HMRC gets tough on tax avoidance schemes

Close up of a ten pound note Print publication


  • Disputed tax to be paid upfront
  • HMRC is to issue “pay now” notices to 33,000 individuals and 10,000 businesses
  • Many marketed tax avoidance schemes expected to be caught by new provisions
  • Those affected will need to act quickly

The Finance Act 2014 received Royal Assent on 17 July 2014.  It will change the economics of using tax avoidance schemes by requiring payment of disputed tax upfront in cases involving numerous marketed tax management schemes.

The Act allows HMRC to issue follower or accelerated payment notices to taxpayers, requiring the taxpayer’s tax returns to be amended and/or any disputed tax to be paid where:

  • a taxpayer has made a return, claim or appeal on the basis that a particular tax advantage arises from an identified tax arrangement which is disclosable; or
  • HMRC is of the opinion that there is a final judicial ruling that is relevant to the particular tax arrangement the taxpayer has entered into.

A final judicial ruling is relevant if it relates to a tax arrangement which is similar to the arrangement in question and the principles laid down, or the reasoning given in the ruling, would, if applied to the taxpayer’s tax arrangement, extinguish all or part of the tax advantage asserted by the taxpayer.

An HMRC investigation team will be responsible for issuing the notices, and HMRC has confirmed that it will be issuing notices to around 33,000 individuals and 10,000 businesses on a phased basis during the course of 2014-15 and 2015-16.

The notices are primarily aimed at marketed tax schemes and are designed to promote early settlement of disputed tax avoidance cases.

Once an accelerated payment notice has been issued the disputed tax must be paid upfront (unless HMRC agrees a time to pay arrangement with the taxpayer).

In the case of a follower notice the taxpayer is invited to amend their tax return which will lead to the tax becoming due. A taxpayer can challenge a follower notice which has required them to amend their tax returns, but they face a penalty of up to 50 per cent of the tax advantage if they lose and will get only the tax advantage paid back if they win.

Many individuals and businesses will need advice if they receive a notice.  This may be tax advice but in some cases will be insolvency advice as the cash required to pay the tax demanded will not be available.