What is HMRC’s power when it comes to tax collection and recovery of debt?

As part of the government’s anti-avoidance measures, for the last few years HMRC can collect the tax they believe is due from tax avoidance schemes previously assumed to be compliant by their users.

Companies and individual taxpayers are facing serious financial difficulty as a result of notifications sent out by HMRC, concerning tax investigations and tax payments. Accelerated Payment Notices (APNs) are used by the tax office to demand the upfront payment of tax, even when investigations have not yet concluded. 

Additionally, Follower Notices (FNs) use the results of previously successful legal challenges against certain tax avoidance schemes, to demand that a taxpayer adjust their tax return in favour of HMRC, and pay the sum due within 90 days.

If you have received an Accelerated Payment Notice or a Follower Notice, Begbies Traynor can offer professional advice on how to proceed. Our licensed insolvency practitioners will ensure you understand why you have been targeted by HMRC, and guide you through your options.

What is the DOTAS regime?

DOTAS, or the Disclosure of Tax Avoidance Schemes regime, requires promoters of new or innovative tax avoidance schemes to disclose them to HMRC if they fall under disclosure rules. This effectively allows HMRC to track these schemes.

When registered, a unique reference number (SRN) is allocated to each scheme by HMRC. The SRN must then be included by scheme users on their tax returns, which is how HMRC track them down to demand repayment of tax.

DOTAS has been described as HMRC’s early warning system. The ultimate aim of the tax office is to close down many of these tax avoidance schemes, which is largely achieved by the use of Accelerated Payment Notices and Follower Notices.

Accelerated Payment Notices (APNs)

Accelerated Payment Notices are demands for payment of tax within 90 days, and recipients have no right of appeal. Thousands of APNs have been dispatched by HMRC, largely to taxpayers who believed their scheme was compliant with legislation, and would not fall into a contentious category.

The fact that companies have been unable to budget for these tax payments, combined with the short timeframe in which to pay, has caused severe financial difficulty, with insolvency being the end-result for many companies.

Those having used a tax avoidance scheme for several years may receive a number of APNs. For every year of use and every type of tax, an individual APN is sent, often alongside a Follower Notice (FN).

What are Follower Notices?

When a judicial ruling has already been made in favour of HMRC, a Follower Notice will be sent to taxpayers using a scheme with the same or similar arrangements. The notice will request that tax affairs are settled, and may be accompanied by an APN.

Again, there is no right of appeal against a Follower Notice. If a taxpayer continues to dispute liability and loses their case, they face an additional penalty of up to 50% of the tax due.

This ‘two pronged’ attack by HMRC means the tax office can generate a tax liability from what may have been an undisputed tax avoidance scheme for many years, using a Follower Notice, and then quickly enforce it with an APN.

Direct Recovery of Debt (DRD)

Tax arrears can be recovered by HMRC from a company’s bank account using new rules introduced under the Finance Bill, 2015, if all of the following conditions are met:

• The amount of tax owed is £1,000 or more
• It is in relation to an Accelerated Payment Notice, or the debt has been ‘established’ by HMRC via an enquiry or other investigation
• It is certain that the taxpayer has received notification of the debt, and is aware that they must pay

There are safeguards in place to protect taxpayers, one of which is that HMRC must ensure at least £5,000 remains in the bank account(s) after DRD has taken place. HMRC make contact with the bank to obtain the taxpayer’s account details, and the bank are obliged to freeze the amount being recovered.

It is crucial for company directors to contact HMRC if they receive a tax demand and cannot pay - it may be possible to negotiate a Time to Pay arrangement, and avoid Direct Recovery of Debt.

If you are concerned that you cannot pay the tax demanded in an Accelerated Payment Notice, call one of our insolvency experts for professional guidance. Begbies Traynor are insolvency specialists, and may be able to negotiate a Company Voluntary Arrangement, or CVA.