Unpaid tax: accelerated payment notices
If H M Revenue and Customs believe you have been involved in reducing your tax bill using a tax avoidance scheme they can serve an Accelerated Payment Notice (APN) on you. This gives you just 90 days to pay the tax due on the notice and replaces any previous payment plan you may have had. You cannot delay payment by lodging an appeal although you can contact them if there are any obvious errors.
The main purpose of the APN is to make sure you pay any tax early, rather than having the cash flow advantage of you holding onto the money.
Am I at risk of being issued an APN?
A number of company directors are known to have been recommended tax-saving strategies by advisers and may not have knowingly avoided paying sufficient tax. A typical tax avoidance scheme ‘sold’ by advisers to tax payers involved an employee benefit trust known as an EBT. This meant tax deductible payments were made into a trust and then the trust made loans to key employees – with the hope of avoiding tax on the loans which were effectively income – as they were never paid back.
In the last few years, the efforts of H M Revenue and Customs have been increasingly focused on reducing tax avoidance. Any sign of any tax saving methods whether legal or not are frowned upon and certainly the press has joined in naming and shaming anyone associated with tax avoidance. This has also meant that HMRC have stepped up their efforts in clamping down on tax avoiding businesses and are making it more likely to be caught out if your company has a less than sufficient tax structure.
What should I do if I receive an APN?
If you receive an APN you should take immediate professional advice from your accountant or solicitor as an APN is only an interim measure – you still must settle and agree the final tax owed. This may be more than the amount on the APN.
If you have the funds you should pay the tax. If you don’t have the funds immediately you can contact H M Revenue and Customs and request a time to pay arrangement and they may give you time to pay the tax due over a few months or from the sale of assets. However, this may be unlikely as one of the purposes of the APN is to discourage directors from using any type of tax avoidance schemes in the future.
Taxpayers who receive APN’s are likely to be high earners with a number of assets who have used a tax avoidance scheme. Careful advice should be taken about whether bankruptcy or an Individual Voluntary Arrangement is the right solution for the taxpayer if they cannot pay the tax due.
Is there a way around paying the APN?
H M Revenue and Customs will do their best to retrieve any due funds as soon as possible; in extreme cases some directors have had to declare bankruptcy or sell their home in order to meet payment deadlines. It is important to note that only the taxpayers share of assets can be claimed so, for example, a jointly owned family home may be half owned by the spouse and they cannot claim that half share.
If the APN is served on a limited company and one that has a viable profitable business apart from the tax due under the APN, a pre-pack Administration may be the answer. This means the business can be sold to a new company without the old tax debts from the APN following through to the new business. The business can be sold to the existing directors and shareholders subject to it being valued and marketed.
Understandably, H M Revenue and Customs may not advise this but a Pre-pack Administration is a completely legal and legitimate process under UK law and is often used by companies in trouble.
It is important to note that the tax debts of a limited company cannot be transferred to the shareholders or directors. A limited company is a separate legal entity. If it closes and goes into liquidation then the tax liability goes with it.