Tax: Advanced Payment Notices (APN) and Follower Notices (FN)

by Jacqui Fleming, partner of inTAX LLP

H M Revenue and Customs’ (HMRC) latest tools in the fight against tax avoidance are Advanced Payment Notices (APN) and Follower Notices (FN). As a starting point it is worth remembering that the avoidance of tax through planning or mitigation arrangements is legal but tax evasion is not.  At a time when public attitudes have turned against aggressive tax planning it is somewhat ironic that HMRC’s main targets are individuals rather than the large multi-national corporate entities.  It is of course the reports in the media concerning Starbucks, Google, Gary Barlow and the like that have sparked the change in public opinion against tax avoidance, with little or no publicity given to those people who contributed their hard earned cash into what they thought were  (and could possibly still be) legitimate forms of tax planning. Not much different to an ISA then?

In HMRC’s eyes Tax avoidance comes in the shape of film schemes, Employee Benefit Trusts, Stamp Duty Land Tax arrangements, disguised remuneration schemes and many other forms. Film schemes were introduced by the Government to encourage investment into the UK film industry and it is this legislation which created many investment opportunities for the taxpaying public that has now bitten the Government on its proverbial bottom.  So, what has HMRC done to combat what it sees as ‘abuse’ of this legislation which, in some instances, seems to be no more than interpreting the  legislation in the spirit it was intended?

APN’s allow HMRC to demand tax it thinks is due BEFORE the judicial system has had the opportunity to decide whether or not it is legally payable. HMRC’s demand becomes a legally enforceable debt with payment due as early as 30 days from the date of issue of the APN. Once paid, HMRC holds the money in the manner of an Escrow, with a promise to repay it if the judicial system finds that HMRC’s view is wrong.  The money is only repayable after a final judicial decision has been made.  So when would this occur? At the First Tier Tribunal (FTT, the Upper Tier Tribunal (UTT) or the Supreme Court?  In most cases, if HMRC loses at the FTT and the UTT, it is likely to be after the Supreme Court.  Experience shows that the judicial process can take many years, during which time the cash-flow disadvantage of HMRC holding the money could cause many taxpayers irreparable financial damage.  This could even lead to bankruptcy. The miserly rate of interest HMRC is required to pay in these circumstances would not even begin to compensate for having been denied the use of the money in the interim period.

The other new weapon in HMRC’s armoury is the Follower Notice (FN). In cases where HMRC wins its case at court, it can determine that another scheme is the same or fundamentally similar to the one it has won.  For example, the Eclipse 35 Film Partnership is currently listed for hearing at the Supreme Court.  If HMRC wins this case, it is widely expected to apply the findings to every other Eclipse Film Partnership case on the grounds they are similar and then set about issuing APNs.  This is despite the widely held view that there are significant and crucial differences between the various Eclipse schemes.

Jacqui Fleming of inTAX LLP (www.intaxllp.com) has been resolving tax disputes and investigations for many years. Previously a Tax Inspector, she specialises in helping companies, individuals, partners, trusts bring investigations, whether simple checks or complex frauds, to a conclusion as quickly and cost efficiently as possible.

Please be advised that all views expressed in these posts are those of the author and not of James Rosa Associates ltd.