HMRC Accelerated Payments Regime

In this latest tax news we look at how HMRC explains follower notices and accelerated payments regimes

Her Majesty's Revenues and Customs (HMRC) has released a new factsheet that explains the operating mechanism of its follower notices and accelerated payments regimes. The factsheet is meant for people who use tax avoidance schemes.

Her Majesty's Revenues and Customs (HMRC) has released a new factsheet that explains the operating mechanism of its follower notices and accelerated payments regimes.

According to the factsheet, a tax avoidance scheme is defined as a series of arrangements that gain a tax benefit by using the law in a way that's not intended by the legislation. In July 2014, new UK legislation was introduced that impacted users of tax avoidance schemes.

As per the legislation, if a court or tribunal makes a final ruling that a scheme does not attain the desired tax advantage, HMRC may ask users to take some actions. These actions include either amendment of their return or claim or a settlement of their appeal. Such steps are known as 'taking corrective action.' Those who are affected by such rulings will get a 'follower notice.'

The follower notice will also inform the taxpayer who has used a tax avoidance scheme about the liability to pay up to 50 per cent of the tax avoided as penalty. The penalty is applicable if the required corrective action is not taken on time. An individual is required to take corrective action within 90 days of receiving a follower notice. As per the factsheet, the HMRC will lessen the penalty if the individual cooperates with the Department. However, the cooperation has to be prior to HMRC issuing a penalty assessment notice. Note, the penalty percentage rate cannot be reduced to less than 10 per cent.

In situations where there's a disagreement with the follower notice, the affected individual should write to the HMRC within 90 days of receiving the follower notice. HMRC can extend the deadline for taking corrective action if the individual writes to the HMRC before the deadline for taking corrective action, and there is no withdrawal of the notice from HMRC's side.

The legislation states that users of tax avoidance scheme should pay the amount related to the scheme before a court or a tribunal determines the final amount. Such a payment is known as an 'accelerated payment.' In a few cases, HMRC may charge penalties for any delays in making accelerated payments.

An accelerated payment notice may be sent to the users in the following scenarios:

  • If there is a current compliance check in the return or claim of an individual, or if there is an open appeal
  • If the return, claim or appeal is made because the avoidance scheme has resulted in a tax advantage

Additionally, it is important to meet one or more of the following conditions to receive an accelerated payment notice:

  • The individual should have received a follower notice from the HMRC
  • The individual has made use of any tax avoidance arrangements, which are a part of the Disclosure of Tax Avoidance Schemes (DOTAS) legislation
  • The individual is facing a counteraction notice as per the General Anti-Abuse Rule (GAAR)

An accelerated payment notice includes the following details:

  • Amount to be paid
  • Deadline of payment
  • Guidance of next steps if the individual is not in agreement with HMRC

The payable amount is the amount gained by the individual by using the tax avoidance scheme. After receiving an accelerated payment notice, an individual has to make a payment within 90 calendar days.

So far, HMRC has seen considerable success with its accelerated payment notice. In December 2014, it issued a release stating it has got nearly all of the disputed tax due from the first group that received Accelerated Payment notices.

In August 2014, nearly 30 users of tax avoidance schemes were given a deadline of 90 days to pay 29 million of disputed tax as per the Accelerated Payments system.

According to HMRC, nearly 99% of this payment was paid before the deadline. Also, a lot of payment arrangements took place. Till December 2014, HMRC has received £32 million in disputed tax, which includes payments from those who are yet to pass the deadline of 90 days.

David Gauke, the Financial Secretary to the Treasury, expressed encouragement at the high success rate achieved by the first batch of Accelerated Payments notices. According to David, as HMRC increases the number of notices in 2015, more and more people will become sensitive towards the impact of Accelerated Payments notices.