Dividend users alerted to 'pay-up first' tax rule

Dividends taken out of a business that receives an Accelerated Payment Notice from the taxman could later be deemed illegal and therefore repayable, an accountant is warning.

Such a ‘contingent liability’ would be payable by the shareholder who benefitted from the dividend, not the business, if it was drawn ahead of an APN’s issuing, says Moore Stephens.

This means that, as shareholders, directors who take dividends from a firm that used a tax scheme may face claims against their own assets if the firm cannot pay the upfront demand.

David Elliott, a partner at Moore Stephens, warns that shareholders who take dividends from a firm that subsequently receives an APN are, potentially and personally, “in the firing line.”

Personal bankruptcies, as well as business insolvencies, could therefore result -- even before the technical merits of the tax planning arrangement used by the firm have been tested.

“Receiving a demand to make upfront payment of tax could put some taxpayers under financial strain,” he explained, referring to October when the first payments may fall due.

“Even a remote prospect of being made bankrupt could mean that taxpayers feel under pressure to settle disputed cases rather than take an appeal to the courts.”

Due to the “huge” potential impact of APNs, estimated to reach 33,000 individuals and 10,000 businesses from this month, Elliott wants an independent appeal process introduced.

He reflected: “HM Revenue & Customs has said that it will use its discretion under its Time to Pay arrangements if a taxpayer can’t afford to pay the money upfront, but that is not good enough when the taxpayer’s entire way of life may be at stake.”

According to HMRC, those of its customers who receive APNs must pay the disputed tax within 90 days of the notice’s issuing, and penalties will be imposed if payments are late.

Taxpayers will be able to make representations to HMRC about being forced to make an accelerated payment, but there will be no independent appeal against HMRC’s final decision.

The requirement to pay upfront will apply retrospectively to any dispute which is ongoing on the day the rules take effect, where the tax scheme is within DOTAS or caught by the GAAR.

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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