APNs: too high a price to pay?

HMRC now have the right to issue accelerated payment notices (APNs) to demand up-front payment of disputed tax in cases where the department believes there has been avoidance. 

Taxpayers have no right of appeal, and APNs can be issued before HMRC have even considered whether the arrangements put in place by the taxpayer are, or even might be, correct.

The granting of this authority should raise questions. Is this fair in a democratic society?  Do APNs have a place in self-assessment? Are HMRC sufficiently transparent and accountable to be given such wide-ranging, unilateral powers?

APNs are contrary to the statutory basis for taxation. They allow HMRC to demand payment of an additional amount of tax before it has even looked into the accuracy of the tax return.

Furthermore, APNs are applied retrospectively, meaning you could face a bill for tax that has not been held to be owed for a period in which there was no law requiring the upfront payment of such tax.  This surely cannot be right.

The other questions that must be asked are, how are HMRC to be accountable for the application of these new laws – and will the Revenue apply them fairly and transparently?

HMRC are already in the impossible position of being expected to make objective judgements on the cases before them, while at the same time being expected to meet financial targets for reclaiming tax. The department’s past conduct also raises serious doubts.

HMRC were recently criticised by the Public Accounts Select Committee (PAC) for significantly overstating their performance in annual accounts for 2011/12 and 2012/13.  Despite this criticism, HMRC refused to change their practices, raising questions as to whether such an organisation will apply APNs in a fair and even-handed manner.

The PAC also heavily criticised HMRC for being slow to pursue tax cases; this in a world where any disputed tax was payable once the case was resolved. Based on this, can we really believe HMRC will now start to pursue and conclude cases more quickly when the department holds the disputed tax (or has powers to just take it) and will have to repay it as and when a taxpayer wins the case? 

The new powers do nothing to address the reasons for the backlog of cases and do not incentivise HMRC to clear cases more quickly. Viable businesses could be forced to close because the Revenue is demanding payment of a historic debt that was not forecast and that, ultimately, might never be (or have been) due. 

HMRC argue they should be given new powers because the department wins 80% of all disputed tax cases, so all APNs do is change the point at which the amount in dispute is paid. This cynically ignores the retrospective element of the legislation. 

Furthermore, HMRC seem to be ignoring those cases where tax officials accepts the taxpayer’s position outside of court.

Even if department’s calculation is correct, it still means one taxpayer in five is wrongly pursued.  If 20% of all businesses were to close because it had to pay an APN amount to HMRC that was never due, people could lose their jobs. Is this too high a price to pay?

Dominic Slattery CTA is a member of the Alliance for HMRC Accountability, and an adviser at OneE Group tax advisory firm