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As a tax advisers who work with and on behalf of hundreds of successful businesses, both big and small as well as numerous private individuals, we fully understand how tax efficiency is a good and wholly legitimate exercise. Clearly, there is a less desirable highly artificial and contrived tax avoidance industry which, due to recent legislative changes, is now shrinking. In addition, there is clearly a bit in between. One can rightly describe this as a spectrum.
It should be no surprise, therefore, that we applaud efforts by the Government to recover taxes where any arrangements are contrived or highly artificial. Recent reports are evidence that the Government has been effective in reducing the amount of the tax gap attributable to tax avoidance. It has been less effective in combating revenue lost to the black economy, where more work can, and surely will be, done.
Having said that, even we recognise that, like any other conflict, the war on tax dodgers is shaped by propaganda and perception as much as actual skirmishes.
In the last couple of years, HMRC has made much noise about its determination to get tough and its effectiveness in delivering results.
A claim that it wins 80 per cent of tax cases which make it to court result has been used without either variation or detailed qualification as a means of dissuading those considering a legal challenge from following through.
Likewise, it has not exactly been quick to disabuse companies of the notion that its more frequent use of Accelerated Payment Notices (or APNs, for short) amounts to widespread deployment of what one commentator has described as “HMRC’s weapons of mass destruction”.
Taken at face value, the APNs and their effect seem impressive. The Revenue has just disclosed that use of the Notices resulted in almost £1 billion in disputed tax being collected in the last 12 months alone from large companies.
However, as with any propaganda campaign, there comes a separation between absolute fact and partisan viewpoint.
Anyone with a familiarity of how APNs function will know that the sums which they help generate do not necessarily represent the taxman’s final take of monies owed. Instead, they only amount to sums lodged with the Revenue while contested tax demands are sorted out.
Someone receiving an APN has 90 days to pay the disputed amount while their case goes through the courts or until they reach a settlement with HMRC.
The role of an APN, in essence, is to make life easier for the taxman. As one individual with a knowledge of the system remarked to me, it is a reversal of the common concept of criminal justice with the taxpayer being presumed guilty until they’re able to prove themselves innocent.
It’s worth remembering, though, that like any munitions used in wartime, some do not hit their targets and many of the APNs issued by HMRC, it would appear, may not exactly be laser-guided.
Only last December, it emerged that of the 60,000 such notices issued since they were introduced in July 2014, more than 4,000 had subsequently been withdrawn because of errors.
One sceptical peer has questioned the basis of HMRC’s presenting the amount effectively held on escrow following the use of APNs as genuine tax income. If a corporate enterprise attempted to include such provisional figures as turnover, so his logic continued, it might be accused of crooked accounting.
Whether that position is over the top or not remains to be seen but a certain oft-quoted military maxim seems appropriate when it comes to reporting of the HMRC’s continued offensive against dodgers: “In war, truth is often the first casualty”.