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Why HMRC might come to regret accelerated payment notices

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Amid all the hype and hysteria over the imminent issue of accelerated payment notices (APNs) by HMRC, one important issue appears to be being lost: the behavioural response of risk taking taxpayers. When it comes to tax, whatever happens, it’s almost never what the taxman anticipates and yield expectations usually fall short. One immediate curiosity is that HMRC’s expected yield from the issue of APNs exceeds the total tax avoidance tax gap. I don’t understand the tax gap statistics, but even I can see that is somewhat odd! On a prospective basis, the combination of DOTAS, the GAAR, APN and the high risk promoter rules should mean that there will be little or no growth in the tax avoidance tax gap. We will all welcome that, but what about the past?

Whatever else can be said about the 65,000 open schemes, taxpayers have not been unwilling to settle – but the litigation and settlements strategy (LSS) has played an enormous (and, in my view, disastrous) role in getting us to where we are. But we are where we are, so the question now is how should HMRC expect taxpayers to respond? HMRC will expect many (perhaps very many) taxpayers to throw in the towel. But what about those who face a binary outcome? In general, taxpayers facing an all or nothing outcome have nothing to lose, other than the cost of a tribunal hearing and reputational risk. But many of those involved in these schemes have already been ‘outed’ and, for the majority of users, who would really care? On costs, as we have seen in other areas, the legal market is incredibly adept at finding ways for clients to pursue civil claims in a managed cost environment. Taken together, one possible outcome from the introduction of APNs could be the catastrophic grinding to a halt of HMRC’s entire counter avoidance strategy. Assuming a confetti approach by HMRC to the issue of APNs, HMRC will start to come under pressure, first to justify it, then to accelerate any settlement process; this would be on top of the extra workload from the additional collection burden. HMRC will put a brave face on the situation, but the department is not configured to handle any significant negative outcome from the issue of APNs. HMRC has plainly struggled to cope with the burden imposed by the LSS, so how would it take on more and more?

If only 10% of taxpayers receiving an APN resist, that would amount to 4,300 taxpayers disputing their APN, negotiating time to pay, pressing HMRC for progress and applying to the tribunal for closure notices or, as HMRC is anticipating, pursuing judicial review. And regardless of what HMRC says, in too many cases it has been HMRC delay, in some cases lasting for years, that has been the single biggest impediment to cases being resolved, so enquiries will have to be resurrected years after the last engagement. If the level of resistance to APNs is higher still (say, 40% or 50%), then even if such resistance is ultimately futile, the scale of the task facing HMRC has the potential to bring the tax system itself to a halt. This would leave HMRC’s entire counter avoidance strategy in a smouldering mess. Perhaps this is too stark a prediction. Perhaps all those affected will simply line up with their cheque books in hand. But if my concerns are well placed and the ‘nuclear option’ goes wrong, the end result may not be pretty. Perhaps we should all get ready to take cover, just in case!