Tag: tax disputes

Tax avoidance and accelerated payments – faster payments for HMRC

Posted on by Katie Trower

There are a significant number of old enquiries outstanding with HMRC. We have seen the earnings capacity of a number of taxpayers change significantly based on when the enquiry was first issued compared to where they are now. This can be a cause of concern financially when a HMRC settlement is likely and an anxious time for the taxpayer. It is important to not bury your head in the sand and to address the enquiry and settlement directly. For more, watch our video here, and get in contact with Danielle Ford or Riocard Hoye for further support.

What is a follower notice?

An FN may be issued to a taxpayer who has used an avoidance scheme that has been shown in another person’s litigation to be ineffective.

HMRC may give an FN to a person if certain conditions are met, as below:

  • A tax enquiry is in progress, or an appeal has been made against a closure notice, assessment or determination.
  • A tax return, claim or appeal is made on the basis that a particular tax advantage results from a particular tax arrangement.
  • HMRC believes there is a judicial ruling which is relevant to the particular arrangement.
  • For tax and National Insurance Contributions (NIC), no previous FN has been issued for the same scheme, tax advantage, tax period and judicial ruling.

The FN tells the taxpayer that they may be liable to pay a penalty of up to 50% of the disputed tax or NIC if they do not amend their return or settle the dispute. With an FN, HMRC is effectively pointing to a similar case which has been defeated and is insisting the taxpayer’s will be too.

What is an accelerated payment notice?

An APN is a requirement to pay an amount on account of tax or NIC. The APN gives HMRC powers to receive taxpayers’ unpaid tax before any legal determination is proclaimed. APNs follow the same conditions as FNs and often are preceded by the issue of one.

APNs are received in relation to an ongoing enquiry, dispute or appeal  regarding the taxpayer’s tax affairs.

Both FNs and APNs are tools used by HMRC to retrieve tax in the dispute process, by pushing taxpayers into agreeing with HMRC’s view of the outcome of another taxpayer’s litigation case, involving similar tax arrangements. These notices change the economics of tax litigation in favour of HMRC.

An APN requires full payment of the tax HMRC considers has been lost from the use of avoidance arrangements. They allow the collection of tax before litigation is settled, removing the perceived cash flow advantage for the taxpayer, and addressing the perceived loss to the Exchequer.

If a taxpayer receives an FN and an APN, and decides not to settle their affairs as requested by the FN, the taxpayer will be required to pay the disputed tax or NIC to HMRC, as outlined in the APN.

When a taxpayer is requested to pay an APN, HMRC will hold this payment until the enquiry is complete or the appeal is resolved. The taxpayer will get their money back if HMRC finds the taxpayer does not owe it.

What is a partner payment notice? 

A partner payment notice (PPN) is issued to members of a partnership. In effect, it functions the same as an APN, requiring the partners to rectify any disputed tax upfront, rather than awaiting the outcome of litigation, thus reversing the cashflow advantage in HMRC’s favour.

Payment, penalties and appeal 

When HMRC sends a taxpayer an APN or PPN, payment is due within 90 days. Failure to pay by the due date will lead to late payment penalties or surcharges, and potential enforcement action being taken to recover the tax or NIC.

There is no right of appeal against an APN or PPN in the traditional sense, however the underlying tax and NIC can be appealed and representations can be made. Representations should be made within the payment due date of 90 days and can only be made on the basis of an inaccuracy in the APN or PPN, where for example, the amount quoted is incorrect or the conditions of the notice have not been met.

Payment of an APN or PPN does not equate to settlement

Even though the taxpayer may have paid an APN or PPN, it does not mean they have settled their tax affairs. Any enquiries, appeals or assessments remain open – the amount paid is simply an advance payment of the disputed tax or NIC, and does not cover any late payment interest or penalties which may be included within the final settlement.

The APN will only cover the disputed tax or NIC advantage relating to the specific avoidance scheme covered by the notice.

Any payment received by HMRC will be treated as payment on account towards the final liability and this will stop interest accruing. Payments are held in an HMRC SAFE account and are not visible on the taxpayer’s HMRC online account.

Seek professional help 

If a notice is received, we would advise that you to speak to a professional tax advisor. Following receipt of an FN, APN or PPN, there is a short window where action can be taken, and the penalties for non-compliance can be significant.

haysmacintyre’s Tax Disputes & Resolutions team has expert knowledge of HMRC procedures. To discuss any of the above measures, or for any queries related to disputes with HMRC, contact Danielle Ford, Partner and Head of Tax Disputes & Resolutions.

Online earning platforms

Posted on by Katie Trower

Digital platform reporting to tax authorities

From January 2024, the Model Reporting Rules for Digital Platforms means that digital marketplaces, such as Airbnb, eBay, and Vinted, will have to report incomes of individuals earning money via their platforms. The goods and services covered by the reporting requirement include accommodation, transport rental, personal services, and tangible goods. The information on income will be sent to the tax authority where the seller is a resident and platforms will also provide a copy of the reported information to the seller.

The first report is due on 31 January 2025. This is in addition to self-employed individuals submitting their income to the tax office on their Self Assessment tax return. Penalties will be applicable should the digital platform not comply by the due date.

As such, any discrepancies between the Self Assessment tax return and the Model Reporting Rules for Digital Platforms may lead to an enquiry by HMRC, so keeping detailed records of all income received from such platforms is imperative. The gig economy has really grown in the past few years and this is the latest attempt by HMRC to tackle non-compliance.

Stay tax compliant

If you have found an omission in your tax filings, we recommend seeking an experienced tax advisor to prepare a voluntary disclosure to HMRC. Making an unprompted disclosure will mitigate any potential penalty charges. If you need further assistance on the above, or for advice on nudge letter correspondence, contact Danielle Ford, Partner and Head of Tax Disputes & Resolutions, or Riocard Hoye, Senior Manager.

 

Pandora Papers: HMRC sends ‘nudge letters’ to taxpayers

Posted on by Katie Trower

Two years after the announcement in October 2021 that HMRC were to consider an investigation, HMRC has started issuing letters to some of the taxpayers named, requesting they review their tax affairs. Letters will be sent to hundreds of taxpayers, and they will have 30 days to respond to the letter.

Should updates to their tax affairs be necessary, HMRC is recommending  that taxpayers go to the GOV.UK website and search ‘tell HMRC about underpaid tax from previous years’. There are three disclosure options, two of which are potentially relevant here – the Contract Disclose Facility (CDF) or the Digital Disclosure Service (DDS). Care must be taken, as owing to the nature of HMRC’s enquiries, the DDS may not be the most suitable method of disclosure to HMRC as fraud could be suspected. The alternative method is the Contractual Disclosure Facility (CDF), under Code of Practice 9 (COP9), which offers protection from criminal prosecution for any issues disclosed. There are similarities to the Euro Pacific Bank case, where HMRC encouraged taxpayers with connections to the now liquidated bank to use the Worldwide Disclosure Facility (WDF), although HMRC should have included reference to the CDF.

Disclosures and penalties 

If a taxpayer finds a mistake in their filings to HMRC, disclosing the error or omission before HMRC sends a letter or opens an enquiry will lead to the most favourable outcome. Following receipt of an HMRC letter, a disclosure to HMRC will be treated as ‘prompted’ for penalty purposes. Prompted penalty rates are higher than unprompted penalties rates. For example, an offshore omission can result in the maximum prompted penalty of 200%. In addition, a further penalty of 50% of the tax could be levied for an ‘asset move’; this is where assets have been moved from the UK or other jurisdictions and therefore is considered to be a method to avoid UK tax or to disguise non-compliance with UK tax legislation.

Completely voluntary disclosures to HMRC benefit from the lowest possible penalty range for the type of error. Broadly, the length of time interacting with HMRC will also be significantly shorter in comparison to a full investigation.

A professional tax advisor can guide a taxpayer through the disclosure process and advise, where applicable, the penalty mitigation available. We recommend taxpayers immediately seek professional advice following receipt of an HMRC nudge letter, statutory enquiry or where a taxpayer has found a mistake in their filings to HMRC.

At haysmacintyre, we have a wealth of experience in making successful disclosures to HMRC under the CDF and WDF, achieving the most favourable outcome for clients, bringing closure to their earlier years’ tax affairs and allowing them to move forward.

We are here to help; should you require more information or professional advice, please contact Danielle Ford, Partner and Head of Tax Disputes & Resolutions, or Riocard Hoye, Senior Manager.

HMRC issues ‘One to Many’ notices to charities

Posted on by Tarryn Skilling

HMRC is issuing ‘nudge letters’ to charities.

The ‘One to Many’ approach takes the form of correspondence commonly known as nudge letters. Nudge letters usually state that HMRC holds information on the taxpayer that the letter is addressed to, and are used to encourage taxpayers to review their tax affairs.

Nudge letters are a cost-effective solution for HMRC to communicate with a large number of taxpayers. Letters previously issued either relate to a potential loss of tax that HMRC has identified or, more broadly, are an educational exercise.

This latest nudge letter campaign is an educational letter, helping charities to get their Gift Aid claims on aggregated donations right, together with a reminder of their Gift Aid record-keeping requirements.

Disclosures and penalties

If you find a mistake in your filings to HMRC, disclosing the error or omission before HMRC sends a nudge letter or opens an enquiry will lead to the most favourable outcome. Following receipt of a nudge letter, a disclosure to HMRC will be treated as ‘prompted’ for penalty purposes. Prompted penalty rates are higher than those that apply to unprompted penalties. Completely voluntary disclosures to HMRC benefit from the lowest possible penalty range for the type of error, and the length of time interacting with HMRC will be significantly shorter, compared to a full investigation.

A professional tax advisor can guide you through the disclosure process and advise, where applicable, of the penalty mitigation available. We recommend taxpayers immediately seek professional advice if they have found a mistake in their filings to HMRC.

At haysmacintyre, we have a wealth of experience in making successful disclosures to HMRC. Should you have any queries regarding your Gift Aid claims, please do not hesitate to contact Louise Veragoo, Not for Profit Tax Director, or Danielle Ford, Partner and Head of Tax Disputes & Resolutions.

HMRC and the 2019 loan charge

Posted on by Katie Trower

Previously, loan schemes, known as ‘disguised remuneration’ (DR), were marketed. DR schemes involved paying employees through loans instead of PAYE, and it was a way to avoid paying Income Tax and National Insurance. These loans were usually interest free, non-repayable in practice and involved the use of Employee Benefit Trusts (EBT) or Employer Financed Retirement Benefit Schemes (EFRBS).

The DR schemes have since been categorised by HMRC as tax avoidance schemes and state they do not work. The government moved to recover lost tax, setting a deadline of 30 September 2020 for taxpayers to reach a settlement with HMRC or repay the loans, otherwise the controversial loan charge would be applied.

The loan charge

The loan charge is a tax charge designed to collect unpaid tax, in relation to the DR loan schemes. The loan charge amounted to tax on the total value of all loans outstanding, as of 5 April 2019, to be declared in the 2018/19 Self Assessment tax return.

When it was first introduced, the loan charge received a lot of attention, including discussion in Parliament, and in 2019 a review into this legislation was commissioned. The review recommended various changes, including spreading the loan charge over the tax years 2018/19, 2019/20, and 2020/21

The loan charge applies to loans made between 9 December 2010 and, either 5 April 2019 for employees, or 5 April 2017 for self-employed individuals.

Following a review, all loans made prior to 9 December 2010 fall outside the scope for Loan charge purposes, as well as loans issued between 10 December 2010 to 5 April 2016, where reasonable disclosure was made to HMRC.

HMRC holds information on those it believes are subject to the loan charge and has been checking tax filings (or lack thereof). HMRC is now acting against those it believes have not properly declared the loan charge, either by not declaring or under-declaring it, in the following ways:

  • Opening enquiries
  • Sending nudge letters
  • Raising discovery assessments for lost tax

Opening enquiries

If HMRC receives a return on or before the filing date, an enquiry can be opened within 12 months. An enquiry can be long running and intrusive and allows HMRC to check the correct tax has been paid in the tax year of enquiry.

However, HMRC is now out of time to enquire into your 2018-2019 tax return, in relation to the loan charge, if you filed on time. This does not mean you are in the clear, as HMRC will open a discovery assessment (see below) or, if you did not file at all, HMRC may be able to open an enquiry.

It is important to note that paying the loan charge does not necessarily resolve the underlying HMRC enquiries for the years in which loans were made. Tax years that are subject to an open enquiry or assessment will still need to be resolved, either by way of settlement with HMRC or, in extreme cases, through litigation.

HMRC issuing nudge letters

HMRC has been utilising a ‘one-to-many’ approach, commonly known as ‘nudge letters’ – this is where the same communication is sent to multiple taxpayers. We have seen HMRC sending nudge letters to prompt those who have not declared, nor paid, the loan charge but should have, according to its records.

This gives taxpayers a chance to disclose the required information before any further action is taken by HMRC, as well as paying any penalties or interest which may be due.

HMRC has been inviting those who may be subject to the loan charge to submit a 2018/19 tax return or to make a disclosure. Whilst not stated as an option on the letter, a professional advisor will be able to assist with further information and guidance, if you believe the loan charge does not apply to you.

Discovery assessment and penalties

HMRC has started to issue discovery assessments to taxpayers who it believes have not disclosed the loan charge, in their 2018/19 tax return.

Discovery assessments are a formal assessment which allow HMRC to collect any loss of tax.

The standard time limit for HMRC to make a discovery assessment is four years, which can be extended to six years for careless behaviour or twenty years for deliberate behaviour.

It is worth noting that you have 30 days to appeal against HMRC discovery assessments, however, if not appealed within the time limit, an assessment becomes final and therefore payable.

Professional advice

If you have received a communication from HMRC, or believe you may fall foul of the loan charge, we recommend that you speak to a professional tax advisor. Communications from HMRC must be taken seriously and you must act quickly to mitigate penalties and interest, where applicable and if possible.

At haysmacintyre, we understand the stress caused by HMRC in relation to the loan charge. We guide our clients through every step of the process, resolving matters in an efficient way, to ensure a clean slate going forward

For any advice or to have a discussion, contact Danielle Ford, Partner and Head of Tax Disputes & Resolutions or Riocard Hoye, Senior Manager.

Code of Practice 9 enquiries – football agents

Posted on by Katie Trower

What is COP9?

Code of Practice 9 is HMRC’s most serious civil investigation type, which carries an allegation by HMRC of fraud or deliberate behaviour leading to a tax loss.

COP9 is one step away from criminal prosecution and is seen as the ‘last chance’ by HMRC – make a full disclosure and pay the tax, in exchange for avoiding criminal prosecution.

The COP9 process invites a disclosure under the Contractual Disclosure Facility (CDF) where all tax matters are fully disclosed. HMRC can still open a criminal prosecution into any matters which are not disclosed or if the disclosure is incomplete.

We strongly recommend seeking specialist advice as soon as the CDF is issued, as most accountants do not have the expertise to deal with COP9, or the insurance to undertake such work. In addition, you have 60 days within which to respond and make an initial disclosure, which cannot be extended, and it is this initial disclosure which offers the protection from criminal investigation.

What are the issues HMRC is looking at?

We understand the recent COP9 enquiries have been issued in relation to commission payments.

HMRC is likely to hold concrete information on such transactions and must believe they have strong evidence of deliberate behaviour for them to allege tax fraud.

We also understand HMRC has been looking into ‘dual representation contracts’ in the Premier League. This is where the same agent represents both the player and the club in transfers, negotiations, or new contracts.

Dual representation is prohibited by FA rules, however, it can be allowed if all parties provide written consent. Under this practice, the portion of the fee relating to work for the club avoids VAT, Income Tax and National Insurance.

In 2021, HMRC updated its guidance on this issue and tightened the rules by stating clubs need to keep records of evidence that they are legitimately working on both sides of the contract, as well as showing the extent to which they represent the club and the player, rather than just splitting it 50/50.

It is clear HMRC is taking a keen interest in the tax affairs of the football industry and it has shown it is willing to use its most powerful tools available to investigate any errors.

HMRC is regularly scrutinising football and associated stakeholders due to the amount of money in the game at the top level, and therefore the tax potentially lost if a mistake is made.

If you believe there are any irregularities in relation to your tax affairs, it is strongly recommended to seek professional advice. Making a voluntary disclosure, before HMRC contacts you, will result in the most favourable outcome, both in terms of the lowest possible penalties and the shortest possible timeframe to resolution, compared to an HMRC enquiry.

Should you require any assistance, please contact Danielle Ford, Partner and Head of Tax Disputes and Resolutions or Riocard Hoye, Senior Manager.

Electronic sales suppression: the latest nudge letter campaign by HMRC

Posted on by Katie Trower

It is believed that HMRC holds concrete information and this data will be used to issue one of two nudge letters. Both letters state HMRC holds information which suggests the taxpayer has misused their till system to reduce their tax bill. Taxpayers will then have 30 days from the date of the letter to respond to HMRC.

HMRC has sent a clear message: they will take further action, such as making an assessment or opening an enquiry, if the taxpayer does not make a full disclosure to HMRC.

Letters will be sent to taxpayers identified by HMRC, encouraging them to review their tax affairs and, should they need to bring their tax affairs up to date, to make a disclosure. Depending on the taxpayer’s circumstances, the online disclosure may not be the most suitable method of disclosure to HMRC. Due to the nature of ESS, HMRC is likely to allege that the taxpayer’s deliberate behaviour led to the loss of tax and fraud could be suspected. Taxpayers should consider the Contractual Disclosure Facility (CDF) under Code of Practice 9 (COP9) to provide them with protection from criminal prosecution, for those issues disclosed.

Serious consideration should be given to this matter, as not responding to a nudge letter or making an incomplete disclosure, could set the ball rolling towards criminal prosecution. On receipt of an ESS nudge letter, care should be taken, and taxpayers should seek competent professional advice – not every advisor will have the expertise and may inadvertently make a misstep.

Disclosures and penalties 

If a taxpayer finds a mistake in their filings to HMRC, disclosing the error or omission before HMRC sends a letter (such as those detailed above), or opens an enquiry, will lead to the most favourable outcome. Following receipt of a nudge letter, a disclosure to HMRC will be treated as ‘prompted’ for penalty purposes. Prompted penalty rates are higher than those that apply to unprompted penalties. For example, the maximum prompted penalty for an onshore, deliberate and concealed omission is 100%.

Voluntary disclosures to HMRC benefit from the lowest possible penalty range for the type of error. Broadly, the length of time interacting with HMRC will also be significantly shorter compared to a full investigation.

A professional tax advisor can guide a taxpayer through the disclosure process, advise on the appropriate next steps and, where applicable, the penalty mitigation available. We recommend taxpayers immediately seek professional advice following receipt of an HMRC nudge letter, statutory enquiry or where a taxpayer has found a mistake in their filings to HMRC.

Our Tax Disputes & Resolutions team are experts in dealing with all types of HMRC disclosures including CDF. We obtain favourable results for our clients, allowing them to move on without further intrusion from HMRC.

We are here to help; should you require more information or professional advice, please contact Danielle Ford, Partner and Head of Tax Disputes & Resolutions, or Riocard Hoye, Senior Manager.

Crypto holdings and nudge letters: The Financial Times

Posted on by Katie Trower

We have previously commented on HMRC’s approach to crypto assets here, making those who hold cryptocurrency and crypto assets aware of their obligations in regards to reporting to HMRC. In HMRC’s view, cryptocurrencies are a chargeable asset and should be treated as such. The pitfall often occurs when individuals do not seek professional advice on how their crypto assets could affect their tax position, since multiple transactions and reinvestment could trigger Capital Gains Tax (CGT).

The key takeaway from Danielle’s feature, is that those holding crypto assets are simply not aware of the tax consequences, which is why it’s worth seeking expert advice for any gains or losses made.

You can read Danielle’s answer in full in the FT article here (subscription needed).

If you need further advice, please get in touch with Danielle here.

HMRC pursuing dual representation in the Premier League

Posted on by Katie Trower

Dual representation

An agent would normally represent one side – either the club or a player – in a negotiation such as a new contract, acting in that party’s best interest. However, HMRC is now looking into ‘dual representation contracts’. This is where the same agent represents both the player and the club on transfers, negotiations, or new contracts.

Dual representation is prohibited by FA rules, however it can be allowed if all parties provide written consent. In reality, this is happening increasingly frequently, with FA data in 2021 showing that 68% of Premier League player deals were completed with dual representation.

Under this practice, the portion of the fee relating to work for the club avoids VAT, Income Tax and National Insurance. With the size of transfer fees and contracts in the Premier League, it is clear that the tax at stake can be significant, hence why HMRC is taking a keen interest.

In 2021, HMRC updated its guidance on this issue and tightened the rules, by stating that clubs need to keep records of evidence that they are legitimately working on both sides of the contract and need to show to what extent they represent both parties. HMRC does not accept a default 50/50 representation split. Providing HMRC with this level of detail about each deal carries in terms of administration and implementation for both agent and football club.

HMRC action

HMRC is now said to be investigating “a number of clubs”. Whilst these clubs are not disclosed, the BBC names Manchester City, Manchester United, Arsenal and Chelsea as the clubs thought to have benefitted from dual representation the most.

If HMRC’s investigations find that the agent has not been legitimately working for both club and player when brokering transfer deals, HMRC will demand repayment of the lost tax and will look to charge a penalty.  This could be up to 250% of the tax for an offshore asset.

The BBC quotes an HMRC spokesperson who states that the regulator has “recovered £573 million from the football industry that would otherwise have gone unpaid”. We know first hand that HMRC has a dedicated team focusing on the football industry, due to the transfer fees involved and the public interest. Previously, we have seen a lot of HMRC activity around the structuring of image rights payments, and dual representation seems to be the new area of focus.

Seek professional advice

If you or a client has been contacted by HMRC, or believe this may be a possibility, we recommend immediately seeking professional advice. This will help to mitigate any penalties which may be due, and an experienced professional advisor can help navigate the disclosure or enquiry process. In addition, your advisor can assist with related issues, such as agreeing a payment plan with HMRC for any potential liabilities concerned.

At haysmacintyre, we have a wealth of experience in making successful disclosures and resolving disputes with HMRC.  We have a proven track record in obtaining the most favourable result for clients, allowing them to draw a line under the matter and move forward without further intrusion from HMRC.

Should you require any assistance, please contact Danielle Ford, Partner and Head of Tax Disputes & Resolutions or Riocard Hoye, Senior Manager.

IR35 legislation: Gary Lineker wins tax appeal

Posted on by Katie Trower

The amount of Income Tax and National Insurance at stake was in the region of £4.9m, so not an insignificant sum.  Unlike most IR35 cases, HMRC pursued their claim that the ‘intermediaries legislation’, often referred to as IR35 legislation, applied to the partnership which was in place between Lineker and his ex-wife, Danielle Bux. In February 2013, both signed an agreement for the provision of Lineker’s services as a TV presenter, mainly fronting the Match of the Day programme on the BBC. The agreement covered the period 1 July 2013 to 30 June 2016. Further agreements were later entered into by Lineker with BT Sport, under his trading name Gary Lineker Media (GLM) and a further contract with the BBC running between 2015 and 2018.

HMRC contacted GLM in April 2017, requesting details of the partnership income. It was at this stage that HMRC advised they were not enquiring into the partnership’s tax return, but instead asked whether the partnership had considered the ‘intermediaries legislation’.

HMRC raised Income Tax determinations under Regulation 80 of the Income Tax (Pay As You Earn) Regulations 2003 ,for the years 2014/15 and 2016/17, and National Insurance determinations under Section 8 of the Social Security Contributions Act 1999, for the years 2013/14 to 2017/18. The total liabilities being pursued totalled £4.9m.

The First Tier Tribunal found that the IR35 legislation did not apply to GLM because the contracts were entered into directly between Lineker and both the BBC and BT Sport, not via an intermediary. Consequently, HMRC’s appeal was dismissed.

However, it is expected that HMRC will appeal the decision since under IR35 legislation, an intermediary can include a limited company, partnership or individual. HMRC has 56 days to appeal to the Upper Tier Tribunal.

If you have any concerns regarding the application of the IR35 legislation, or HMRC has opened an enquiry into your arrangements,  please contact either Danielle Ford, Head of Tax Disputes, or Nick Bustin, Employment Tax Director, to discuss matters further.

Get in touch