Financial advisers with expatriate clients whom they may have helped to invest in certain types of tax avoidance schemes are being warned that HM Revenue & Customs isn’t stopping at the UK’s borders in its efforts to collect disputed tax.
While some experts have questioned whether such strong-arm tactics as so-called accelerated payment notices — or APNs, as they’re called — would stand up to a legal challenge across international borders, they say few individual taxpayers would likely have the stomach for what could be a drawn-out and potentially expensive legal battle against as formidable an adversary as the Revenue.
In January, an expat living in Spain received notification, on HM Revenue & Customs letter-headed stationery from what was identified as the “Debt Management Accelerated Payment Team”, that they owed £640,000 in tax, for the 2008/2009 tax period.
“If you do not pay by [a deadline of less than a month away], we may ask the competent authority in Spain to collect payment from you, using their usual national debt recovery procedures,” the letter, a redacted copy of which was seen by International Investment, said.
Accelerated payment notices like this were introduced into the UK Finance Act 2014, and began to be issued later that year.
HM Revenue & Customs issues APNs to taxpayers, both individual and corporate, that it deems to have been involved in avoidance schemes disclosed under the Disclosure of Tax Avoidance Schemes (DOTAS) rules, or countered under the General Anti Abuse Rule (GAAR).
The practical effect of an APN is that it requires the taxpayer to pay some or all of the disputed tax on account, while the dispute is litigated in a tax tribunal. The government’s rationale for APNs is to remove the cash flow advantage enjoyed by users of tax avoidance schemes.
Tens of thousands of APNs have been issued since the programme was introduced in the latter half of 2014. Some have been (unsuccessfully) challenged through the courts; a few have been withdrawn because HMRC agreed that it had exceeded its powers in issuing them.
As for the question as to whether HMRC has the right, under international law, to ask a foreign tax authority such as Spain’s to collect outstanding tax on its behalf, the planned introduction by more than 60 countries next year of the automatic exchange of tax-relevant information under the “common reporting standard” is expected to make challenges unlikely.
Richard Morley, a partner at BDO and a member of its disputes resolutions team, says that although APNs have been issued in some numbers since the legislation creating them was passed in 2014, his firm hadn’t seen HMRC threaten to outsource to a foreign tax authority the collection of disputed amounts owed by UK expatriate taxpayers until this year.
While clients whose tax avoidance schemes have been under review ought to be aware of this, and thus not too surprised when APNs fall through their letterboxes, sometimes they still come as “a bit of a surprise”, Morley added.
Last month HMRC said it had clawed back more than £2bn from taxpayers who had made use of tax avoidance schemes in ways that the Revenue deemed to be abusive.