Crumbs for Christmas
Among triumphs regularly trumpeted by HMRC is the increasing number of Accelerated Payment Notices (APNs) being issued.
APNs demand upfront payment of disputed tax where an avoidance scheme if suspected by HMRC, prior to a formal hearing. The tax must be paid within 90 days without appeal. This a real downer for people using a range of tax-saving schemes because if HMRC believe the schemes “don’t work” and issue you with an APN then you won’t actually save any tax right now, and might have to go through lengthy litigation to get the money back. Previously of course, you saved tax right from the get-go and HMRC could only get it back if they embarked on litigation which you or your advisors could string out for years.
While more of a hard shove than a nudge, it’s part of a wider strategy of discouraging attempts at saving tax. For this reason, it has always seemed odd to me that HMRC has never published any information about what kind of scheme they were issuing all these APNs for. They do publish a long list of schemes in relation to which they say they will issue an APN but they are identified only by numbers and what is your average footballer or celebrity comedian to make of a list like this? One might think it would be more helpful to give us a clue as to what they’re about and get some general percolating into the public consciousness going.
And even if more were known about these schemes that may attract an APN, what kind of schemes actually are attracting them? One would have thought that publicising something about this too would generally help with discouraging attempts to use them or anything that sounds at all similar.
So back in February I asked HMRC for information about this under the Freedom of Information Act. They refused on the basis that providing information about the schemes in relation to which APNs had been issued might carry a risk of disclosing taxpayer information. Of course everyone knows that taxpayer confidentiality is a very serious matter and protected by, inter alia, section 23 of the Commissioners of Revenue and Customs Act 2005 (CRCA). However, tens of thousands of APNs are being issued so I then asked for the information with anonymisation or bundling up of schemes where small numbers of users of a particular scheme might potentially be disclosive of who they were. This was met with a further refusal on the basis that ‘taxpayer information’ could be inferred from a very large number of users of a particular scheme as much as from a small number. While HMRC might have considered there to be a Goldilocks number of scheme users (neither too large nor too small to risk any disclosure) this seemed a line too silly to pursue so I asked for a review. The response to this upheld the refusal to provide any information for the bizarre new reason that a scheme was itself a person
…. for the purposes of section 23(1) CRCA, the term “person” includes legal entities such as companies, trusts and charities, as well as living individuals. A scheme is therefore a ‘person’ for the purposes of section 23(1) CRCA. By engaging the exemption provided by section 23(1) CRCA Miss ***** is concluding that to release the information you have requested would risk a scheme being identified, or capable of being identifiable.
Really?? Students of logic will recognise that the ‘therefore’ has come out of nowhere. As context, Part 7 of the 2004 Finance Act that introduced provisions for disclosure of tax avoidance schemes provides for notification of ‘arrangements’ and section 318 provides that arrangements includes “any scheme, transaction or series of transactions”.
It seems clear from these provisions that a scheme is a set of arrangements, and while a person or persons for the purposes of section 23(1) CRCA might be involved in such arrangements, the scheme is not itself a person any more than a transaction or series of transactions is a person. If for example the arrangements were for the sale of a business in exchange for shares and loan notes, while the business and any other legal entities involved are persons, the scheme is not, and releasing information about the existence or prevalence of the scheme ‘Sale of business in exchange for shares and loan notes’ does not as such identify or risk identification of the persons involved in the scheme.
So I think that both in principle and as a matter of law HMRC were incorrect to claim that a scheme is a ‘person’ for the purposes of section 23(1) CRCA. I made these points (and some others) to HMRC in a new request that asked very simply
Please provide information on the number of APNs issued and the amounts involved for different types of scheme in each of the past three years.
The 20-day statutory deadline within which the FOIA requires HMRC to reply came and went. After 40 working days I was assured that a response was ‘close to being finalised’. After another week I was told ‘final clearance at more senior levels …. is underway’. 50 working days came and went … 60 working days … 70 working days … and then finally after 73 working days waiting on this particular request I did get a reply containing a small data table.
Not only is half a loaf better than none, but even crumbs are for the starving, and these data do allow a few interesting insights. I’ve added totals and averages …
Some points stand out:
- The largest number of APNs by some way have been issued in relation to schemes with the lowest average value: Contractor Loans/Disguised Remuneration schemes and whatever has been bundled up to make Miscellaneous. For the 2015/16 tax year these accounted for 70% of the APNs issued by number but only 17% by value, averaging only a little over £20,000 between them.
- The number of notices issued for Sideways Loss Relief increased by nearly a half, but their average value nearly halved.
- The number of notices issued for Business Premises Renovation Allowance more than halved, but their average value was four times higher.
- Employer Benefit Trusts were a big new thing for 2015/16.
- The largest amount raised by APNs in both tax years was from Corporation Tax schemes. Unfortunately these schemes are not broken down in more detail, but it’s notable that the average value of these APN’s for the 2015/16 tax year was over £1/2 million, and their total value was over 3% of Corporation Tax receipts for the year.
Some in the tax world will have an idea about some of this because they are the ones setting up the schemes, but the rest of us have been largely kept in the dark and I hope this little new light shed on the area is of some interest.
As to why HMRC have been so reluctant to provide any information (and it has taken repeated requests since February to get even this) is anyone’s guess ….
