RegulationJul 31 2015

HMRC wins disputed tax upfront battle

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HMRC wins disputed tax upfront battle

HM Revenue and Customs can demand payments of disputed tax upfront in the case of investors in an unnamed tax avoidance scheme, the High Court has ruled.

According to HMRC, a challenge to the legality of these ‘accelerated payment’ notices was rejected in court.

It stated that the accelerated payments regime, which was introduced by the government last year, changed the underlying economics of tax avoidance, with people suspected of trying to avoid tax having to pay the tax upfront while their avoidance is investigated.

A number of users of an avoidance scheme challenged notices issued under this regime through a judicial review.

These users claimed HMRC’s action in issuing the accelerated payments notices were unreasonable, breached natural justice and represented an abuse of their rights under the European Convention on Human Rights to a fair trial and protection of property.

They also claimed it took away the legitimate expectation they had when they joined the avoidance scheme that they would not have to pay tax before the dispute had been resolved.

The High Court found in HMRC’s favour on all these challenges.

David Richardson, director of counter avoidance at HMRC, called it an important result and good news for the vast majority of taxpayers who do not try to avoid paying their fair share of tax.

“Those who use tax avoidance schemes need to know they can no longer hold on to the money while their affairs are investigated. They have to pay their tax up front like everybody else.

“We expect to complete the issue of around 64,000 notices tax by the end of 2016 bringing forward £5.5bn in payments for the exchequer by March 2020.

He added: “HMRC wins 80 per cent of all avoidance cases that people litigate, and many more are settling before things get to that stage.”

Tim Stovold, head of tax at Kingston Smith said: “A number of individuals who had been pinning their hopes on the judicial review being successful may now be faced with bankruptcy as the tax at stake for some runs into millions.

“The regime serves as a major disincentive to participate in tax avoidance schemes - but it has been applied to tax planning implemented many years before the accelerated payments notices were ever known about.”

ruth.gillbe@ft.com