggressive approach from HMRC for those taxpayers who have not settled their arrangements post 5 April 2019. In this context it is important to note that this is not just about payment of the tax. We have seen in the recent past HMRC pursuing tax schemes by alleging tax evasion (illegal) rather than tax avoidance (legal). HMRC taking this course of action would have perhaps been unimaginable in the past. However, it seems clear that if HMRC can show that there is a lack of commercial substance to the arrangements or that parts of the scheme were side stepped or purposely not completed there is a risk of HMRC issuing CoP 9 and even commencing a criminal investigation (we have defended clients in exactly these circumstances).

How Can Pannu Tax Help?

We have settled a large number of disguised remuneration and similar structures for clients. We understand in detail HMRCs settlement principles and have relevant relationships within HMRC to ensure that our clients engage effectively and efficiently. Coupled with this is our detailed knowledge of HMRCs assessing powers and experience in responding to Follower Notices and Accelerated Payment Notices.

We help clients to understand their options and make informed decisions on the way forward.

We can:

  • Review your APN/FN to ensure that HMRC has properly met the legal conditions before issuing the notice and respond where they have not;
  • Advise you on the potential outcomes should you pursue settlement with HMRC or decide to pay the Loan Charge;
  • Provide you with an accurate estimate of the likely tax HMRC would seek in any financial settlement, enabling you to make an informed decision on the way forward;
  • If you want to explore settlement, we can engage with HMRC and seek to fully resolve all tax issues associated with the scheme and provide certainty and peace of mind.

We provide clear advice on your options and on how to proceed. If we think your arrangement is one which HMRC is unlikely to be prepared to settle on (other than you conceding all tax advantages), we will tell you.

At Pannu Tax you will be able to access this knowledge and experience at an affordable price. We offer flexible fee arrangements, including fixed and contingent fees.

To get further information or for a free, confidential and no obligation discussion please contact us on 0800 246 5915, complete the contact form or email us direct at info@pannutax.co.uk.

Expertise & Experience

At Pannu Tax you will be advised by some the UK's leading tax investigations and dispute specialists who have the practical experience and the technical knowledge required to provide you with the type of effective support you need.

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How can we help?

For a free, confidential and no obligation discussion call us on 0800 246 5915 or email us direct at info@pannutax.co.uk


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