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Finance Bill to impose advance penalties on dubious tax planning

Monday, 27 January, 2014

The Finance Bill 2014 will contain legislation to implement the government's previously announced plans to impose up-front penalties on taxpayers using schemes challenged by HMRC.

The proposals were first released last August in a document called 'Raising the stakes on tax avoidance'. The draft legislation has now been published along with further proposals and are open for comment.

The measures are aimed at the 65,000 people and businesses who have used marketed tax avoidance schemes that are still under open investigation or litigation. HMRC dislikes the fact that such taxpayers can hold on to the disputed tax even after the schemes have been investigated and challenged in court.

In future, taxpayers who have used an avoidance scheme similar to one that a court or tribunal has already overruled will have to pay the amount HMRC says they owe. As well as this accelerated payment, taxpayers in these 'follower cases' who continue the dispute after this point ('failing to take account of relevant judicial rulings', as HMRC puts it) will incur penalties, unless they ultimately win their case.

Under this procedure, HMRC will issue a 'follower notice' to taxpayers involved in schemes where there has been a final judicial decision in another case on the same or similar arrangements. The notice requires the taxpayer either to amend their tax return or agree to settle the dispute, depending on how far the case has gone. At the same time a payment notice will be issued giving 90 days to pay. The taxpayer can ask HMRC to reconsider the amount of the payment and can provide evidence in support of that request, although the 90-day period will not be extended to accommodate the challenge. Late payment penalties of up to 15 per cent will be imposed in three successive stages.

As well as income tax, the accelerated payment regime will also cover capital gains tax, inheritance tax, stamp duty land tax, the new annual tax on enveloped dwellings, and corporation tax.

Moreover, in this latest document on accelerated payment, the government proposes going even further than before. It is planning to extend the measure to all cases involving schemes disclosed under the DOTAS (Disclosure of Tax Avoidance Schemes) rules. Thus, payment of the disputed tax may be required from anyone who has or should have entered a DOTAS scheme reference number on their tax return, or whose details appear or should have appeared on a DOTAS client list disclosed by a scheme provider. This will apply in relation both to existing cases which have not yet been settled and to new cases.

Taxpayers whose cases are being challenged by HMRC under the general anti-abuse rule (GAAR) introduced last year may also be forced into the accelerated payment scheme.

Sources