Compelling case for abolishing accelerated payment notices, says MP

In a short adjournment debate Baker told MPs of the ‘serious injustice’ experienced by one of his constituents in relation to APNs and said that if they couldn’t be abolished he hoped ministers would consider four ‘modest reforms’ he proposed.

Baker – punitive APN powers leading to injustices

Baker (photographed below thanks to Parliament UK) began by thanking HMRC for its work and acknowledging that the tax authority must have the tools that are necessary for it to work effectively, but he added that they must also be balanced and fair so that they do not inadvertently create injustices.

He noted that during the passage of APNs through Parliament in 2014 he and other MPs had expressed concern about the provisions. The Financial Times had reported that the new powers “have been criticised as unfair and even unconstitutional by the Law Society and Chartered Institute of Taxation.”

He added that the current Justice Secretary, Dominic Raab, had written a paper in 2017 in which he wrote of HMRC’s “new, punitive powers… which have corroded the basic fairness of the system...New powers include Accelerated Payment Notices…and Direct Recovery of Debts…Such powers undermine the basic tenets of British justice, allowing HMRC to bully taxpayers into paying debts without proper safeguards.”

Baker explained that, in the 2006-07 tax year, a constituent of his invested a considerable sum in two enterprise zone projects. “At the time, this was uncontroversial; enterprise zones were created by the Thatcher Government specifically to attract private sector capital into the regeneration of depressed regions.” He explained that successive governments offered 100% capital allowances to individuals who invested their money in projects within enterprise zones. His constituent invested in an office project in Lanarkshire and a warehouse development in East Durham. Both projects had successfully created employment and economic activity in formerly depressed areas. “However, the outcome for investors has not been at all successful; they have lost the whole of their investment.”

Following Finance Act 2014, HMRC levied APNs on taxpayers to recoup those capital allowances, explained Baker. “That meant that they lost both their investment and the tax incentives that the Government had offered to induce them to invest. These taxpayers have no right of appeal against their savings being taken from them, and I am told that HMRC is not even prepared to discuss their cases with them… HMRC, having decided to pursue serial litigation, tells taxpayers that they cannot even begin to settle their cases until the litigation has played out. That could take years or even decades.” He warned that there is a real danger that HMRC is seizing taxpayers’ savings and then engaging in “the same kind of delaying tactics that HMRC itself found unacceptable.”

Baker said his constituent is in his 70s “and, having seen his retirement savings taken by HMRC in 2016, has absolutely no idea when he will be able to recoup what has been taken from him. In the meantime, HMRC refuses to give any reason why it deems his enterprise zone projects to be undeserving of the promised tax allowances. To me, this is a really serious injustice.”

“I think there is a compelling case for abolishing APNs and, indeed, direct recovery of debts,” Baker told the Commons. “Although I would like that to happen, I will instead make four modest proposals for reform. First, there should be greater oversight of the APN process to ensure fairness; that is something the now Justice Secretary raised in 2017, and I believe it is long overdue. Secondly, APNs should be repaid to the taxpayer when a test case is lost. At the moment, HMRC is obliged to refund APN payments to the successful claimants in a litigation; however, they do not refund APNs to other taxpayers, despite HMRC citing the case as its basis for contesting those other taxpayers’ claims. That is anomalous, and should be changed.

“Thirdly, HMRC should not be permitted to retain APN moneys for more than five years. That is a reasonable timespan over which to settle tax claims, and would act as an incentive for HMRC to expedite the process. If it chooses to take longer, often—as in my constituent’s case—by citing a lack of staff resources, the taxpayer should not be the one to suffer. Fourthly, as the now Justice Secretary recommended in 2017, there must be meaningful penalties where HMRC is shown to have levied APNs unreasonably. That should limit any bullying of taxpayers by HMRC by giving the taxpayer some financial recourse.”

Minister – APNs an important tool with substantial safeguards

Responding to the debate, Exchequer Secretary Helen Whateley said she was unable to go into an individual case at the Dispatch Box, but would set out the government’s overall position on accelerated payment notices. She explained the situations which had led to the introduction of APNs, with users of tax avoidance schemes purposely stringing out disputes and unfairly benefiting from the cash generated by their liabilities until the matter was resolved. That situation was clearly wrong, she said.

The minister said there had never been any principle that disputed tax should sit with the taxpayer rather than the Exchequer. In the eight years since their introduction, APNs have brought forward over £5.6 billion in revenue to fund those vital public services.

However, she said, the government recognise that tools such as APNs must be carefully targeted. She set out some of the safeguards. “There must be an active dispute between HMRC and a taxpayer either in the form of an open tax inquiry or a live tax appeal. That dispute must be about tax being either underpaid or overclaimed as a result of avoidance. And APNs cannot be issued unless one of the following applies. First, the individual issued with an APN has used an avoidance scheme that has already been defeated in court and they have consequently been given a follower notice—a legal request from HMRC to the individual to settle their avoidance dispute. Secondly, the information on the scheme must have been provided to HMRC under the disclosure of tax avoidance schemes—the DOTAS regime. Thirdly, HMRC must have taken action to challenge the taxpayers’ use of the avoidance scheme under the general anti-abuse rule—the GAAR. In addition to those conditions, APNs can be issued only with the approval of an oversight board of senior policy, technical and legal members of HMRC.”

While there is no right of appeal against an APN, “HMRC must examine any representations against a notice, and nothing is due from the taxpayer until HMRC has finished those considerations,” said the minister. “I should point out that an APN does not in any way inhibit a taxpayer’s right to continue their dispute with HMRC or to appeal against its conclusions, and taxpayers who believe that their dispute is not being suitably progressed can apply to the tax tribunal to resolve it.” If a dispute against HMRC is settled, any disputed sums paid under an APN will be repaid with interest.

Steve Baker intervened to observe that: “A problem with DOTAS is that perfectly decent, normal people who want to pay the right amount of tax can get drawn into schemes because the nature of a DOTAS registration is misrepresented. Could we have a boilerplate that firms are required to place prominently before their customers, so that customers can be told, “The reason this scheme is registered with DOTAS is because HMRC thinks it doesn’t comply with the rules. It is not how Parliament intended things to work, and you will probably have HMRC coming after you later”? If normal taxpayers who intend to pay the right amount tax could see such a boilerplate, they would not be drawn into such schemes and we would not have nightmares such as this.”

The Exchequer Secretary said HMRC already takes steps to communicate in that way, but she was happy to take up his specific suggestion with the Financial Secretary to see whether more can be done.

She said HMRC is committed to working positively and empathetically with anyone with an APN facing payment difficulties, including, where appropriate, agreeing more time to pay. She did not address Baker’s specific proposals for reform.

Read the full Hansard of the debate here.

By George Crozier, CIOT External Relations Manager