The author of this article examines one of the weapons in the UK tax authority's armory, raising concerns about how how power this gives and whether sufficient safeguards are in place.

The UK has introduced so-called accelerated payment notices (APNs), which are designed to speed up the collection of taxes in case a form of avoidance is claimed. They are controversial – they arguably aggress against due process of law and some traditional safeguards against oppressive state power, but defenders of APNs say they are part of a necessary toolkit to tighten up tax compliance. The author of this article on APNs and the surrounding issues is Vernon Dennis, head of business recovery and reconstruction, and partner at Howard Kennedy, the law firm. The editors of this news service are happy to share these views; readers can email the editor with responses. Contact tom.burroughes@wealthbriefing.com


Since being introduced in July 2014 over 80,000 accelerated payment notices (APNs) have been issued.  An APN is a powerful weapon in HMRC's armoury, requiring the taxpayer to pay tax that is disputed prior to resolution by a tribunal, court or settlement. 
 
The APN, which cannot be appealed against, must be paid within 90 days or the recipient will face a 5 per cent penalty on the disputed sum; a penalty repeated after five and 11 months if the APN remains unpaid. Late payment interest is also charged at base rate plus 2.5 per cent. This penalty and interest is on top of the imposition of a 50-60 per cent penalty imposed if the taxpayer continues to dispute whether the tax is payable and where the court subsequently finds against the taxpayer. 

The introduction of APNs is just one of the more than 100 measures introduced since 2010 to crackdown on tax avoidance. By accelerating the payment of a tax liability that may become due, the APN is intended to discourage taxpayers from unnecessarily delaying payment and thereby reducing the time and cost to HMRC in dealing with disputed cases. 

The lack of an appeal process leaves the taxpayer who disputes the liability having to pay or face draconian penalties unless they can persuade HMRC that an error has occurred. The Financial Times reported that in over 6,000 instances the APN has been withdrawn, which may mask a much bigger pool of taxpayers who are effectively 'paying under protest'. Indeed, while HMRC argues that in 80 per cent of cases they are successful in identifying transactions that can be countered, the converse is that 20 per cent of taxpayers facing this situation will be paying unnecessarily and are not properly compensated by the small interest payment offered (currently 0.5 per cent) should the payment be returned. 

In the absence of persuading HMRC that the APN has been issued in error, a taxpayer’s sole remedy is to seek judicial review of HMRC's decision to serve the APN on the basis that it was illegal, irrational or due to procedural impropriety. While a record number of judicial review applications have been made (90 in 2017) this is an expensive process, open to few, with a poor record of taxpayer success (circa 3 per cent since 2000). 

With an increasing number of APNs being served, we are likely to see an ever-greater percentage of taxpayers who dispute their liability being unable to meet the demand in time, or, due to changes in financial , being unable to meet it at all. The recent cases of Rowe v HMRC and Vital Nut Ltd v HMRC heard by the Court of Appeal have led to some clarification in this area, namely that interim relief (which lets the taxpayer withhold payment of an APN without penalty) is only available where the taxpayer is able to prove hardship. Where a company was served with an APN, the evidence required was that payment of the APN would prevent the company meeting its liabilities in the ordinary course of its business; akin to showing that the company would be insolvent. 

This is a high test to pass and it was of note that the court hoped that HMRC would exercise caution in proceeding against individuals where hardship could be shown. Anecdotally, however, with an increasingly emboldened HMRC pointing to the fact that they have so far won all five judicial review applications on APNs, we appear to have seen the first case of HMRC enforcing APNs by issuing bankruptcy petitions, despite the fact that the tax may ultimately not prove to be payable. 

Some commentators are predicting an even greater use of APNs, moving from APNs issued in relation to those notified pursuant to the Disclosure of Tax Avoidance Schemes (DOTAS) regime and 'follower notices' i.e. demands arising from a tax determination about a taxpayer in the same situation, to the third available circumstance provided for in the legislation, namely when a General Anti-Abuse Rule (GAAR) counteraction has been given (i.e. a challenge to a tax arrangement) and at least two members of the GAAR advisory panel agreed that the entering into tax arrangements were not a reasonable course of action. This would put HMRC on the front foot when challenging schemes, enabling it to make a quasi-judicial interpretation of tax legislation and then to demand payment. 

In April HMRC issued two consultations. The first sought comments on their recommendation that the use of 'vehicles' to move funds offshore should be viewed as an arrangement to be disclosed under DOTAS (and thus within the current remit of APNs). The second asked for suggestions for preventing the use of the insolvency regime to 'avoid' tax. The suggestion was that there should be a widening of the scope of personal liability notices (making those who occasioned tax loss personally liable) and/or joint and several liability for individuals with the company tax liability where blame or a course of conduct. This second consultation springs from HMRC's concern that companies served with APNs or tax demands may exploit insolvency procedures to avoid payment. HMRC acknowledges the fact that it can impose clawback and personal liability under the Insolvency Act, but complains that it often has to settle these claims on a commercial basis and that the proceedings do not allow it to make full recovery.    

Tax liability and insolvency is, however, a much wider issue. The first problem is HMRC's loss of preferential status as a creditor in any insolvency (arising from reform to insolvency legislation in 2003). The second problem is HMRC's unwillingness as a general unsecured creditor to fund insolvency office holders to carry out investigations and bring proceedings. Finally, there has been a woeful lack of investment in the Insolvency Service which has affected its ability to police the conduct of directors adequately through the disqualification regime.

Most of us in the insolvency profession consider the powers contained in the legislation sufficient to ensure return to creditors, including HMRC wherever abuse has occurred. The problem is, however, one of risk, reward and funding. The process will not be helped by quasi-judicial decision making by HMRC or by powers which will favour HMRC over other unsecured creditors.