05/04/17

UK: HMRC’s patience runs out over unpaid tax avoidance bills

HM Revenue & Customs has taken action against 14 users of tax avoidance schemes who failed to stump up when ordered to pay disputed bills upfront, reports The Financial Times.

New figures show the tax authority has resorted to measures such as asset seizures, court proceedings and insolvency in a tiny proportion of the 70,000 cases where it has issued “accelerated payment notices” (APNs) since 2014.

But Dominic Arnold, head of tax investigations and disputes at Moore Stephens, an accountancy firm, said he expected the trickle of APN enforcement actions to gather pace. “We sense the tide is beginning to turn.”

In a high-profile example, Karen Millen, a prominent fashion designer, was made bankrupt last week after failing to pay £6m to HMRC in connection with a tax avoidance scheme.

More than £3bn of tax has so far been collected under the APN initiative that was introduced in 2014 as part of an avoidance crackdown. It was designed to remove the cash flow advantage of holding on to disputed tax — sometimes for years — while cases were investigated and litigated.

HMRC said: “Anyone who anticipates problems meeting their tax obligations should contact HMRC, which may be able to offer extra time to pay based on an evaluation of individual circumstances. The department has an outstanding record for supporting those with genuine problems: around 95 per cent of requests for extra time to pay accelerated payments debts have been agreed.”

The bankruptcy of Ms Millen last Tuesday was reported in The Times, which said she had followed advice from her accountants in 2001 to enter into a tax avoidance scheme named Round the World. The scheme, which took advantage of a double taxation treaty between the UK and Mauritius, was designed to avoid capital gains tax.

Mr Arnold said HMRC was able to issue “follower notices” to users of the Round the World scheme following a 2010 victory in the Court of Appeal. These notices, which were introduced alongside APNs, allow HMRC to demand payment of disputed tax from people who had used an avoidance scheme that had failed in the courts. Anyone who receives a follower notice is liable to a penalty of up to 50 per cent of the disputed tax if they do not pay up.

Ms Millen had not replied to a request for comment by the time of publication.

Mr Arnold said the figures on enforcement actions, which were released in response to a freedom of information inquiry, chimed with his experience of HMRC’s handling of APNs. “In the first 18 months to two years they have applied a light touch . . . But the sense and the feeling is they are pressing ahead. The conversations are now a lot more direct.”

Some of the cases dated back to the start of the century, he said. “By anyone’s standard it has taken too long to resolve.” He said the cases were taking a heavy toll on those affected. “The reality is there is still a large amount of schemes to be dealt with. Some people will have money and others won’t.”

Mike Finch, partner in the restructuring and insolvency team at Moore Stephens an accountancy group, said: “Some of the tax that HMRC is owed under APNs is so substantial that some individual taxpayers have just hoped the issue would go away. But HMRC is obliged to chase these debts down. It has been relatively patient over pursuing APN debts from taxpayers who needed time to pay but that patience has its limits.”