Tax disputes - is now the time to settle?

Many disputes involving historic tax planning remain unresolved. Estimates of the number of open disputes vary, but there is no doubt that there are many thousands, and that the tax involved runs to many hundreds of millions of pounds. With that in mind, HMT and HMRC continue to introduce new measures to persuade users of such arrangements to settle, as well as to dissuade taxpayers from entering into new ones.

Following the introduction of Accelerated Payment Notices (APN's) requiring up front payment of tax in Finance Act 2014, and the introduction of a range of new reporting requirements and specific anti-avoidance provisions, a new measure is included in this year's Finance Bill which could have wide-ranging implications.

The provisions, at Schedule 18 of the Finance Bill, are not yet law but it appears that they will be enacted in full when the Finance Bill obtains Royal Assent. Broadly, the provisions will apply where HMRC succeed in overturning certain types of arrangements (either in court or where the taxpayer concedes) after April 2017. The new provisions will require those whose arrangements fail to report additional information to HMRC for a period of up to 5 years. The provisions also enable HMRC to charge penalties based on the tax counteracted, to restrict a scheme users’ ability to access tax reliefs in some circumstances and to publish taxpayers' details. The intention is therefore to draw a very clear line in the sand after which users of arrangements which HMRC regard as aggressive can expect to suffer more significant sanctions.

The rules restricting the availability of tax reliefs is particularly wide-ranging in scope. The new rules will apply to:  

  • Schemes disclosed under the Disclosure of Tax Avoidance (DOTAS) rules or the VAT disclosure rules,  
  • Arrangements which are the subject of a Follower Notice (where a judicial decision overturns the rationale on which the tax arrangements are based),  
  • Where there has been counteraction under the General Anti-Abuse Rule (' GAAR')  

The penalty provisions and restrictions on reliefs will only apply where a specified number of schemes have been ‘used’ after April 2017. We have sought clarity from HMRC as to the meaning of the term 'used' which is not defined in the draft legislation.

Additionally, there are provisions to suggest that the regime will not apply where there is full disclosure of the scheme to HMRC before April 2017. The meaning of full disclosure is unclear, but from our discussions with HMRC, we understand that they construe these provisions as requiring a taxpayer to concede and to provide relevant details of the defeat. Those affected by the regime should be aware of HMRC's views in this area.

Although there are therefore a variety of safeguards built in to the rules, it is far from clear how these safeguards will operate in practice. The provisions are wider than many taxpayers might have expected. As a result, those who are currently in dispute with HMRC about historic arrangements will need to consider how the new rules may impact them.  

The new rules are likely to create an additional incentive to settle with HMRC. We would certainly recommend that any decision on settlement is made well in advance of April next year in order to avoid the risk of triggering the new provisions. In the event that matters are not resolved before April next year, any settlement discussion will need to be handled carefully in order to take account of these new provisions.

Jonathan Preshaw

e: [email protected]

p: +44 (0)141 355 4049