Where the courts decide that a tax avoidance scheme fails HMRC will write to all the users of the scheme notifying them that they must either amend their tax return(s) or advise HMRC why they believe that the decision does not apply to them. If the user does not amend their return and HMRC subsequently find the decision should apply to them they face a tax geared penalty.
In addition to the penalty for failing to amend their return, the user will also be required to pay the tax in dispute when the penalty notice is issued, in effect paying the tax and penalty up front.
HMRC want to remove any cash flow benefit that the scheme user may enjoy while the tax avoidance scheme is being investigated and ultimately a decision is made by the courts. The prospect of penalties being applied will either eradicate or reduce any cash flow benefit to nil and deter users of tax avoidance schemes from entering into litigation where there is little prospect of the courts overruling an earlier decision.
On the basis the new legislation is implemented in 2014, participants in tax avoidance schemes will need to carefully consider whether they want to argue against the court decision if they have little chance of success.
For more information on these changes or to discuss issues surrounding tax evasion or avoidance contact the TaxDesk on 0845 4900 509 and ask for John Hood.