11/05/18

Advance payments a ‘worrying erosion’ of taxpayer rights

(International Adviser) -- Plans to give the UK tax man powers to demand advance payment if the revenue has “reason to believe” an offshore scheme is avoiding tax should be scrapped, according to a top tax lawyer.

James Quarmby, senior private client partner at Stephenson Harwood, says the rules aimed at high earning individuals are “a worrying erosion of taxpayers’ rights”.

In a note to clients seen by International Adviser he argues new powers currently out to consultation in “Tax Avoidance involving Profit Fragmentation” are unnecessary and will cause confusion if implemented.

As they stand they could apply to any offshore scheme.

He notes the kinds of schemes HM Revenue and Customs want to snare are already covered by anti-avoidance measures like the General Anti Avoidance Rules (GAAR).

HMRC is proposing:

Targeted legislation which will identify ‘alienated profits’ of an UK resident (A) which end up in an entity (Z) which pays ‘significantly less tax’ than in the UK. If A, or someone connected with A, has the ‘power to enjoy’ those profits then they are taxed as if they were received in the UK.

Taxpayers who enter into arrangements that are potentially caught by the new rules will have an obligation to inform HMRC of the fact on or before the deadline for the tax return for the relevant period.

HMRC will have the right to send a charging notice that will demand payment of the alleged underpaid tax within (probably) 30 days.

A coach and horses

“I am not convinced by HMRC’s claim that this new law is necessary. We are already staggering under the weight of existing targeted anti-avoidance rules, not to mention the GAAR,” comments Quarmby.

“If enacted, the proposals will drive a coach and horses through the normal file and pay deadlines under our self-assessment regime, thereby undermining the protections in the Taxes Management Act.

Quarmby argues the new advance payment provisions give HMRC “unprecedented” powers to demand money from the taxpayer.

The proposals go further than existing accelerated payment notice (APN) provisions, where HMRC has to show an arrangement is substantially the same as one that has been defeated in the courts.

Under the proposals if HMRC have ‘reason to believe’ an arrangement is caught preliminary payment notice is sent to the taxpayer.

An individual then has 30 days to persuade the authorities they are not caught and, if HMRC remains unconvinced, they then have to make the payment, probably within another 30 days.

Quarmby argues this means that HMRC acting alone, without the authority of the GAAR advisory panel, a tribunal or a court, will have the power to decide whether an arrangement falls within anti-avoidance rule and demand payment of the alleged understatement of tax within, effectively, 60 days of notification.