Taxpayers have been able to achieve a cash-flow advantage under the current self-assessment system by continuing with their appeals even though the courts may have ruled that the tax avoidance scheme with which they have been involved was not effective.
New legislation is to be introduced to allow HMRC to issue a ‘Follower Notice’ to any taxpayer for whom there is an open enquiry or appeal and who has used a tax avoidance scheme found to be ineffective by the courts. The notices will invite affected taxpayers to settle their dispute with HMRC or amend their tax return and if they do not, they will risk a penalty.
HMRC will also be able to issue a ‘Notice to Pay’ to the taxpayer asking that they either withdraw their appeals or pay the disputed tax within 90 days. A further 30 days will be given in cases where the taxpayer queries the notice itself or the amount shown on the notice. For cases where the enquiry has been closed and there is an open appeal, the measures will allow for the removal of the postponement of any tax due. Penalties will apply for the late payment of tax.
It is estimated that around 33,000 individuals will be issued with payment notices in 2014/15 affecting £5.1bn of disputed taxes.
The legislation will have effect from the date that Finance Bill 2014 receives Royal Assent.
These new measures will have a significant impact on individuals that have used tax avoidance schemes currently going through the courts. There will be a stark choice to be made on receipt of the payment notice – pay the tax within 90 days or face late payment penalties and the litigation costs of pursuing appeals where the courts have already ruled the scheme was ineffective.
HMRC state that there will be no discussions as to the tax liability due, and the only scope for negotiations is likely to be around the penalty position. Individuals may wish to settle with HMRC before such time as either the Follower Notice or Notice to Pay is received, in the hope that they will be able to obtain more beneficial settlement terms.