As Christmas cards from family and friends land on doormats wishing festive cheer and happiness, an altogether different delivery is going to be finding its way to some users of Employee Benefit Trusts (EBTs).
This week HM Revenue & Customs (HMRC) has started issuing 10,000 nudge letters to EBT users, reminding them of the limited time available to access the EBT Settlement Opportunity (EBTSO), before it is withdrawn on 31 March 2015.
What is an EBT?
In simple terms, an Employee Benefit Trust is a trust set up to hold assets which provide employees with benefits, for example in the event of redundancy.
However, more contentious EBTs exist where an employer deposits money into a trust, which is then paid out to an employee or beneficiary in the form of a tax free loan or bonus. Some EBTs involve loans being made from an offshore trust or even in the form of a foreign currency. Other EBTs provide assets, such as cars, for employees to use as a reward.
HMRC believes some of these contentious EBTs have been used by employers to ‘defer, minimise or avoid’ PAYE and National Insurance Contributions (NIC) liabilities and the loans, bonuses or other rewards are disguised remuneration and should be taxed as employment income.
The EBTSO offers beneficial terms to users of these arrangements to settle without recourse to litigation and potential Tax Tribunal hearings.
What is HMRC doing?
A Counter Avoidance Directorate (CAD) has been set up by HMRC with over 800 technical staff. One of the primary objectives of the CAD is to clear the backlog of disputed tax avoidance cases, which number around 65,000 and are believed by HMRC to be sheltering in excess of £30bn.
Furthermore, in July earlier this year, HMRC was granted new powers with the introduction of the Follower Notices and Accelerated Payments legislation, to help improve the speed at which tax avoidance cases are settled.
What is a Follower Notice?
Follower Notices (FN) can be issued by HMRC to taxpayers who have used a tax avoidance scheme, which is the same or similar to another scheme which has already failed during litigation at the Supreme Court, or other court or tribunal and where there is no further right of appeal, or the appeal period has expired.
Taxpayers who receive a FN and disagree they should have received one can make representations to HMRC, in writing, within 90 days of the date the notice was given. However the notice also tells the taxpayer they may be liable to a penalty of up to 50% of the tax in dispute, if they do not amend their return or settle their dispute.
What is an Accelerated Payment Notice?
Accelerated Payment Notices (APN) can be issued to taxpayers who have used a tax avoidance scheme, have received a Follower Notice and are registered under a DOTAS scheme or the subject of a GAAR counteraction.
There also has to be an open enquiry or open appeal against an enquiry closure notice or assessment or determination. In other words, the taxpayer should be aware that their tax arrangements are being challenged.
As with Follower Notices, taxpayers can object to an APN and make representations to HMRC, in writing, within 90 days of the date of the notice. If an accelerated payment is still payable after HMRC has considered the representations, then the taxpayer must pay the amount due by the later of the period of 30 days beginning with the date of HMRC’s decision or 90 days after the APN was given.
Is there a penalty for failing to pay an APN?
Where an APN has been issued and remains unpaid, a penalty of 5% of the tax due is charged on the penalty day, then a further 5% penalty is levied on the total amount owing 5 months after the penalty day and then a further 5% penalty is charged on the total amount owing 11 months after the penalty day.
The penalty day is the day immediately following the end of the payment period.
What has happened so far?
About 30 scheme users were told they had to pay around £29m in late August and HMRC received 99% of the money demanded.
HMRC has issued a total of 1,750 APNs to the value of £400m so far, but the bulk of those notices have not reached the 90 day payment deadline just yet.
From next month, HMRC intends to issue 2,500 APNs each month and aims to issue 43,000 APNs by 31 March 2016.
Do you need help?
Abbey Tax has access to an approved HMRC gateway, which enables us to present cases on a no names basis in order to agree a settlement in principle.
Together with our friends at Leonard Curtis, we can also help agree suitable payment terms for clients who cannot afford to pay a settlement or an APN and arrange funding.
If you would like further information. please call 0845 223 2727 or e mail firstname.lastname@example.org
Author: Guy Smith, Tax Investigations Manager on the ReSource Tax and VAT Consultancy Team
E mail: email@example.com