HMRC to start issuing Advance Payment Notices (APNs) in respect of tax investigations

If you’re in dispute with HMRC it can now demand an up-front payment of the extra tax it thinks is due.

In what situations can it use these new powers?

What are APNs? Advance payment notices (APNs) are a new weapon in HMRC’s armoury to tackle unfair tax avoidance. APNs allow it to demand payment where it believes a scheme has been used to avoid tax. An APN can apply to most types of tax, including corporation, income and capital gains tax.

Avoidance schemes. The types of scheme HMRC will target range from marketed investment products, such as film partnerships, to any arrangement where it believes the main purpose of which is to reduce a tax bill. This is likely to be the main tool in attacking off shore arrangements going forward.

Conditions. Certain conditions must exist before HMRC is allowed to issue an APN:

1) it must have started an enquiry into the tax return of the person or company using a scheme

2) there must be a tax advantage arising from the scheme; and

3) HMRC has notified you that it believes the arrangement you’ve used involves tax avoidance.

What next? Even if HMRC is yet to prove that an arrangement involves unfair tax avoidance it can issue an APN and demand extra tax which must be paid within 90 days.

Can you appeal? You can make a written objection to an APN within the 90-day period, but only if you believe HMRC hasn’t met one of the three conditions (see above) or that the tax demanded is inaccurate.

Retrospective effect. HMRC can issue an APN for avoidance arrangements used in the past and, of course, those you use from now on. HMRC’s intention is clear; it doesn’t want anyone using avoidance arrangements even where they are within the terms of the legislation.

Sapphire Tips The tips that can be drawn from this are:

Tip 1: To demand extra tax HMRC must have started an enquiry into your tax return and indicated that it believes you’ve used a scheme to reduce your tax bill. If the conditions aren’t met, ask for the demand to be withdrawn

Tip 2: If you think a scheme or arrangement is genuinely effective don’t be put off using it, but be prepared to stump up extra tax initially knowing that it could take months or even years to get it back.

Tip 3: Where payment of the disputed tax will cause hardship, you can ask HMRC if it will accept money by instalments.