What makes Accelerated Payment Notices (“APN”) particularly unpleasant? Could it be:
- A payment is made without knowing whether you’ll get anything back (must be the definition of tax)
- The payment was not ever anticipated at the time the thing was done that gives rise to the payment
- More professional costs will be incurred
- Someone rewrote the rule book and took away fairness
The issue for any adviser is helping a client consider whether it is appropriate to:
- Make representations to HMRC with hope that the APN will be withdrawn (or at least delayed) forcing the need to go to the tribunal
- Enter into negotiations to settle the challenged tax liability
Advising a client to settle the challenged tax liability carries its own risks. A settlement is likely to be on contractual terms. The client would be denied a refund of tax if at a later stage the tax treatment of the planning was upheld. Predicting the outcome of a case is virtually impossible given the pendulum motion of our courts. Is it fairer to sit and wait for an outcome of the courts and make representations against an APN?
Each case should be considered on its own merit, although the possible contents of representations include detailing:
- The purpose of the APN: the extraction of money in lieu of the dispute determination
- Retrospective effect: at the time the planning was undertaken there was no foresight that the legislation would be imposed
- No right of challenge: there is no mechanism to challenge the underlying decision to issue an APN
- No expectation to pay: given there was no expectation it is reasonable to assume that one could not make adequate provision for the APN
- Ultra Vires: the APN is issued beyond legal authority
- HMRC approach: the legislation states that a designated officer determines the liability to which the APN relates although most appear absent of adequate detail in this regard often containing assumed facts in order to arrive at a liability
- Unreasonableness: HMRC have not issued a policy of the issuing of APNs and instead it is at discretion, which is considered unreasonable
- Breach of natural justice: an APN is neither tax or an assessment to tax and there are no procedural safeguards to the issue of an APN
- Legitimate expectation: prior to the APN legislation, a taxpayer would have held an expectation that the liability may be postponed pending a legal determination; that expectation has been removed
It appears that the APN legislation has not only caused disruption to those that have undertaken planning but also places advisers in a difficult position as to providing advice. It may be easier where the client believes that morally they should pay the tax or they see the potential costs of representation and/or litigation as to burdensome to warrant not entering a settlement. Where someone is convinced the planning they undertook was acceptable, it may be necessary for an adviser to test that view. Testing will require establishing the potential arguments that HMRC will raise plus how the tribunal and courts are minded to regard planning. To understand how the tribunal or courts will react, requires understanding how other cases have been viewed and applying the “approach” (as opposed to the law) to the circumstances of the planning.
Judges, when arriving at their decision, consider the wider public interest. Has public view towards tax planning changed? David Halpern’s team at The Behavioural Insights Team (“BIT”) is largely responsible for assisting HMRC to change the behaviour of taxpayers. BIT is jointly owned by the UK Government, Nesta and its employees; it is full of bright academics that are probably unemployable outside of Government circles. These intellectuals advise on how to change behaviour; one of their largest areas of work relates to tax fraud and the collection of taxes. They are probably in part responsible for these adverts:
It’s a shame, Hector was so much friendlier. The changing public perception will inevitably also feed through to what is interpreted as the interest of the wider public. Whilst representation against an APN is possible and an APN is distinct to the underlying tax case, a client needs to consider the possible eventual outcome and what they are trying to achieve now.