What are APNs, and what can you do if you are issued with one by HMRC? David Kirk, insolvency practitioner, explains.

If HMRC believes you have been involved in reducing your tax bill using a tax avoidance scheme, they can serve you with an accelerated payment notice (APN).

This gives you 90 days to pay the tax due on the notice, and replaces any previous payment plan you may have had. You can’t delay payment by lodging an appeal, though you can contact them if there are any obvious errors.

The main purpose of the APN is to make sure that you pay any tax owed early.

Am I at risk of being issued with an APN?

A number of company directors are known to have been recommended tax saving strategies by advisers without knowing that these avoided paying sufficient tax.

A typical tax avoidance scheme ‘sold’ by advisers to taxpayers involved an employee benefit trust (EBT). This meant tax deductible payments were made into a trust and then the trust made loans to key employees – with the hope of avoiding tax on the loans which were effectively income – as they were never paid back.

In the last few years, the efforts of HMRC have been increasingly focused on reducing tax avoidance. Any sign of any tax saving methods, whether legal or not, are frowned upon, and the press has joined in naming and shaming anyone associated with tax avoidance. This has also meant that HMRC has stepped up clamping down on tax avoiding businesses.

What should I do if I receive an APN?

If you receive an APN, you should take immediate professional advice from your accountant or solicitor, as an APN is only an interim measure – you still must settle and agree the final tax owed. This may be more than the amount on the APN.

If you have the funds, you should pay the tax. If you don’t have the funds immediately, you can contact HMRC and request a time to pay arrangement, and they may give you time to pay the tax due over a few months or from the sale of assets. However, this may be unlikely, as one of the purposes of the APN is to discourage directors from using any type of tax avoidance schemes in the future.

Taxpayers who receive APNs are more likely to be high earners with a number of assets, who may have used a tax avoidance scheme. Careful advice should be taken about whether bankruptcy or an individual voluntary arrangement is the right solution for the taxpayer, if they can’t pay the tax due.

Is there a way around paying the APN?

HMRC will do their best to retrieve any due funds as soon as possible; in extreme cases, some directors have had to declare bankruptcy or sell their home in order to meet payment deadlines. It is important to note that only the taxpayers’ share of assets can be claimed. So, for example, a jointly-owned family home may be half-owned by the spouse, meaning that they cannot claim that half-share.

If the APN is served on a limited company and one that has a viable profitable business, apart from the tax due under the APN, a pre-pack administration may be the answer. This means that the business can be sold to a new company, without the old tax debts from the APN following through to the new business. (The business can be sold to the existing directors and shareholders, subject to it being valued and marketed.)

Understandably, HMRC won’t be happy about this, but a pre-pack administration is completely legal and legitimate process under UK law, and they cannot block it.

It is important to note that the tax debts of a limited company cannot be transferred to the shareholders or directors. A limited company is a separate legal entity. If it closes and goes into liquidation, then the tax liability goes with it.

About the author

David Kirk is a chartered accountant and licensed insolvency practitioner based in the south west. Follow @kirksinsolvency or visit www.kirks.co.uk.