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APN: Apocalypse Perhaps Now?


by Graham Webber.

The APN juggernaut rolls on.
A Juggernaut chariot was mistakenly thought to be used to crush the bodies of the faithful beneath its wheels as a sign of their devotion. An unstoppable force driven by belief. I think HMRC regard APN in a similar way and if you have the temerity to stand before it, even the protection of a thousand year old legal system will not prevent you being ground into the earth.

When the idea of an Accelerated Payment Notice was first aired, many of us working in the tax and legal sectors were quick to condemn many areas of the scheme. In particular the inability to appeal a notice and the retrospective effect of it raised serious concerns that we would see HMRC carpet bomb pretty much anything they didn’t like.

It now appears that we didn’t guess the extent to which HMRC sees these notices as a money making machine against which the public is helpless.

Let’s take an example. You are a contractor, happily working for a number of clients, all of whom don’t want a full time employee. In the late 1990’s HMRC declares a silent war. IR35, Jones v Garnett, Personal Service Company rules, disguised remuneration, retrospective legislation (section 58 FA 2008).

Contractors have been resisting especially as HMRC has taken a long time to bring cases to a Tribunal and those that have made it have produced mixed results.

As things stand, HMRC has lost a key case at several levels (Murray Group) and is awaiting a date for the next iteration. There are cases to be brought to Tribunal shortly but a decision in these is a way off. So no clear mandate for the analysis and calculation that HMRC consider is the basis of a settlement offer, recently extended to early June. Into this confused picture flies the APN. These have been issued for many years going back to 2004! Whilst this may be within the rules, to issue a demand for tax 11 years after the alleged scheme (not a proven tax avoidance plan) smacks of retrospection.

Despite the rather weak arguments rolled out in support of the process at the time of launch by Mr Gauke and those obliged to support the position, it’s simply NOT FAIR to try to COERCE taxpayers into a settlement. Everything these people have done is legal. Mostly it’s been disclosed using the appropriate rules (and using DOTAS rules to target schemes for APN is surely a blatant misuse of what Parliament “intended”). The details have been under investigation for YEARS. Assessments (in time and alleged discovery versions) have been made, appealed and postponed.

Is it any surprise that the thousands of contractors involved in such schemes have reacted with fury at what they see as another example of retrospective action being taken against them? No surprise to see Judicial Review claims popping up. In the meantime HMRC is turning the screw. An APN arrives with an inbuilt penalty regime. Failure to pay could cost a penalty of 15%.

After seeking confirmation of HMRC’s view, this penalty will apply REGARDLESS of whether the APN is subsequently found to be excessive. So if your APN is for £100 and you don’t pay, because HMRC has no basis for its calculation and no case to pin an analysis on, and eventually the liability is agreed at £NIL, HMRC say you still owe them £15! This is a penalty for getting your tax calculation CORRECT. To compound the situation, where a Judicial review has been taken it is usually accompanied by an injunction that prevents HMRC collecting the tax. This is sensible as the very basis of the demand may be flawed. Nobody will know until the judicial process has run its course. Does this mean that the due dates of payment and penalty are also suspended? Apparently not.

HMRC claim that even where an injunction has been granted the original date for payment stands. Thus an APN due say now but where a decision from a Court might be delayed 6 months, will still have a start date for penalties now. This is election time. Every politician will tell you that tax avoidance is fair game for remedial action. (They won’t be able to tell you what avoidance means or where avoidance starts and evasion begins or if there is a difference between “abuse”, “aggressive” or “acceptable” avoidance but nonetheless they’re all confident that “cracking down” will swell the Treasury’s coffers).

Recently the man on the Clapham Omnibus has been replaced as a benchmark for common sense by a nurse. The politicians will tell you that if you take 3 minutes to explain your position to a nurse and she/he has an instant reaction of “that’s just wrong”, then you should not be doing it.

So how does the nurse test stand against the position of Contractors?

Contractors are not employees. The firms that use them don’t want them to be employees. All the methods they used between perhaps 2000 and 2011 were legal, complied with several inches worth of legislation and were disclosed to HMRC. There were often significant numbers of contractors engaged by large firms and organizations and they wanted everybody to use one or perhaps two means of engagement. Agency firms sprang up to provide such and what was perhaps novel soon became normal.

Only in 2008 did HMRC decide that some of these arrangements were worthy of examination. Some indeed were worthy of retrospective legislation – always a dangerous path to follow. By 2014, HMRC had still not persuaded a Judge to find that, in general, these “schemes” were contrary to tax law. HMRC has also had ample opportunity to narrow the definitions of what is acceptable or not in this area and has largely failed to do so.

Now these people are being faced with a demand for tax, no appeal available, no postponement available, penalty for non payment, regardless of whether the amount is actually due and no shelter to be found in a legitimate legal process. I suggest that the “nurse test” will find this behavior UNACCEPTABLE, UNFAIR and OUTRAGEOUS.

And it’s not just contractors. Property investment schemes, promoted by tax legislation, have the same treatment. Years of completed schemes that only now are coming under any tax enquiry. Arbitrary decisions from unaccountable people in HMRC who then refuse to discuss them is not a way to convince our nurse or anybody else that the system is fair.

Great, let’s crack down on genuine avoiders and let’s use an APN to get the money first to focus their attention.

Let’s not allow the APN to become a weapon of mass destruction of legitimate planning nor a means of collecting cash at the expense of being fair.

 Graham Webber is Director at WTT Consulting Ltd