What is an APN?
Controversial legislation was introduced in the Finance Act 2014, which gives HMRC discretion to issue a notice requiring up-front payment of the tax in dispute in an open enquiry or appeal. A notice can be issued where the enquiry or appeal relates to planning which was “notifiable” under the Disclosure of Tax Avoidance Schemes (DoTAS) rules, which were introduced in 2004.
The money paid under an APN to HMRC would only become repayable if HMRC subsequently agrees there is no underlying liability or the First-tier Tribunal decides the case in the taxpayer’s favour. If HMRC appeals the Tribunal’s decision, it can apply to the Tribunal to keep hold of the money if it can show that there is a serious risk of non-payment should HMRC win the onward appeal. In other words, once HMRC have the money, they will keep it for a very long time, possibly years. HMRC are experts at delaying cases which they feel they may lose.
The APN will give you 90 days to pay the liability that HMRC believes is due. You have no right of appeal and can only make written representations in very limited circumstances. If you do make representations the deadline for payment is extended (albeit only to a maximum of 30 days after a decision on your representations has been made by HMRC).
Once the notice becomes payable, penalties may apply for non-payment. 5% initially, rising to 10% after 5 months and 15% after 11 months. At present, penalties are non-refundable even if it turns out that there is no tax due to HMRC. In other words, HMRC are charging penalties on money they want rather than money that is actually due.
Challenging an APN
There is no right of appeal against the APN. This aspect is the key point in Judicial Review proceedings being instigated by Ingenious Media (and others).
Do I have to pay interest on late payment of an APN?
No, but penalties can be levied for late payment. You are effectively being required to make a payment on account of a possible future tax liability. Ultimately, if the dispute is decided in HMRC’s favour, late payment interest will be charged from the date on which the disputed tax should have originally been paid to the date it is paid (which would be the date of the APN payment – assuming such a payment is made).
If I cannot afford to pay the APN, what are my options?
You can try to agree a time to pay arrangement with HMRC. This will allow you to stagger payments, usually over a maximum 12 month time frame. Please note that interest continues to accrue on the unpaid sums and there is no guarantee that HMRC will agree the time to pay arrangements you propose. If not, then the APN liability becomes immediately recoverable and HMRC could take action to secure payment.
If you’ve not got the cash or the assets, what can HMRC actually do?
Very little. You might get a few letters, perhaps a visit. You could take the initiative and go to them. Get some help, it’s never as bad as it seems.
If I pay the APN, but ultimately win my case, does HMRC have to pay me interest?
Yes. Interest is payable by HMRC. However, the rate is calculated as Base Rate less 1% (subject to a minimum of 0.5%). Late payment interest is charged at Base Rate plus 2.5%
When will I receive an APN?
HMRC has already started issuing APNs to EBT users. It will send a “warning letter” 1-4 weeks before your APN is issued. HMRC intends to issue all remaining APNs over the course of the next few months.
HMRC is obliged to treat all taxpayers equally and it will issue APNs to individuals if they entered into arrangements that were disclosed under the DOTAS rules.
After paying the APN, what happens next?
Once HMRC is holding the “disputed tax”, it seems unlikely that HMRC will want to conclude the enquiry as it then risks having to repay the monies you have paid (plus a small amount of interest). HMRC are experts at dragging cases out if they think there is any chance of them losing. Remember, HMRC have no duty of care in dealing with taxpayers