HMRC Issues Factsheet On Tax Avoidance Scheme Checks

HM Revenue and Customs (HMRC) has issued a new factsheet for users of tax avoidance schemes, explaining how its follower notices and accelerated payments regimes operate.

The factsheet defines a tax avoidance scheme as “a set of arrangements that try to use the law to gain a tax advantage that is not intended by the legislation.” New UK legislation was introduced in July that affects those who have used a tax avoidance scheme.

Under the legislation, if a court or tribunal has made a final ruling that a scheme does not achieve the intended tax advantage, HMRC may ask users of that, or a similar scheme, to amend their return or claim, or to settle their appeal. This is termed “taking corrective action,” and HMRC will send those affected a “follower notice.”

The notice will also tell the user that they will be liable to a penalty of up to 50 percent of the tax in dispute if they do not take corrective action on time. Corrective action must be taken within 90 days of receipt of a follower notice. The factsheet states that HMRC will reduce the penalty percentage if an affected individual cooperates with the Department before it issues them with a penalty assessment notice. It cannot reduce the penalty percentage rate to less than 10 percent.

Where an individual disagrees with the follower notice, they, or their representative, must write to HMRC within 90 days. If representations are made to HMRC before the date that the notice asks them to take corrective action, and HMRC does not withdraw the notice, the deadline for taking corrective action may be extended.

The legislation also means that those who have used an avoidance scheme may have to make a payment of the amount that relates to their use of that scheme, before the final amount has been agreed or determined by a tribunal or court. This payment is known as an “accelerated payment.” In some cases, HMRC will charge penalties or surcharges if an accelerated payment is not made on time.

An accelerated payment notice may be sent if there is a current compliance check into an individual’s return or claim, or there is an open appeal, or if the return, claim or appeal is made on the basis that there is a tax advantage from the avoidance scheme used. In addition, one or more of the following must apply: HMRC must have sent the individual a follower notice; the individual has used arrangements disclosed under the Disclosure of Tax Avoidance Schemes (DOTAS) legislation; and/or they are subject to a counteraction notice under the General Anti-Abuse Rule (GAAR).

An accelerated payment notice will state how much needs to be paid, and when by. It will also provide guidance on what to do if the recipient disagrees with HMRC’s decision. The amount payable will be the amount relating to the tax advantage that the use of the avoidance scheme tries to achieve. Payment is due 90 calendar days after receipt of an accelerated payment notice.