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dmuk
24th March 2015, 15:44
I am trying to determine a potential APN amount. The association managing the issue has said hold off until the APN actually arrives.

Is this simply a matter of determining what your tax position should have been for a tax period; then working out the correct amount and applying penalties?

I've had a search around but nothing is quite clear. Does HMRC have some clear guidance or is every APN different depending on the "scheme"?

foobar
24th March 2015, 15:49
They will give you an outrageous 'estimate'. To get this reduced you will have to provide bank statements detailing any loans.

DotasScandal
24th March 2015, 15:50
I am trying to determine a potential APN amount. The association managing the issue has said hold off until the APN actually arrives.

Is this simply a matter of determining what your tax position should have been for a tax period; then working out the correct amount and applying penalties?

I've had a search around but nothing is quite clear. Does HMRC have some clear guidance or is every APN different depending on the "scheme"?

APNs do not include penalties (or interest, for that matter), only "tax in dispute".
There is no clear guidance, and on the APNs already received by some of our guys, HMRC couldn't be bothered to include calculations.
But it will depend on the strucutre of your scheme, of course.

DonkeyRhubarb
24th March 2015, 15:57
This probably won't be that much help to many but APNs only apply to tax year 2004/5 onwards.

Tax years 2003/4 and earlier are excluded.

dmuk
24th March 2015, 16:26
This probably won't be that much help to many but APNs only apply to tax year 2004/5 onwards.

Tax years 2003/4 and earlier are excluded.

Are you sure?

I am anticipating receiving one for '09/10 and '10/11.

I am also calculating on the assumption the full amount that was not taxed in these periods is taxable at normal rates plus interest etc

dmuk
24th March 2015, 16:27
APNs do not include penalties (or interest, for that matter), only "tax in dispute".
There is no clear guidance, and on the APNs already received by some of our guys, HMRC couldn't be bothered to include calculations.
But it will depend on the strucutre of your scheme, of course.

Interesting. Is this simply the tax HMRC believe you owe for the tax period? Do they add anything on top?

DotasScandal
24th March 2015, 16:38
Interesting. Is this simply the tax HMRC believe you owe for the tax period? Do they add anything on top?

Yes, it is the tax they "believe you owe", without any sides (interest, penalties...).
How they came to their "belief", though...your guess is as good as mine.

javadude
24th March 2015, 17:21
I don't think "clear guidance" and "HMRC" belong in the same sentence.

dmuk
24th March 2015, 17:52
Yes, it is the tax they "believe you owe", without any sides (interest, penalties...).
How they came to their "belief", though...your guess is as good as mine.

Fingers crossed it will be less than I am anticipating. Odd they don't add any interest and penalties. I guess I need to wait for the APN to arrive.

webberg
24th March 2015, 18:08
Fingers crossed it will be less than I am anticipating. Odd they don't add any interest and penalties. I guess I need to wait for the APN to arrive.

As has been observed above, the APN is for the tax in dispute.

HMRC cannot charge interest and penalties without there being some form of appeal process as that would not be legal. The APN regime is a way of getting the cash without the danger that the prols might revolt.

Only when the final tax position has been settled (5 years from now if you're lucky) can interest etc be calculated. Penalty depends on behaviour, not tax liability.

The APN is likely to be based on the amount of the loan you received x your marginal rate of tax. There is ample evidence that HMRC does not have enough data to make an accurate assessment and that might allow you to delay the amount payable.

dmuk
24th March 2015, 19:15
Only when the final tax position has been settled (5 years from now if you're lucky) can interest etc be calculated. Penalty depends on behaviour, not tax liability..

Thanks for the reply. Could you clarify the 5 year part?

Is this 5 years from paying the APN? Or from when the tax event or period occurred?

Is there a limit to how far back the HMRC can go to retrieve tax?

StrengthInNumbers
24th March 2015, 19:41
Meaning one HMRC have the money they will move at snail speed - 5 years if u r lucky otherwise yr kids will inherit it😳

SantaClaus
24th March 2015, 21:31
Meaning one HMRC have the money they will move at snail speed - 5 years if u r lucky otherwise yr kids will inherit it��

Agree.

Considering it's taken HMRC 7 years to try to get money from us NTRT'ers, I imagine trying to get the money back from HMRC will be a lot longer than 7 years.

As StrengthInNumbers says, think, writing it into your will to ask your children to follow it up!

dmuk
25th March 2015, 06:44
Agree.

Considering it's taken HMRC 7 years to try to get money from us NTRT'ers, I imagine trying to get the money back from HMRC will be a lot longer than 7 years.

As StrengthInNumbers says, think, writing it into your will to ask your children to follow it up!

Uh, so basically HMRC sit on the money. Should in the future you are entitled to the money back, HMRC pay it back to you. The repayment may take years.

If you receive an APN but participate in a JR - do you still have to pay the APN?

DonkeyRhubarb
25th March 2015, 08:13
If you receive an APN but participate in a JR - do you still have to pay the APN?

I understand around 100 participants in the Pinsent Masons JR have had their APNs suspended. I don't know if they were all named in the JR application or if Pinsent took out a temporary injunction to have the APNs suspended.

This is probably the only way to get APNs delayed for an extended period.

flamel
25th March 2015, 08:58
Uh, so basically HMRC sit on the money. Should in the future you are entitled to the money back, HMRC pay it back to you. The repayment may take years.

If you receive an APN but participate in a JR - do you still have to pay the APN?

The money is only repayable after a final judicial decision has been made. If HMRC loses at the FTT and the UTT, it is likely to be after the Supreme Court. The judicial process can take many years, which could cause many taxpayers irreparable financial damage as HMRC hold onto the cash, which could lead to bankruptcy. The miserly rate of interest HMRC is required to pay in these circumstances would not even begin to compensate you.

flamel
25th March 2015, 09:02
The money is only repayable after a final judicial decision has been made. If HMRC loses at the FTT and the UTT, it is likely to be after the Supreme Court. The judicial process can take many years, which could cause many taxpayers irreparable financial damage as HMRC hold onto the cash, which could lead to bankruptcy. The miserly rate of interest HMRC is required to pay in these circumstances would not even begin to compensate you.

I should add that even if you win at the FTT, HMRC have the power to apply to the relevant tribunal or court to deny a successful appellant repayment of their tax on the ground of ‘protecting the revenue’....

webberg
25th March 2015, 09:27
For what it's worth, my take on the time line and payments is as follows.

Many people took part in the schemes from perhaps the early 2000's.

It took HMRC some time to realise this and from what I've seen it appears that they have missed the boat in terms of opening enquiries into some early years. (I'm not going to discuss time limits for opening enquiries here - see other threads).

In 2004 the DOTAS regime arrived. This required schemes to be registered with a presumption (so far untested) that a tax advantage (tax on income being delayed, deferred or eliminated) was equal to avoidance.

In 2006 the DOTAS regime got a major overhaul and many more schemes that had previously escaped (whether legally or not remains to be seen) were registered.

Around this time HMRC started opening enquiries into tax returns. This appears to have been patchy.

In 2008 HMRC persuaded Government to introduce retrospective taxation of some schemes that were reliant upon a double tax treaty.

From around that time, HMRC started looking at all forms of what might be loosely described as disguised remuneration. In particular schemes involving offshore employer intermediaries, dual contracts, remuneration trusts and employee benefit trusts (EBT) came under the spotlight.

As usual, HMRC struggled to understand that a lot of this activity was driven by ill advised legislation and heavy handed inflexible rules such as IR35 and others. The storm that broke in 2007/08 was started in the late 1990's and HMRC cannot and should not be forgiven for not keeping their eye on the ball.

Instead HMRC inactivity permitted two things. First, a number or providers emerged offering schemes that promised "compliance" but 90% take home pay and second; because enquiries from HMRC were at best inconsistent, many users came to believe that they were "safe" from adjustment. Both of these were and are untrue.

HMRC began a journey into litigation against contractors with mixed results. The Arctic Systems case was prosecuted beyond reasonableness and HMRC lost. They spent a year after that promising "corrective" legislation which has still not been seen. Boyle they won but has narrow facts. Murray Group (Rangers) is still in process but it does not look good for HMRC.

Last year the Government was persuaded to introduce a "pay now, argue later" system. HMRC can decide that an amount of tax is in dispute and will demand it. There is no appeal available. Failure to pay carries significant risk.

This is pretty much where we are today.

The next steps will be to see more individual cases go to litigation because the settlement offer for most contractors is not attractive and no amount of individual or group pressure will make it any better. Only by forcing a change of analysis through long discussion and probably Tribunal appearance will HMRC see that they have little chance of attracting large numbers.

Litigation (JR) on APN etc is a sideshow. Important but at best a temporary delay will be achieved. Government policy is clear and APN in its present form or amended is here to stay.

Litigation timetable is very much in the gift of provider of scheme and HMRC. The usual process is HMRC asking for information (perhaps up to 4 years depending upon cooperation) and then to consider what they have which is another year.

HMRC will choose a weak case and litigate. That may require 1 to 2 years to get a hearing date at First Tier. From there, the process is Upper Tier, Court of Appeal, Supreme Court. Perhaps ECJ but unlikely as tax is one of those issues where sovereign jurisdiction is permitted.

That process from First Tier to Supreme Court is perhaps 5 years and £1m+. A loss risks paying HMRC's costs as well.

I understand that some contractor cases will be in First Tier this year (I'm sure others here have better information).

Hence my comment about paying an APN now and waiting perhaps 5 years to see if it was the "right" amount.

Once the litigation process ends, HMRC will either calculate final tax and interest and send a demand. Penalty might also be applied.

If the litigation result is that no tax is due, or less tax than paid under the APN, then they MUST repay. There is no mechanism allowing them to hold on to tax that is not due. I therefore very much DO NOT buy in to those here who say that once the money is paid, it can NEVER be returned and that HMRC will use "tricks" to keep it.

Short of a revolutionary change in litigation that has consequences too big to consider at this time in the morning, HMRC cannot keep funds that they are not legally entitled to.

Hope that helps.

A very brief attempt to explain the timelines here. I'm sure others can contribute colour and perhaps correct obvious errors.

webberg
25th March 2015, 09:32
I should add that even if you win at the FTT, HMRC have the power to apply to the relevant tribunal or court to deny a successful appellant repayment of their tax on the ground of ‘protecting the revenue’....

True but only where a judge agrees that HMRC has a reasonable case on appeal.

If the judge thinks an appeal will not be granted or has little chance, he/she will deny the application.

If there is by then a weight of cases in the taxpayers favour, the chance of judgement for HMRC is low.

MrsB1974
25th March 2015, 10:01
Hmmm... so should I expect the APN amount to be the same as the tax payable amount in my settlement calculation (ie, tax payable on loans / income and no interest)?

Or might the APN amount be totally different? (higher)

[The loans amount Hector used for my settlement calculation is pretty much accurate.]

Thanks

webberg
25th March 2015, 11:01
Hmmm... so should I expect the APN amount to be the same as the tax payable amount in my settlement calculation (ie, tax payable on loans / income and no interest)?

Or might the APN amount be totally different? (higher)

[The loans amount Hector used for my settlement calculation is pretty much accurate.]

Thanks

Likely that the APN is higher.

Certainly in schemes I've seen where settlement is offered at say 25% of original claim, the APN arrives for 100% of the tax in dispute. This is either a deliberate tactic from HMRC in trying to pressure people into settling or one HMRC hand not knowing what the other is doing.

In your cases I suspect that the numbers will be pretty close.

pimpernell
25th March 2015, 11:36
Nicely summed up mr weberg.

squirrel
25th March 2015, 12:01
Likely that the APN is higher.

Certainly in schemes I've seen where settlement is offered at say 25% of original claim, the APN arrives for 100% of the tax in dispute. This is either a deliberate tactic from HMRC in trying to pressure people into settling or one HMRC hand not knowing what the other is doing.

In your cases I suspect that the numbers will be pretty close.

HMRC have always maintained there will be no settlement other than the full figure haven't they? which schemes HMRC have offered 25% deals to prior to issuing APN's?

webberg
25th March 2015, 12:15
HMRC have always maintained there will be no settlement other than the full figure haven't they? which schemes HMRC have offered 25% deals to prior to issuing APN's?

Apologies, that was a bit clumsy.

In the sort of film schemes I deal with, a common settlement proposal is "tax relief on the cash invested", which can be between 5% and 36% of the gross claimed. I therefore get such offers across my desk with an APN for the 100%.

In your case, there is no "cash invested" and therefore HMRC say that the full amount received is the taxable amount.

I did sort of attempt to say that APN and settlement would be similar but it was not clear.

That said, I think that there is scope for putting a plan to HMRC that the taxable income should be less than 100% of the received value. I'm sure the providers are doing that.:ohwell

dangerouswhensober
25th March 2015, 12:18
HMRC have always maintained there will be no settlement other than the full figure haven't they? which schemes HMRC have offered 25% deals to prior to issuing APN's?

I agree with the a previous poster - a very nice, concise summary from Mr Webburg - perhaps this post should go in a sticky somewhere, to give new forums visitors some background.

And to echo the previous question - to which schemes/individuals have HMRC have offered 25% deals (presumably after APNs and resistance) ?

(IMO, that level of discount would have seen / will see a lot more contractors likely to settle ...)

dangerouswhensober
25th March 2015, 12:19
Apologies, that was a bit clumsy.

In the sort of film schemes I deal with, a common settlement proposal is "tax relief on the cash invested", which can be between 5% and 36% of the gross claimed. I therefore get such offers across my desk with an APN for the 100%.

In your case, there is no "cash invested" and therefore HMRC say that the full amount received is the taxable amount.

I did sort of attempt to say that APN and settlement would be similar but it was not clear.

That said, I think that there is scope for putting a plan to HMRC that the taxable income should be less than 100% of the received value. I'm sure the providers are doing that.:ohwell

... I think my last post crossed with your reply ...

webberg
25th March 2015, 12:37
I agree with the a previous poster - a very nice, concise summary from Mr Webburg - perhaps this post should go in a sticky somewhere, to give new forums visitors some background.

And to echo the previous question - to which schemes/individuals have HMRC have offered 25% deals (presumably after APNs and resistance) ?

(IMO, that level of discount would have seen / will see a lot more contractors likely to settle ...)

Needs to be amended if it becomes a "sticky"

squirrel
25th March 2015, 12:39
Apologies, that was a bit clumsy.

In the sort of film schemes I deal with, a common settlement proposal is "tax relief on the cash invested", which can be between 5% and 36% of the gross claimed. I therefore get such offers across my desk with an APN for the 100%.

In your case, there is no "cash invested" and therefore HMRC say that the full amount received is the taxable amount.

I did sort of attempt to say that APN and settlement would be similar but it was not clear.

That said, I think that there is scope for putting a plan to HMRC that the taxable income should be less than 100% of the received value. I'm sure the providers are doing that.:ohwell

That still seems odd but I'm no tax accountant so I'm not surprised I don't follow it :-) Is the 5% - 36% (or whatever the ranges may be) directly related to how much tax relief the individual tried to claim rather than the invested amount? If it's the former, I get it, and get why there is a difference in each case. If it's the latter then how can HMRC be asking for the full tax on, say a £100,000 investment when you've only tried to offset £20.000 for tax relief?!?

Or is the 5% - 36% the offer that the scheme user has made to HMRC?

I think what I'm trying to ascertain is if there are any breaks being given to users of some schemes but not others...

webberg
25th March 2015, 13:12
That still seems odd but I'm no tax accountant so I'm not surprised I don't follow it :-) Is the 5% - 36% (or whatever the ranges may be) directly related to how much tax relief the individual tried to claim rather than the invested amount? If it's the former, I get it, and get why there is a difference in each case. If it's the latter then how can HMRC be asking for the full tax on, say a £100,000 investment when you've only tried to offset £20.000 for tax relief?!?

Or is the 5% - 36% the offer that the scheme user has made to HMRC?

I think what I'm trying to ascertain is if there are any breaks being given to users of some schemes but not others...

Oh dear - Pandora's Box.

I'm happy to respond on PM but think that there is no direct read across from the film scheme scenario to EBT type scenarios.

I suspect to get into this will take up space and distract from the thread here.

As I said, PM if you're interested.

DonkeyRhubarb
25th March 2015, 14:17
Bottom line.

The tax stated in the APN should be the same as in any previous assessments.

There are no deals/discounts for EBTs.

flamel
25th March 2015, 14:39
Bottom line.

The tax stated in the APN should be the same as in any previous assessments.

There are no deals/discounts for EBTs.

This is absolutely true.

The only way you'll pay less is after they have distrained your assets, skinned you alive, taken the shirt off your back (and your dependents) until there's nothing left to take. Afterwards they will demand a percentage of your earnings until you die. After death they will impose IHT on anything they've forgotten about so your ancestors can remember HMRC.

After that, if there is still an outstanding balance, you can say you got away with it or got a "deal".

lilikins1
25th March 2015, 15:16
As has been observed above, the APN is for the tax in dispute.

HMRC cannot charge interest and penalties without there being some form of appeal process as that would not be legal. The APN regime is a way of getting the cash without the danger that the prols might revolt.

Only when the final tax position has been settled (5 years from now if you're lucky) can interest etc be calculated. Penalty depends on behaviour, not tax liability.
The APN is likely to be based on the amount of the loan you received x your marginal rate of tax. There is ample evidence that HMRC does not have enough data to make an accurate assessment and that might allow you to delay the amount payable.

Would it be better to dispute the amount now or when the APN arrives?

cliffordthedog
25th March 2015, 15:27
Would it be better to dispute the amount now or when the APN arrives?

Lilikins1, I think the problem with APN's is that you can't dispute them. Once issued you have 90 days to pay. Period

You have to pay first!

Failure to pay results in penalties.

Regards

webberg
25th March 2015, 15:34
Would it be better to dispute the amount now or when the APN arrives?

Until the APN arrives, the only way to "dispute" the tax is to get into a discussion with HMRC.

A representation against an APN can be made on various grounds and I have seen some that dispute the calculation of the "asserted advantage". I can't say I see much merit in that and HMRC tends to dismiss that argument.

In the case of an EBT loan scheme can the tax in dispute be anything other than tax at your marginal rate on the loan value? Probably not in HMRC's eyes.

You also need to think carefully about outcomes in a dispute.

Those providers who are supporting their users appear to be going for the position that either the scheme works (and there is no taxable income) or it doesn't (and it's all taxable). It's a digital option and it's unclear whether they are looking at alternative analysis which may leave some of the loan as taxable income?

So you get an APN and say "no tax due". HMRC say "yes there is" = tax on loan.

If instead you have some alternative that says "it might be taxable in your eyes but this alternative analysis says that x% might be taxable, would that have a better chance of reducing APN and eventually final settlement?

Don't know.

DonkeyRhubarb
25th March 2015, 15:37
Lilikins1, I think the problem with APN's is that you can't dispute them. Once issued you have 90 days to pay. Period

You have to pay first!

Failure to pay results in penalties.

Regards

You can dispute the amount. This one of the legitimate grounds for contesting an APN.

regron
25th March 2015, 15:43
You can dispute the amount. This one of the legitimate grounds for contesting an APN.

Also remember (if my memory serves me correct) you only have 30 Days to dispute the amount and YOU have to give HMRC a valid reason why, with supporting information. Once the 30 days is up, the APN is still due within the next 90 days and either the original amount has to be paid, or the newly agreed amount.

webberg
25th March 2015, 15:52
Also remember (if my memory serves me correct) you only have 30 Days to dispute the amount and YOU have to give HMRC a valid reason why, with supporting information. Once the 30 days is up, the APN is still due within the next 90 days and either the original amount has to be paid, or the newly agreed amount.

30 days?

The leaflets seem to back up the legislation which says that tax is due 90 days from issue and that if you make a representation within that 90 day period, the demand is stood over until HMRC respond. Once you have that response then the tax is due on the later of 30 days from response or original due date.

Just be aware that it's 30 days from when HMRC date their letter. You will lose at least 8 days of that because HMRC insist on sending things out second class post.

regron
25th March 2015, 16:14
30 days?

The leaflets seem to back up the legislation which says that tax is due 90 days from issue and that if you make a representation within that 90 day period, the demand is stood over until HMRC respond. Once you have that response then the tax is due on the later of 30 days from response or original due date.

Just be aware that it's 30 days from when HMRC date their letter. You will lose at least 8 days of that because HMRC insist on sending things out second class post.

Yep, I can see exactly how I confused things there. Put much better than me webberg, thanks :happy