The economics of tax avoidance have changed after HM Revenue and Customs (HMRC) collected £3 billion by demanding advance payments from wealthy individuals and companies involved in disputed tax schemes.
HMRC has sent out close to 60,000 accelerated payment notices (APN) to taxpayers clawing back money sheltered in tax avoidance schemes.
Although nine out of 10 schemes are defeated in court, until the APN procedure was introduced in 2014, taxpayers retained their money while an investigation and court appeals took up to a decade to complete.
As a result, they could spend or reinvest the cash until HMRC caught up with them through the legal process.
Avoidance schemes do not work
Now, APNs allow HMRC to take the cash up front and taxpayers have to prove the avoidance scheme works before the money is refunded with interest.
Taxpayers served with an APN have 90 days to pay or make representations to HMRC if they consider the notice is incorrect.
Financial Secretary to the Treasury, Jane Ellison said: “I’m delighted to announce that we’ve collected £3 billion in taxes up front since 2014 from people using avoidance schemes as HMRC puts its new powers to use.
“The vast majority of avoidance schemes just don’t work. We’re determined to change the economics of tax avoidance by making it harder for the dishonest minority to cheat the system. People will think twice about what they are doing if disputed tax is collected up front and tough new sanctions for enablers of tax avoidance are introduced.”
Wins in court
HMRC has won five judicial reviews challenging the accelerated payment rules and close to 90% of avoidance litigation cases, with most taxpayers settling their tax bills rather than enter lengthy and costly litigation.
In two cases this year, HMRC won a dispute over more than £650 million of disputed taxes.
Jennie Granger, HMRC’s director general for enforcement and compliance, said: “Accelerated payment notices are at the forefront of the government’s drive to tackle tax avoidance schemes. Recipients must pay the tax owed within 90 days, changing the economics of tax avoidance.
“We want to encourage as many avoidance users as possible to come forward and settle their schemes with us”.