Keith Tully explains how HMRC demands for tax due affects directors in 2016.

The power of HMRC to claim upfront payments of tax in relation to money held in tax avoidance schemes is a controversial issue, causing consternation for many company directors.

The fact that an accelerated payment notice does not always reflect the total amount of tax due, and that companies may have joined a scheme many years earlier without a hint of HMRC disapproval, is adding to the financial pressures experienced by directors.

Many have already budgeted for their company’s tax liability, and with no recourse for appeal, now need to find extra funds within 90 days to avoid further action by HMRC.

The new legislation

The new tax legislation was introduced by the government in the summer of 2014, in an effort to prevent companies gaining a tax advantage by using tax avoidance schemes. With effect from April 2015, national insurance contributions were also included in the new rulings. 

It is estimated that about £2.1 billion will be brought in by the government using accelerated payment notices. But the hostile nature of these demands, and absence of any recourse to negotiate or appeal, is liable to disrupt the development of growing companies and send those already struggling to survive into insolvency.

Who may receive an accelerated payment notice?

If a tax enquiry or appeal is ongoing, HMRC can send out an accelerated payment notice if:

• A disclosure of tax avoidance schemes (DOTAS) number has been allocated in relation to the company’s tax arrangements.
• A follower notice or general anti-abuse rule (GAAR) counteraction notice has already been issued relating the same tax issue, or is sent alongside the accelerated payment notice.

Controversially, the new legislation applies to DOTAS-registered schemes that companies have joined historically, sometimes many years ago, and that have no judicial ruling against them. HMRC has published a list of DOTAS scheme reference numbers against which they intend to issue accelerated payment notices in the future.

No right of appeal

With no right of appeal against these demands, and only 90 days in which to pay, accelerated payment notices are causing worry for company directors who were under the assumption that their membership of a scheme was legitimate.

There are grounds to object to an accelerated payment notice, but these are very limited, and only relate to the legitimacy of the notice itself – for example, that the amount demanded is incorrect. HMRC then investigates the objection, and either enforces or withdraws their notice.

If the 90-day time limit for payment has expired, directors are allowed 30 days in which to pay, following notice of the rejection of their representation.

Clear communications with HMRC

It is important to communicate clearly with HMRC on receipt of an accelerated payment notice, and to provide full information about a company’s tax situation. Professional advice on how to proceed is helpful.

As well as demonstrating to HMRC an attitude of responsibility, obtaining expert guidance can also uncover the best course of action in terms of the company’s long-term financial responsibilities.

About the author

Keith Tully is a partner at Real Business Rescue (part of the Begbies Traynor Group), and is a corporate recovery expert and specialist adviser.