Under the current self-assessment system for income tax, capital gains tax, corporation tax and Class 4 NICs, some taxpayers can achieve a cash flow benefit from the use of tax avoidance schemes and continue to enjoy that benefit until such time as the dispute is settled. This process may often take a number of years and the cash flow advantage is therefore likely to be substantial.
Legislation to be introduced in Finance Bill 2014 will allow HMRC to issue a ‘Notice to Pay’ to any taxpayer for whom there is an open enquiry or a matter under appeal, and where a tax advantage has been claimed through the use of arrangements which are covered by the DOTAS rules or counteracted under the GAAR. The legislation will take effect from the date that the Finance Bill receives Royal Assent.
A ‘Notice to Pay’ will allow the taxpayer a period of 90 days in which to pay the tax in dispute, or a further 30 days in the event that the taxpayer requests that HMRC reconsider the amount shown on the payment notice. On a procedural note, the legislation will allow for the removal of any previous application for postponement of the disputed tax. Penalties will apply in the event that the tax is paid late.
It is estimated that around 43,000 payment notices will be issued during the course of 2014/15 and 2015/16 to taxpayers affected by this measure and those users of avoidance schemes already in dispute with HMRC.
The new measure will have a direct impact for individuals who have used tax avoidance schemes caught by the DOTAS rules or GAAR, and are the subject of an HMRC enquiry, or have appealed against an amendment or assessment.
Where an individual has used a number of schemes over a number of years they face the prospect of having to pay all the disputed tax within 90 days of the notice, which could be issued as early as July 2014.
HMRC expect to receive a number of challenges from taxpayers faced with these notices, including judicial review proceedings and an increase in closure notice applications made to the Tribunal.
The measures will have a dramatic impact on firms promoting tax avoidance schemes, as taxpayers may shy away from more aggressive avoidance routes and look for alternative means by which to mitigate their tax liability.