Never going to budge

One of the hottest topics during the life of the coalition parliament was (and looks likely to continue to be under the Conservative government) the matter of tax avoidance. Newspapers have promoted stories of large international companies, celebrities, bankers and hedge fund managers, all accused of not paying their 'fair share' of tax and, not surprisingly, politicians have responded by giving more and more power to HMRC to tackle what they see as aggressive tax avoidance schemes.

HMRC considers that taxpayers, especially those involved in tax avoidance, will want to drag out the appeals process for as long as possible, so as to delay the inevitable (in HMRC's view at least) outcome where HMRC is victorious in court and is paid the tax due.

In response to this, the Finance Act 2014 introduced the accelerated payment notice (APN), through which HMRC can require a taxpayer to pay the amount of disputed tax in advance of any judgment, thus: 'removing the cash-flow advantage that users of avoidance schemes have benefitted from' (Budget 2015 Red Book).

By January 2015, HMRC had listed over 1,150 disclosed arrangements (many of which will have been used by several taxpayers) in respect of which they intended to issue APNs and were targeting 2,500 APNs per month. In the March 2015 budget, the chancellor announced that 'HMRC will be issuing an additional 21,000 accelerated payment notices over and above the original estimated number'.

Conditions for issue of an APN

HMRC can issue an APN if there is an open enquiry into a tax return (HMRC does not need to have concluded the enquiry) or if the taxpayer has an open appeal, in relation to tax avoidance arrangements that were subject to disclosure of tax avoidance schemes (DOTAS) or the general anti-abuse rule (GAAR) or, where a judgment has been found against similar arrangements used by another taxpayer.

The taxpayer has 90 days to pay the amount claimed by HMRC in the APN. If the taxpayer ultimately wins against HMRC, the taxpayer is entitled to a refund of the tax, plus interest at the HMRC rate. However given that the rate of interest that HMRC currently pays is 0.5 per cent, this provides little compensation for the successful taxpayer.

Appealing against an APN

Appeals against APNs can only be made to HMRC and there is no further right of appeal to the tribunals or courts. The only grounds for appeal are that the conditions for issuing an APN were not met or the amount claimed is not correct.

The idea of requiring a taxpayer to pay the disputed amount of tax before being entitled to appeal a tax demand is not new - VAT appeals have been subject to such a requirement for many years. But two significant differences from VAT appeals are that:

• taxpayers can appeal against advance payment on grounds of hardship; and

• the tribunals have jurisdiction over appeals.

Ingenious Media and judicial review

In February 2015, Ingenious Media, the promoter of a film partnership scheme, was given permission to bring a claim for judicial review, over the legality of the issue of APNs to investors in the scheme.

Possible grounds for the review are that it is contrary to human rights legislation, given that HMRC is the sole arbiter on the issue of APNs, with no right of appeal to the tribunals or courts. In addition, it can be claimed that the issue of APNs in respect of arrangements that were in existence before the introduction of Finance Act 2014, represents retrospective legislation.

Where are we now?

The Ingenious Media case is likely to be heard over the summer. The court asked HMRC to agree terms for a moratorium on issuing further APNs against Ingenious Media's investors.

However this precarious state of affairs did nothing to stop the chancellor announcing in March 2015 (as detailed above), that HMRC intended to issue 21,000 additional APNs. In the current political climate where the popular press are baying for the blood of 'tax avoiders', even if Ingenious Media wins its kudicial review proceedings, any victory is likely to be short lived.

If the courts find that the current rules are contrary to human rights, the most likely result is that the government will simply tweak the legislation to remove the offending issues.

The ability for HMRC to demand tax in advance of any appeal is already in place for VAT and APNs - even if slightly modified in form, they look like they're here to stay.

Leigh Sayliss is Head of Business and Property Tax at Howard Kennedy