The accelerated payment notice provisions are in Chapter 3 of Part 4 of the Finance (No.2) Bill (clauses 212 – 222).
In the original consultation document, published on 12 August 2013 entitled “Raising the Stakes on Tax Avoidance”, HMRC mooted the possibility of issuing accelerated payment notices (APNs), but only in the context of follower notices. In other words HMRC could not issue an APN unless a taxpayer had been issued with a follower notice.
However, in their subsequent consultation document published on 24 January 2014 entitled “Tackling Marketed Tax Avoidance”, HMRC proposed that issuing an APN could be freestanding (ie not necessarily linked to the issue of a follower notice).
And the provisions of Chapter 3 are evidence of this. HMRC can give an APN to a person (P) if three conditions are met:
- HMRC are enquiring into P’s return or claim, or P has made a tax appeal which has not been determined.
- The return or appeal is on the basis that a particular tax advantage results from the arrangements that P has entered into.
- One or more of the following requirements are met:
- HMRC has issued a follower notice to P.
- The arrangements are DOTAS arrangements (in other words they are notifiable arrangements to which HMRC has allocated a DOTAS number).
- A GAAR counteraction notice has been given in relation to the advantage generated by the tax arrangements.
Although there is still a link between the issue of a follower notice and the issue of an APN, it is possible for HMRC to issue an APN simply because a Disclosure of Tax Avoidance Schemes (DOTAS) number has been issued.
It is also notable that, for SDLT, between 2005 and 2010, promoters were obliged to notify HMRC of a discloseable scheme, and received a number as evidence that they had made that disclosure. There was no need, however, for the promoters to pass this number on to the scheme user. We anticipate that HMRC will confirm, shortly, that such numbers were not numbers under Section 311 FA04 (as stated in their early editions of the relevant DOTAS guidance notes); and also that they are likely to be “filtered out” between now and publication of the Finance Act, more of which in the next briefing.
HMRC's justification for linking an accelerated payment notice to DOTAS can be seen at paragraph 4.8 of the Tackling Marketed Tax Avoidance Consultation document:
"4.8 Linking the Payments Notice to users of DOTAS arrangements appears to the Government to be the right step because:
a. Most structures that are notified under DOTAS have characteristics or "hallmarks" of avoidance; and
b. DOTAS provides a clear and objective criterion for this policy which can be readily operated by tax payers and their advisers"
And again, in the summary of responses to the Tackling Marketed Tax Avoidance Consultation document at paragraph 4.4:
“4.4. The Government is still satisfied that this is the correct way forward as DOTAS provides an objective criterion to apply the measure and, in the majority of cases, is an indicator of avoidance activity. Taxpayers will be clear about the implications of using a DOTAS arrangement in future and whether they are likely to be included in this measure for arrangements they have used in the past. There are no other legislative criteria that could provide the same level of certainty and objectivity”
The broad structure of DOTAS, both now and when it was introduced, was to have legislation of wide application restricted by regulations. These restrictions gradually became 'hallmarks' for direct taxes (such that unless the arrangements fell within the hallmarks, there was no obligation to disclose) and financial thresholds etc for SDLT. These financial thresholds have been removed, and the DOTAS safe harbours, either by way of hallmarks or by way of grandfathering etc, have been increasingly widened.
But importantly, as was made clear by Dawn Primarolo, and as set out in the first DOTAS guidance note:
"it is not the intention of the disclosure rules to stop accountants advising their clients on the tax breaks and the concessions that Parliament has introduced. That is entirely acceptable tax planning. Frankly, however, there is a world of difference between that and advisers designing outrageous schemes with the deliberate aim of exploiting tax loopholes that are plainly contrary to what the legislation seeks to achieve".
HMRC estimate that they win around 80 per cent of avoidance cases in the courts.
What they are effectively saying is that DOTAS equals egregious avoidance; if challenged, HMRC are likely to win the case in the court; so a taxpayer who has made a DOTAS disclosure might as well pay the tax upfront under the APN, since it is pretty unlikely that they will succeed even if they choose to fight the APN.