Accelerated Payment Notices, Penalties and HMRC Penalty Appeal

There are various penalties involved if you have used a tax avoidance UK scheme and are in dispute with HMRC. The penalty which can be charged depends on the individual circumstances.

Does the following sound familiar?

“Take home up to 91% from contracts?” ... “100% HMRC approved” ... “Backed by leading Tax Counsel opinion”
— These are just some of the marketing lines promoters use to sell tax avoidance UK schemes.
tax avoidance uk scheme

If you have used a tax avoidance UK scheme and are in dispute with HMRC you may have received an Accelerated Payment Notice or Accelerated Payment Notices. If an Accelerated Payment Notice lands on your doorstep one of the questions you should consider is: Do you know what the penalties are for not paying on time? Understanding the answer to this is crucial for deciding how to resolve your dispute.

Firstly, what are Accelerated Payment Notices?

If you have used a tax avoidance UK scheme, HMRC can issue an Accelerated Payment Notice or several Accelerated Payment Notices for various tax years. If you are one of the many contractors that have received Accelerated Payment Notices you may need to pay the amount of tax relating to your use of the scheme before the final amount has been agreed. This payment is called an accelerated payment and is due 90 days after the date of receiving the Notice. Accelerated Payment Notices can be issued by HMRC if certain conditions are met:

  1. A tax enquiry into a return or claim has been opened and is still open.
  2. Obtaining a tax advantage is the main purpose of the tax arrangements.
  3. HMRC is of the opinion that there is a judicial ruling (e.g. Philip Boyle v HMRC case) which is relevant to the chosen arrangements. 

Secondly, what are the penalties associated with Accelerated Payment Notices?

There are various penalties involved if you have used a tax avoidance UK scheme and have received a Follower Notice and/or Accelerated Payment Notices. It is important to know which penalties you could become liable to as this could influence your decisions on how to deal with your dispute. Below is a simple guide to the main areas which could attract a penalty.

Apart from penalties, interest will be charged from the original due date on which the tax should have been paid. Therefore, if you owe tax for 2006/07 interest is currently running on any liability due since 31 January 2008 and that could be a lot of interest.

So, to the penalties:

  1. Late Payment Penalties: If you do not pay your Accelerated Payment Notices bill within the prescribed 90 days you will incur a series of surcharges that amount to 15% of the tax during the 11 months following the due date.
  2. Penalties for Inaccuracies in Returns: Your tax return could be inaccurate if you failed to give complete information about your use of a tax avoidance UK scheme. Depending on whether this "behaviour" is considered to be "careless" or "deliberate" you could incur a maximum penalty of 70% of the tax.
  3. Penalties for Failure to Notify: If you fail to notify HMRC of your chargeability - which means either you did not tell HMRC about your income or you failed to complete a tax return when you needed to, this could also result in penalties of up to 70% and beyond.
  4. Penalties for Failure to Take "Corrective Action": A new penalty has been introduced in Finance Act 2014 for Failure to take "Corrective Action" upon issue of a Follower Notice (this will not apply to DOTAS registered schemes). The maximum penalty is 50% of the tax (with reduced penalties for Partnerships).

Thirdly, how do you make a penalty appeal to HMRC against an Accelerated Payment Notice?

Contrary to common misconception (sometimes even amongst accountants) a contractor has no right to make an appeal to HMRC against their Accelerated Payment Notices. However, once you have received the notice, you have 90 days to write to HMRC to object to the notice (this is known as sending written representations to HMRC). If you receive an Accelerated Payment Notice it is important to ask yourself: should I make written representations to HMRC?

To answer this question you need to understand that written representation can only be done on the grounds that the conditions for issuing the notice (detailed above) were not met (e.g. the accelerated payment notice is incorrect or not legal). By making written representations to HMRC you may buy yourself an additional 30 days to make the payment!

Finally, do not forget...

Do not forget that if you did not tell HMRC about the use of your tax avoidance UK scheme, you are very likely to have committed an offence and in extreme circumstances this can be treated by HMRC as suspected fraud which can lead to higher penalties and possible criminal prosecution.

If you have received an Accelerated Payment Notice and need to speak to a tax investigation specialist please call us on 02089582653 or contact us here.