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  • A game of two halves: Has Rangers left HMRC on the defensive?

    16 December 2019

    Andy Wood

    Over the last few years, HMRC has become ever more strident in how it describes its role in collecting tax revenue for the Treasury.

    No longer a fairly anonymous and administrative part of the machine of government, it has sought to portray what it does in very simple and stark terms: black and white, good and bad.

    That is most clearly the case in relation to the most confrontational parts of its operations; namely, dealing with avoidance and evasion or, as the Revenue describes it, “compliance”.

    In its last annual report, published in July this year, HMRC explained how it had “strengthened our grip on those who deliberately cheat the system and continue to pursue those who refuse to pay what they owe”.

    That crackdown seems to be working, if one glances at the numbers for the last full financial year.

    They show that “compliance yield” – the money recovered which the Revenue reckons might “have otherwise been lost to the UK through fraud, tax avoidance, evasion and non-compliance” – was 12 per cent up on the previous year, from £30.2 billion to just over £34 billion.

    That might suggest vigour and progress but is it entirely accurate?

    I ask because of a series of high-profile reverses which undermine the image of HMRC as always being in the right.

    HMRC, The Supreme Court & Tax Avoidance Timing

    Take the latest news reports about the Revenue agreeing to reduce the amount its owed following a 2017 Supreme Court ruling that the use of Employee Benefit Trusts by Glasgow Rangers Football Club had amounted to tax avoidance.

    The dispute related to the way that the club paid some players and staff between 2001 and 2009.

    HMRC’s objections to Rangers’ remuneration practices and the tax bill which it subsequently issued was said to be instrumental in the club going into administration in 2012.

    After the Supreme Court judgement, the Revenue was not only keen to have the liquidators for the old company which had controlled the club (‘oldco’) cough up £94 million in tax but warned that others who’d used EBTs should “now agree with us the tax owed”.

    Yet just over two years on, it’s emerged that the initial sum requested in the Rangers’ case has been scaled back by some £27 million because of a challenge by the club’s liquidators, BDO.

    The new provisional total of £67 million may be reduced still further before a final settlement is paid, possibly some time next year.

    To use a footballing analogy, it’s almost as though HMRC has a strong attack but is also found to possess a weak defence when put under pressure.

    My opinion is not solely based on the Rangers case.

    We can look at the reverse which the Revenue suffered at the hands of the television presenter Lorraine Kelly, the significance of which was dissected by my colleague Rohan Manro earlier this year – one of many setbacks related to its enforcement of the IR35 off-payroll rules.

    HMRC & Accelerated Payment Notices (APN)

    It’s also worth scrutinising what HMRC’s own annual report reveals about one of its much-vaunted weapons: the Accelerated Payment Notice (APN).

    Having come into force five years ago, they are used to demand payment within 90 days of a sum of tax, often before the specific sums due are finalised.

    One news article in April disclosed that of the 81,000 APNs issued in the years since, some 10 per cent have later been withdrawn, a proportion attributed by one commentator to HMRC “not exercising sufficient care and attention” in how they’re issued.

    The novelty of the APN seems to have worn off, with the ‘income’ resulting from their use declining by 79 per cent in the last three full tax years alone.

    To that can be added the 460,000 people who took umbrage with the Revenue’s calculation of self-assessment tax owed in the last year.

    It makes you wonder whether HMRC should be embracing the idea of constructive discussion rather than pursuing the route of conflict.

    Whilst the Revenue presents the process of tax recovery being a battle between good and evil, I suspect that most people – be they private individuals or company directors – simply want to pay what they owe rather than feel that they’re under attack.

    Having invested so much effort and almost a decade of time and expense in chasing the Rangers case, for example, I would argue that the back-peddling makes its Supreme Court victory somewhat more of a hollow one.

    What’s happened since shows that HMRC is indeed beatable and whether its opponent is a football club or simply someone questioning the bill arising out of an annual return, that’s not a great reputation to have.

    If you have any queries about this article, or tax matters in general, then please do get in touch.