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Taxpayers are being forced to pay huge disputable tax bills up front – in some cases having to sell their home or take out commercial loans – only to see the demands later withdrawn.
Five years ago HM Revenue & Customs was given tough new powers to serve accelerated payment notices (APNs) on suspected tax avoiders, allowing the taxman to demand payment of unpaid tax while the matter was still being disputed. Since 2014 HMRC has issued 81,000 APNs involving a total of £8.7bn.
A taxpayer issued with an APN has 90 days to pay or risk penalties. While there is no right to an independent appeal, recipients can make representations to HMRC itself. If the demand is later withdrawn, the money will be returned.
Of the 81,000 issued, 8,600 have later been cancelled – more than one in 10. The sums involved can be huge and Telegraph Money is aware of one case where a man was forced to take out a commercial loan to pay, later selling his home to clear the debt.
This is the latest example of the Revenue’s heavy-handed approach to clamping down on tax avoidance. The controversial “loan charge”, which levies tax on people who used avoidance schemes dating back 20 years, has been linked to at least one suicide and was criticised by an influential Lords committee as “undermining access to justice”.
One 66-year-old, who used a tax avoidance arrangement while working as a financial services contractor in the 2000s, said he was forced to sell his house to pay off debts incurred after receiving an APN that was later withdrawn. The taxpayer, who asked not to be named, said it was also partly to blame for the failure of his marriage.
In 2016 HMRC won a case it believed was similar to his so issued him with APNs and “follower notices”, additional demands made after a court decision.
The contractor’s request for a payment arrangement was rejected on the grounds of affordability, according to the tax office, and he was required to pay £120,000 within three months. The man said he was asked by an HMRC call handler whether he had a credit card that he could use to pay the tax demanded.
He took out a commercial loan to pay the tax immediately and has now agreed the sale of his house, the proceeds of which will be used to clear the debt. The APN was withdrawn in November last year after the taxpayer took “corrective action”, according to HMRC.
“As soon as my scheme was challenged I stopped using it,” he said. “I don’t know why they keep going after us and not the corporations that avoid huge amounts of tax. I suppose we are easier targets.
“I can’t say this was the only issue that caused the breakdown of my marriage but it was a stressful situation. It has also caused me significant problems in my work. After it became known that I had an unsettled tax debt a lot of these big financial firms ended contracts with me. They don’t take any risks.”
Ross Thomson, a Conservative MP who has been a key figure in the fight against the loan charge, said: “This case is alarming and HMRC must ensure that people are given support and advice as they work through any repayment plan. HMRC should not be hounding people who have not broken the law and certainly should not be advising people to get into further debt to clear these payments.”
The Revenue said its powers protected the “vast majority of individuals who play by the rules” and said it had a number of ways to help those who could not afford to pay, including paying in instalments.
But recent tribunal cases have called its approach further into question. One, published last month, involved a nail salon chain that HMRC suspected of under-declaring its employees’ taxable income to the tune of £898,000. The question of whether any tax was unpaid remains open, but the tribunal found that HMRC had overestimated the amount owed.
The calculation was based on investigations by tax officers who had visited the salons, but relied on key assumptions – such as that one branch had seven full-time staff because there were seven chairs. Anne Redston, the judge, dismissed HMRC’s figure as “unreasonable, even ludicrous” and allowed the firm to appeal.
Another case involved gains made after the public listing in 2001 of a business owned by Geoffrey Haworth. He had filed his tax return and stated that capital gains tax was not due on the sale as it had been administered by a trust based in Mauritius.
After HMRC won a case against a similar scheme in the Court of Appeal, it issued Mr Haworth with a follower notice for more than £8m in unpaid CGT.
The Court of Appeal found for Mr Haworth on the grounds that HMRC had “overstated the significance” of the original ruling. Again, the question of the unpaid tax itself remains open. Lord Justice Gross, one of the judges, said: “Given the draconian nature of these powers conferred on HMRC, it is right that they should be carefully circumscribed.”
Telegraph Money disclosed in February that the taxman had tried to fine a homeless man £1,600 for filing his tax return late. The judge who dismissed the fine said HMRC’s conduct in the case was “a scandal” and added: “For HMRC to expect a homeless person to keep [it] up to date with their address is ridiculous.”
Keith Gordon, a barrister at Temple Tax Chambers, said HMRC was issuing follower notices “like confetti”. He said: “One would think they should be using their powers carefully, but it’s very much like a conveyor belt rather than a proper, customised approach.”
StepChange, the debt charity, said it was concerning that people would consider taking on commercial loans to pay tax debt.
Peter Tutton, the charity’s head of policy, said: “Government debt collection practices ought to lead the pack in terms of treating people fairly, yet too often they don’t.
"Whether this is in the way that HMRC pursues underpayments, the Department for Work & Pensions pursues overpayments or local councils pursue council tax arrears, there can be poor practice that would fail to meet compliance standards if these tactics were adopted by regulated private sector firms.”
A spokesman for HMRC said: “APNs are a proportionate response to tax avoidance to ensure that tax sits with the Exchequer while in dispute. Follower notices encourage those who have used avoidance schemes to settle their cases when their scheme has been shown not to work in another party’s litigation.”
Taxpayers are being forced to pay huge disputable tax bills up front – in some cases having to sell their home or take out commercial loans – only to see the demands later withdrawn.
Five years ago HM Revenue & Customs was given tough new powers to serve accelerated payment notices (APNs) on suspected tax avoiders, allowing the taxman to demand payment of unpaid tax while the matter was still being disputed. Since 2014 HMRC has issued 81,000 APNs involving a total of £8.7bn.
A taxpayer issued with an APN has 90 days to pay or risk penalties. While there is no right to an independent appeal, recipients can make representations to HMRC itself. If the demand is later withdrawn, the money will be returned.
Of the 81,000 issued, 8,600 have later been cancelled – more than one in 10. The sums involved can be huge and Telegraph Money is aware of one case where a man was forced to take out a commercial loan to pay, later selling his home to clear the debt.
This is the latest example of the Revenue’s heavy-handed approach to clamping down on tax avoidance. The controversial “loan charge”, which levies tax on people who used avoidance schemes dating back 20 years, has been linked to at least one suicide and was criticised by an influential Lords committee as “undermining access to justice”.
One 66-year-old, who used a tax avoidance arrangement while working as a financial services contractor in the 2000s, said he was forced to sell his house to pay off debts incurred after receiving an APN that was later withdrawn. The taxpayer, who asked not to be named, said it was also partly to blame for the failure of his marriage.
In 2016 HMRC won a case it believed was similar to his so issued him with APNs and “follower notices”, additional demands made after a court decision.
The contractor’s request for a payment arrangement was rejected on the grounds of affordability, according to the tax office, and he was required to pay £120,000 within three months. The man said he was asked by an HMRC call handler whether he had a credit card that he could use to pay the tax demanded.
He took out a commercial loan to pay the tax immediately and has now agreed the sale of his house, the proceeds of which will be used to clear the debt. The APN was withdrawn in November last year after the taxpayer took “corrective action”, according to HMRC.
“As soon as my scheme was challenged I stopped using it,” he said. “I don’t know why they keep going after us and not the corporations that avoid huge amounts of tax. I suppose we are easier targets.
“I can’t say this was the only issue that caused the breakdown of my marriage but it was a stressful situation. It has also caused me significant problems in my work. After it became known that I had an unsettled tax debt a lot of these big financial firms ended contracts with me. They don’t take any risks.”
Ross Thomson, a Conservative MP who has been a key figure in the fight against the loan charge, said: “This case is alarming and HMRC must ensure that people are given support and advice as they work through any repayment plan. HMRC should not be hounding people who have not broken the law and certainly should not be advising people to get into further debt to clear these payments.”
The Revenue said its powers protected the “vast majority of individuals who play by the rules” and said it had a number of ways to help those who could not afford to pay, including paying in instalments.
But recent tribunal cases have called its approach further into question. One, published last month, involved a nail salon chain that HMRC suspected of under-declaring its employees’ taxable income to the tune of £898,000. The question of whether any tax was unpaid remains open, but the tribunal found that HMRC had overestimated the amount owed.
The calculation was based on investigations by tax officers who had visited the salons, but relied on key assumptions – such as that one branch had seven full-time staff because there were seven chairs. Anne Redston, the judge, dismissed HMRC’s figure as “unreasonable, even ludicrous” and allowed the firm to appeal.
Another case involved gains made after the public listing in 2001 of a business owned by Geoffrey Haworth. He had filed his tax return and stated that capital gains tax was not due on the sale as it had been administered by a trust based in Mauritius.
After HMRC won a case against a similar scheme in the Court of Appeal, it issued Mr Haworth with a follower notice for more than £8m in unpaid CGT.
The Court of Appeal found for Mr Haworth on the grounds that HMRC had “overstated the significance” of the original ruling. Again, the question of the unpaid tax itself remains open. Lord Justice Gross, one of the judges, said: “Given the draconian nature of these powers conferred on HMRC, it is right that they should be carefully circumscribed.”
Telegraph Money disclosed in February that the taxman had tried to fine a homeless man £1,600 for filing his tax return late. The judge who dismissed the fine said HMRC’s conduct in the case was “a scandal” and added: “For HMRC to expect a homeless person to keep [it] up to date with their address is ridiculous.”
Keith Gordon, a barrister at Temple Tax Chambers, said HMRC was issuing follower notices “like confetti”. He said: “One would think they should be using their powers carefully, but it’s very much like a conveyor belt rather than a proper, customised approach.”
StepChange, the debt charity, said it was concerning that people would consider taking on commercial loans to pay tax debt.
Peter Tutton, the charity’s head of policy, said: “Government debt collection practices ought to lead the pack in terms of treating people fairly, yet too often they don’t.
"Whether this is in the way that HMRC pursues underpayments, the Department for Work & Pensions pursues overpayments or local councils pursue council tax arrears, there can be poor practice that would fail to meet compliance standards if these tactics were adopted by regulated private sector firms.”
A spokesman for HMRC said: “APNs are a proportionate response to tax avoidance to ensure that tax sits with the Exchequer while in dispute. Follower notices encourage those who have used avoidance schemes to settle their cases when their scheme has been shown not to work in another party’s litigation.”
