During her stint as the Chairwoman of the Public Accounts Committee, Dame Margaret Hodge successfully framed the debate about tax avoidance into a morality issue.
But do some of those tax avoiders now deserve an element of belated sympathy?
The people who have participated in offshore loan arrangements, film schemes or other contentious tax planning vehicles have either been faced with settling long-standing open enquiries with HMRC, or funding Accelerated Payment Notices (APNs) as a down payment towards ultimate resolution. £2bn has already been collected, with HMRC now issuing over 3,000 APNs a month towards achieving an expected £5bn for the Chancellor by March 2020.
Interest and penalties lie in potential wait whichever route is taken and, whilst penalties are subject to negotiation, interest is a statutory charge and there is no right of appeal.
The vast majority of the enquiries were launched on a protective basis many years ago, with HMRC expressing unhappiness with schemes in the opening letters, whilst at the same time stating an intention to review and consider the transactions conducted and the arrangements in place. Time then stood still for years as HMRC sought to form a coherent view and tactical approach.
When deemed tax avoiders take issue with HMRC’s Interest Review Unit (IRU) and draw attention to the time lost to the earlier indecision by their colleagues, the response leaves little room for manoeuvre.
‘Interest is in no sense a penalty. It is the law that requires HMRC to charge interest based on two indisputable facts; the date the law says the tax is due and the date it is actually paid.’
But that is rarely the argument. The underlying ground for complaint is that HMRC could have decided upon a view and sought to enforce it sooner, justifying a reduction of part of the interest charged. However, the IRU will only consider unreasonable HMRC delay and only for the tax the customer is, or may be, unaware of.
There are five considerations that all need to be satisfied:
- Interest was increasing during the period involved and
- HMRC was responsible for the conduct of the case during the period and
- The delay was extensive and unreasonable in the circumstances and
- It was only this delay that caused the absence of payment and
- The taxpayer was not aware that a debt existed, or might arise, that they should have paid or made a payment on account against.
Time and again the IRU will refer to the latter and state the taxpayer should have been aware from the issue of the enquiry notice that there was a possibility more tax would be due.
What little compassion the IRU may express ‘It is unfortunate it took some time to finalise this matter’ is quickly extinguished ‘but this was due to the need for us to establish the facts before we could demonstrate that the scheme did not work.’
Sympathy may be thin on the ground for perceived tax avoiders and their morals, but HMRC is arguably still wrong for refusing to accept any failure of its own to act decisively once these enquiries had begun and to now allow an interest reduction at the settlement stage.
Author: Guy Smith, Tax Investigations Manager
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