Have a tax credit and an APN in dispute? Beware this new tactic.

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Have a tax credit and an APN in dispute? Be careful of this new tactic.

Dotas Scandal has received several reports of HMRC using now tax credits to cover outstanding APNs:

“Today i ran into a new situation. Every year i submit my tax return and go through the usual first payment on account, second payment on account. HMRC force you to pay your tax 100% over the amount you submit on your tax return and that normally sits as a tax credit.

I recently submitted my tax return, well actually way before i got letter, for 2015/16. I had a tax credit on my account, which offset against my current tax return would have meant I would not have had to pay any tax for 2015/16.

The letter today stated in simple terms that HMRC had swiped the tax credit and that under Finance Act 2008, they can do this. So basically: “tough luck, we’re not going to offset your tax credit against your latest tax return, we’re going to apply that tax credit to your APN and by the way you now still owe us £XXXXX”.

I am not even sure whether you can still pay current tax obligations. HMRC now seem to say whatever money they get they can apply in whichever way they want.”

It is no secret that HMRC are several £Bn short on their APN collection promises to Parliament, and getting desperate to extract monies by all means necessary.
As the APN well is drying up, expect more accounting tricks and unorthodox “collection” methods to be deployed. Plan accordingly.

HMRC’s creative APN accounting: making a rod for their own backs?

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With hardly anyone noticing, the “HMRC wins 80% of avoidance casesalready dubious line we have been hammered with for the past couple years has now discreetly been changed into “HMRC wins almost 90% of tax avoidance cases”. This can be seen in this press release from earlier this month

Why HMRC would do this, and why now? No, it’s not merely for PR purposes.

A commenter on this AccountingWeb thread proposes an explanation

“There is a reason why HMRC have recently changed their objectives to “maximise revenues”, the Government needs your cash. What might a poorly led company try to do in such circumstances, accelerate receipts perhaps? Book income that isn’t actually income perhaps? Did I mention that the whole of government accounts record APN receipts as income even though they are an accelerated payment on account towards something that is still to be tested in Court to decide whether there is actually any tax due?  Equal and opposite debtor and creditor anyone? However the government accounts record all but a 10% provision as income.
Did you notice that HMRC had recently started claiming to win 90% and not just 80% of tax avoidance cases that go to Court. I wonder which came first, the decision to only provide for 10% in the accounts or the analysis of cases that justified a 90% success rate. HMRC have though finally got around to disclosing the cases that they used to get their 80% or 90% results and a number of very professional commentators have asked why the list includes cases that aren’t actually tax avoidance and doesn’t include some which HMRC lost and which any reasonable person would assume should be on the list.
Next thing you know they will be trying to change the past with proposed retrospective legislation….oh wait a minute.
If you haven’t previously read George Orwell’s book 1984 you might want to pick up a copy.”

So there you have it: it’s “creative accounting” (so creative, in fact, that it would make even the Enron guys blush) destined to allow HMRC to once more mislead Parliament by affirming that they have collected “X billions of tax”, when all they have collected is retrospective payments on account of amounts that may or may not be due, to be determined at a later time.

Rumor has it that the law of diminishing returns has hit HMRC hard in their operation of the APN regime, HMRC having great trouble “collecting” from individuals, who 1/ simply  don’t have the money 2/ insist on exercising their legal rights and have initiated Judicial Reviews (how dare they!).

So what’s HMRC to do? why, requalify 10% of the amounts already collected from “payment on account” to “tax collected” to make it looks like the money is still flowing in…when in realitythe well’s hopelessly dry.

And hope that Parliament doesn’t question the figures.

Are mainstream media missing an important point of the Allardyce story?

Some interesting thoughts shared by one of our readers:

“It is interesting to see what happened to Big Sam.
What if as I reckon he was given an APN, didn’t have hundreds of thousands at his disposal, so went after quick bucks to pay for it? Even wealthy football managers don’t have that sort of cash lying around.
Of course we will never know the truth but I’m sure that’s what happened. If that is the case then I do feel sorry for him, I’m sure the media though will paint him as being greedy but there is more to the story than that.”

That would certainly be congruent with Allardyce’s comments on HMRC’s mode of operation.

Was “Big Sam” pushed into a corner by HMRC over the “retrospective advance payment” of an imaginary tax debt? If so, would that be indeed? Is there more than meets the eye?

We don’t know. But let’s all hope that some real investigative journalists will be found to get to the bottom of the story.

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Sam Allardyce summarizes HMRC and APNs

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Sam Allardyce says it like it is:

“It’s the most corrupt business in the country at the minute, HMRC”

“They fly out tax demands without any real knowledge whether they should or shouldn’t.”

“They just put ‘em out willy-nilly and  people s*** themselves and pay them.”

“Then they go to your accountant, and if you’ve got a s*** accountant, the accountant s**** himself and says, well you must owe them, you had better pay it.”

Sounds spot on to us!

 

For HM Government, are well all like Pavlov’s dogs?

War is peace

Last month, a horridly biased propaganda piece published in the Economist  made many alarm bells go off for those familiar with mental manipulation techniques – to the point that some readers questioned whether the infamous “nudge unit” could have helped pen the piece.
Would we put it past HMRC to now plant articles in reputable publications? Certainly we wouldn’t.

One commenter well versed in Behavioural Psychology offered interesting insights into the methods used and the aims behind them.

 “Some of the presuppositions in the language lead me to wonder if it could actually have been written, in full or in part, by a former department of the Treasury known as the Behavioural Insight Team.

To let you understand, the Behavioural Insights Team used to be a department of the Treasury but have now been hived off as a private company part owned by individuals and part by the Government. They use Behavioural Psychology to influence your decisions. One of their stated objectives is enabling people to “make better choices for themselves”. Oh really! Rather Orwellian I feel, but then behavioural psychologists do believe that we are just animals that can be manipulated, remember Pavlov’s dogs? Interestingly it would seem that Behavioural Psychologists must presumably believe that everyone just operates on animal instinct…except them. You can check out their website or indeed find them on Twitter. Their aim is to influence your behaviour and it would appear to be highly lucrative for them. Indeed in their first year of trading they managed to amass a Turnover of £4.8million and made a profit of £1.8 million. Their customers primarily being you and me, the taxpayer, in the guise of other government departments. I don’t know who will benefit from that profit but I do know that they are part owned by an EBT (Employee Benefit Trust). You really couldn’t make this up!

I digress. Back to the article.

It starts with the heading which pre-sets the expectations by referring to ‘dodgy’ tax structures.
The opening sentence states a bare faced lie (that tax avoidance isn’t legal) and makes no apologies or no attempt to water it down, so if you accept the source as being knowledgeable or authoritative, then there is a chance that you accept the opening, shamefully false, statement and if you read on without questioning that….then the scene has been set.

The first paragraph explains who is going to be the target of the article/attack and even gives them a derogatory name in quotes so that we can be relieved that it is not us who is the target, we can sneer at the “pinstriped mafia” who are the target and we are effectively given permission to dislike them and see them as the enemy, and of course putting this in quotes actually gives it authority as in “experts say”…, but then because it is in quotes, you can’t pin it on me because I didn’t say it.

The third paragraph implies that those who design, market or facilitate the use of tax avoidance arrangements could be fined a sum equal to 100% of the tax, but as Dr Bartolo has already very eloquently pointed out in the comments section, tax avoidance is perfectly legal (and any attempt at quantifying it is purely a wish list of HMRC). Surely you can’t fine someone for acting within the law. Quite so, but the paragraph reads as if it will be the case that anyone in the vicinity of the tax structure will be fined, legal or not.

This is an attempt by the Government to influence behaviour rather than run the risk of challenging these tax avoidance promotions in court and face the possibility of losing.

In this case they are trying to frighten the Accountants and similar professionals away from this area of tax avoidance. It’s all about collecting more cash. What I object to is the fact that they are trying to do it covertly by using NLP type language structures designed to influence behaviour and it’s hidden within their publications. The Behavioural Insights team are proud to call themselves the ‘nudge’ unit. They are trying to nudge you in the direction of the behaviour they want to see you take, even if that means you pay more tax than is legally due. They think they are smarter than you. It is no coincidence that HMRC recently changed its stated aims from collecting the right amount of tax, to ‘maximising revenues’”.

Other comments all also worth a read (notably those of Dr. Bartolo)

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A can of HMRC worms

canFor a casual onlooker, HMRC’s recent obsession with retrospective tax legislation (once a taboo and something to be strictly reserved for “wholly exceptional” situations) as well as their extreme level of vindictiveness against normal, non-fat-cat individuals, may be somewhat puzzling.

Indeed, what is it that is “wholly exceptional” about contractor arrangements that have been (and still are) marketed to tens of thousands of independent professionals for over a decade, with HMRC’s tacit approval? The answer is: “nothing“.

So, we have to look elsewhere for clues.

To understand HMRC’s otherwise inexplicable resort to what can only be seen as very desperate measures, we have to go back to the beginning to the early noughties and in particular to the introduction of the infamous IR35 legislation, which came into force in April 2000.

As is the case anytime HM’s paper-pushers attempt to micromanage the behavior of contractors and entrepreneurs (species so alien to them that they might as well inhabit another dimension), a slew of unintended consequences followed.

One of these unintended consequences was the sprouting of the so-called “contractor scheme” industry, which restored to independent professionals the certainty as to their tax status which had been taken away by IR35.

For nearly a decade and a half, HMRC allowed these schemes to exist, to be promoted, to operate, without batting an eye.
For nearly a decade and a half, year after year HMRC accepted fully transparent tax returns from taxpayers utilizing such structures without ever uttering a bad word about the arrangements.

The problem is that by adopting this complacent stance, HMRC in effect validated the very narrative used by the promoters: “HMRC is fine with it. They are not saying anything about it because they know it is all above board”.
Sometimes, not always, an individual would receive a “notice of enquiry” from HMRC, which would state in essence: “I would like to look into your tax return. Every year we check a number of tax returns. You have nothing to do, and I will let you know if I find anything wrong.

This would more often than not prompt a panicked contractor (whose risk appetite generally stops at “being out of contract”) to run to the structure’s operator, only to be reassured that “HMRC routinely sends this letters to anyone who has disclosed participation in a contractor arrangement” (keyword: disclosed).
“Don’t worry. They will not do anything further
“, they would say.

And….

That is precisely what would happen

For 10 years, there would be no follow-up whatsoever. Result? “What the promoter said is true!”, the contractor would think.

So the contractor is reassured. The contractor recommends the scheme to other contractors looking for certainty and peace of mind.. Lather, rinse, repeat. The scheme industry grew exponentially. Promoters got rich beyond their wildest expectations.

At this point, it is necessary to pause, and understand this crucial point:
“Contractor schemes” would have remained a very marginal thing had HMRC done as little as lift a finger, get off their behinds, and produce back then one of the cutesy little “tempted by tax avoidance?” leaflets that they have been sending lately to every contractor and their dog – a good ten years too late.

By looking the other way, HMRC did in effect validate the promoters’ narrative that “HMRC is ok with it”, resulting in schemes being recognized in the contractor community by and large as a “safe” vehicle (even more so if DOTAS-registered).

If you are looking for the number 1 factor for the boom of “Contractor schemes”, there you have it. The operators simply couldn’t have dreamed of a better ally (or dare we say tout?) .
The proliferation of “schemes” could have been trivially easy to stop dead in its tracks, if it hadn’t been for the complacency/incompetence/complicity of HM’s services.
What have HMRC been doing (or rather, not doing) in the previous 10 years? Who was in charge, and who failed miserably in their most basic duties?

This is the can of worms that they don’t want opened.

With this in mind, it becomes crystal clear why the Revenue are now so busy trying to organize a cover-up of epic proportions, from which there will be no coming back for contractors. And why, seemingly, anything goes: retrospection, lies, revisionism, exceptional “2019” charges.

It’s a tough job though, with some 30 000+ witnesses to silence (some of which – imagine that – insist on exercising their legal rights)

HMRC did not want to litigate sound schemes and lose (current count of HMRC victories against contractor schemes: zero*), so effectively it appears that someone high up had a long silent think over whether and how to go retro. Thus the abomination we know as APNs were born.
Make no mistake: HMRC do NOT want their failings examined by the judiciary. Therefore everything must be and is being done to prevent any “contractor scheme” court case to go ahead.
But this too shall fail.

This pungent can will soon be cracked open in earnest, and the many worms it contains will be put under a microscope one by one for detailed examination.

Something tells us that there is going to be a lot of “Oh”‘s and “Ah…”‘s.

*: for all of HMRC’s references to the “Boyle case”, it is important to consider that “Boyle” failed on implementation, not on the underlying principles of the arrangement.

An interesting quote from the new Chancellor

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In the wake of the sad, sad news of Mr Osborne’s forced exit (through the back door) from the Cabinet, we present you a couple of historical quotes from new Chancellor Philip Hammond.

Assurances that wide powers will be used only narrowly in practice are no substitute for tightly drafted legislation. There remains a real possibility of inflicting damage on some of the UK’s most dynamic business sectors in the medium term, and thus of damaging the UK economy’s international competitiveness in the long term.”

(…)

“A taxpayer is entitled to know with certainty – be it an individual or a multinational corporation – what he may or may not do in planning his tax affairs. He is entitled to expect that his treatment be laid down in statute, not determined by administrative fiat; he is entitled to expect that another taxpayer in similar circumstances will receive treatment similar to his; and he is entitled to be protected from retrospective or retroactive legislation.

Sounds familiar / contemporary? This is from 2005, and commentary on a Labour Finance Bill.

Of course, Conservatives are no stranger to spectacular U-turns, so time will tell if the new Chanceller will do a “Gauke”, or remember his words from yesteryear and act in accordance.

If anything, let’s hope that the change in personnel at the Treasury opens the APN / Osborne ultimatum can of worms in earnest, and puts the whole Osborne-devised scapegoating operation under the scrutiny it deserves.

More on HMRC’s latest APN mass withdrawal

IMG_20160507_200809From Tax Journal:

“(…) One of the grounds of challenge was that condition C (in FA 2014 s 219(4)) was not met. Condition C is that, amongst other things, the chosen arrangements are ‘DOTAS arrangements’. Section 219(5) defines DOTAS arrangements as meaning ‘notifiable arrangements’ which have been allocated a scheme reference number. In other words, the arrangements must be notifiable under the DOTAS regime, as a matter of law. The fact that the arrangements were notified to HMRC is irrelevant for the purposes of ascertaining whether condition C has been satisfied.
HMRC took some six months to consider this ground of challenge before finally accepting that the arrangements were not notifiable under the DOTAS regime and that the APNs would therefore be withdrawn (…)
HMRC may have to accept this ground of challenge in relation to other similar EBT arrangements as it is obliged to be consistent in its approach and to treat all taxpayers in a similar position in the same way. “

HMRC forced to withdraw more contractor APNs following Judicial Review

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After Montpellier last December, more unlawful APNs are being withdrawn following challenge by the taxpayer. This time it is for the Premier Strategies structure

From the FT :

May 27, 2016 5:43 pm

HMRC backs down on upfront payment of disputed tax

“A legal challenge has forced HM Revenue & Customs to back down over hundreds of tax demands issued to users of offshore trusts.

HMRC’s decision to withdraw demands to produce cash up front — known as “accelerated payment notices” — followed the launch of judicial review proceedings by scheme users who argued they should be exempt. (…)
 Adam Craggs, partner at RPC, a law firm that brought the challenge, accused HMRC of taking a “shoot first and ask questions later” approach to the notices. He said they had a potentially serious impact on taxpayers including the risk of “being made bankrupt or being forced to conduct a fire sale of their home or other assets in order to raise sufficient funds”.
(…)
The move is the second time HMRC has been forced to withdraw accelerated payment notices. In January, up to 2,000 individuals who used employment tax schemes promoted by Montpelier Tax Consultants, an Isle of Man-based firm, won a reprieve.”

Dotas Scandal are fully expecting a sorry for the inconvenience note to be sent by HMRC to those who were forced into fire sales of their family homes and to the families of those who just couldn’t cope with the bullying anymore.

We are on record maintaining for 2 years+ that the basis of operation of the APN regime would be “issue APNs to everyone and their dog, and count on taxpayers not having the know-how and funding (especially AFTER they have been forced to pay) to challenge the lawfulness of the demands”.

That’s terminal machiavellianism, directly in contravention of HMRC’s charter mandating fairness to all (NOT “unfairness to all”), and in striking contradiction with the reassurances given to the Treasury Select Committee: “HMRC will only seek accelerated payment in cases where there has already been a tribunal decision in their favour” (Lin Homer 09/07/2014)

How long will HMRC be allowed to continue?

How often does your Government lie to you?

From the  Journals of Robert Maas

I’m ashamed to admit it but I voted Conservative at the last general election.  Fortunately most of my neighbours voted Labour so my vote didn’t matter.  But I’m still embarrassed to have done so.  Why?  Because I am becoming increasingly tired of the Conservative government lying to me all the time.  That may be a bit of an exaggeration as I do not have the breadth of knowledge to gauge that in non-tax matters.  But I do know that they do so when it comes to tax.  Lying may be a bit strong too.  It may be that the government believe that once Margaret Thatcher abolished most of the grammar schools in the early 1970s, the standards of State education have plummeted to such an extent that the citizenry cannot cope with the truth.  But I was a grammar school kid.  The State educated me fairly well, so I don’t need protecting from facts.

This article has been prompted by an HMRC Technical note on what they call “disguised remuneration avoidance schemes.  Let me make clear immediately that I have no problem with HMRC tackling tax avoidance schemes.  I am delighted when they do so – albeit that my understanding of what is a tax avoidance scheme seems somewhat different to HMRC’s.  HMRC tell me that “the government’s view is that these schemes don’t work”.  The government is of course entitled to its view.  It is also entitled to bring in legislation to reinforce its view.  But what the document is largely talking about is Employment Benefit Trusts (EBTs).  Whilst I do not wholly discount the possibility of the Cabinet agenda having included a discussion on whether or not EBTs “work”, I am a bit horrified if that is what happened, as there are enough strategic issues for the government to worry about without the collective Ministerial talent being diverted to considering the efficacy of historic tax arrangements.  Of course I fully accept that David Gauke, who has ministerial responsibility for HMRC, may have himself immersed himself in the tax legislation and the detailed documentation of thousands of EBTs and formed his own conclusion that EBTs do not work.  But even if he did so, his considered opinion is just that; it is his view, not that of the government.  As a solicitor, he is capable of doing so, although whether such industry is a sensible use of his ministerial time and the high salary us taxpayers pay for his services is another question.  But I think it is more likely to be HMRC’s view than the government’s.  I would also make the point that, as far as I am aware, although HMRC have won a number of cases before the Courts and Tribunals, none of these have been on the basis that EBTs do not work, but rather than in those particular cases what actually happened did not reflect what the parties had intended.  Accordingly HMRC’s view – or the government’s view if that is in fact the case – is not universally shared.

But it is not simply that view that concerns me

The document goes on to say, “the package of changes announced by the Chancellor at Budget 2016 will ensure that those who have used or continue to use a disguised remuneration tax avoidance scheme will pay tax and NIC on that remuneration as Parliament intended”.

Parliament in fact enacted legislation against disguised remuneration (which includes some payments by EBTs) in 2011, but only in relation to transactions undertaken after 8 December 2010. That suggests that Parliament has no view on disguised remuneration before that date. Yet the Budget announcements are mainly directed at pre 8 December 2010 EBTs, so it is wrong to pretend that those changes are in any way aimed at what Parliament intended.

So, if I am not a fan of EBT loan arrangements, and some, at least, of them, like that in Murray Group, do not avoid tax at all, why should I care if HMRC and/or the government lie to me and the rest of the citizenry in order to seek to persuade us that the Chancellor is right to attack such arrangements entered into pre 2011? Well, apart from the fact that I don’t like being lied to full stop, it is because the lies are to hide the fact that the Chancellor intends to introduce retrospective legislation to tax now (or rather in 2019) the loans that were made by EBTs before 2011. Parliament is normally violently opposed to retrospective legislation. It accordingly seems that by pretending that Parliament was opposed to such loans pre 2011, the Chancellor thinks that they will not realise how clearly retrospective his proposed legislation is. What the Chancellor is really saying is that if a person received a loan from an EBT before 8 December 2010, he should either voluntarily pay tax on the capital amount, even though it is probably not taxable at all under current laws, or he should repay the loan before 5 April 2019, and if he chooses to ignore both of these options and insist on exercising his legal rights under the loan agreement, then Parliament will introduce a new law to tax him in 2019 on money he received in a non-taxable form in 2001 or 2009, or even 1979. That is retrospection with a vengeance!