HMRC Enquiry letters on Loans from EBT and other schemes

[pimpernell]

My understanding is as follows.

There is no precursor to the APN regime.

Prior to APN, HMRC could issue a demand for tax ONLY when as assessment was issued. That assessment could be appealed, the tax postponed and be subject to endless delay and abuse of process.

The APN is a way to accelerate the tax that you think you don't owe and HMRC think you do - nothing else.

COP 8 is a process that says to you, "we think your tax position for year 20xx/xx is incorrect and we're investigating. Your rights and obligations are as follows".

It puts you on notice that the year in question is not agreed for tax purposes. The year is consequently what we would call "open".

As it is open and that status is a key condition for APN issue, you may get a demand via APN. There does not need to be an assessment. There is no appeal and limited opportunity to defer payment.

This is why many people in the tax profession (many think it's the second oldest profession and closely related to the first) are really worried. Having the ability to demand tax with almost no ability to challenge and no assessment or calculation, is dangerous and arguably an extension of powers beyond HMRC's remit. Expect to see constitutional challenges here.

In summary, if you have had a COP 8 notice you are in the firing line and assessment or not, you might get a demand (APN).

This is my opinion. You should ALWAYS consult a tax professional as you personal circumstances may alter this analysis.

OK. Thanks for this. I'll run this by my man and see what he says, and let you know tomorrow. I still think he will maintain that for an APN to be issued for a tax year after 6 years elapsed with no previous assessment would constitute HMRC accusing me of fraud. I don't personally see how any organisation - no matter how powerful - can do this without proving it (the fraud) in law somehow, and would have thought that the APN would have to be backed up with what they thought was my fraudulent action and a detailed breakdown of how any required payments have been calculated - none of which has been explained to me to date.

Surely this is a constitutional right, although I do understand that HMRC thinks that anyone involved in such schemes is pond life and therefore the constitution doesn't apply??

[Rob79]

OK. Thanks for this. I'll run this by my man and see what he says, and let you know tomorrow. I still think he will maintain that for an APN to be issued for a tax year after 6 years elapsed with no previous assessment would constitute HMRC accusing me of fraud. I don't personally see how any organisation - no matter how powerful - can do this without proving it (the fraud) in law somehow, and would have thought that the APN would have to be backed up with what they thought was my fraudulent action and a detailed breakdown of how any required payments have been calculated - none of which has been explained to me to date.

Surely this is a constitutional right, although I do understand that HMRC thinks that anyone involved in such schemes is pond life and therefore the constitution doesn't apply??

COP 8 is used where fraud is not suspected.

If HMRC considered fraud was in point, you would have got a COP 9.

There is no link necessary or required between an assessment and an APN. They are mutually exclusive.

If you get an APN you are entitled to have an explanation of how the liability has been calculated. That is not an explanation of what creates the liability, just the calculation.

Constitutional rights for APN's are amended and arguably suspended.

On the COP 8 you always had the ability to ask HMRC for a closure notice for the year in question. If HMRC declined to issue one (probably denying relief or taxing loans) then you could have gone to a Tribunal to ask them to force HMRC's hand. Experience tells us that this route takes a couple of years to get to "HMRC need more time, please don't bother them" and costs a good 6 figures.

Has the balance gone too far in favour of HMRC? I think so and so do lots of people and organisations in this area.

[pimpernell]

COP 8 is used where fraud is not suspected.

If HMRC considered fraud was in point, you would have got a COP 9.

There is no link necessary or required between an assessment and an APN. They are mutually exclusive.

If you get an APN you are entitled to have an explanation of how the liability has been calculated. That is not an explanation of what creates the liability, just the calculation.

Constitutional rights for APN's are amended and arguably suspended.


On the COP 8 you always had the ability to ask HMRC for a closure notice for the year in question. If HMRC declined to issue one (probably denying relief or taxing loans) then you could have gone to a Tribunal to ask them to force HMRC's hand. Experience tells us that this route takes a couple of years to get to "HMRC need more time, please don't bother them" and costs a good 6 figures.

Has the balance gone too far in favour of HMRC? I think so and so do lots of people and organisations in this area.

OK. I take the point re. HMRC strategy/ tactics, and thanks for your responses. I did get in touch with HMRC regarding one of the COP8s I received (via my tax advisor) but was told they were in the process of moving lorry loads of paperwork to Liverpool and they wouldn't be able to provides specifics. That was about 6 years ago.

I've passed your views onto my man and I'll talk to him tomorrow and see what he says. I also saw the clause in the APN documentation were it says 'open enquiry' (i.e. COP8) and doesn't say 'assessment', so I take that point also.

I guess we're all seeking some sort of certainty - one way or another - and that may not be forthcoming for quite a while.

[jbryce]

OK. I take the point re. HMRC strategy/ tactics, and thanks for your responses. I did get in touch with HMRC regarding one of the COP8s I received (via my tax advisor) but was told they were in the process of moving lorry loads of paperwork to Liverpool and they wouldn't be able to provides specifics. That was about 6 years ago.

I've passed your views onto my man and I'll talk to him tomorrow and see what he says. I also saw the clause in the APN documentation were it says 'open enquiry' (i.e. COP8) and doesn't say 'assessment', so I take that point also.

I guess we're all seeking some sort of certainty - one way or another - and that may not be forthcoming for quite a while.

...ok I'm confused. If they issue an assessment for four years ago without opening an enquiry - can they still issue an APN?

[pimpernell]

...ok I'm confused. If they issue an assessment for four years ago without opening an enquiry - can they still issue an APN?

This is the relevant section:

Legislation will be introduced in Finance Bill 2014 to enable HMRC to issue a ‘Notice to Pay’
to any taxpayer for whom there is an open enquiry, or the matter is under appeal, and who
has claimed a tax advantage by the use of arrangements that:
•
fall to be disclosed under DOTAS, or
•
HMRC counteracts under the GAAR following an opinion of the GAAR Advisory Panel
that, in the Panel’s opinion, the arrangements are not a reasonable course of action.


Think there's still a long way to go with this.

[Rob79]

...ok I'm confused. If they issue an assessment for four years ago without opening an enquiry - can they still issue an APN?

Yes - with reservations.

An assessment issued and under appeal with the tax postponed can have the postponement arrangements cancelled.

So perhaps no formal APN but tax due none the less.

[Boobetty]

Forgive me, but my understanding is that HMRC are entitled to issue an APN where a DOTAS scheme was utilised AND either there is an open enquiry or where a discovery assessment has been issued.

Incidentally, and agreeing with a number of others who have said the same, enquiries remain open until HMRC say otherwise i.e. there is no subsequent time limit within which an assessment must follow. If your tax advisor says otherwise I suggest you seek advice elsewhere.

[pimpernell]

Forgive me, but my understanding is that HMRC are entitled to issue an APN where a DOTAS scheme was utilised AND either there is an open enquiry or where a discovery assessment has been issued.

Incidentally, and agreeing with a number of others who have said the same, enquiries remain open until HMRC say otherwise i.e. there is no subsequent time limit within which an assessment must follow. If your tax advisor says otherwise I suggest you seek advice elsewhere.

No. He's not saying otherwise. What he is saying is that after 6 years the grounds for making an assessment would have to be based on deliberate behaviour to avoid tax by misleading or omitting in my self assessment for the years in question, and that is not something they would/ could do lightly, and would be defendable.

I notice from the forum that most of the assessments made recently that I've read about are within the 4 year limit.

Appreciate APNs are a game changer though. It now depends on what HMRC will do with their new powers, and how they will implement them and how much information they need to be able to issue

I hadn't been anywhere near these forums for years as I hadn't heard anything from HMRC or been asked for any more info. When I read about APNs the old familiar cold sweats and sleepless nights started again. I just want to understand the risk and my risk in particular but as of today there are too many unknowns. If I had my time over again I'd never have gone anywhere near any of these schemes and I'd have stayed with a PSC but IR35 at the time was also scary and confusing. All very well with hindsight.

[DonkeyRhubarb]

I notice from the forum that most of the assessments made recently that I've read about are within the 4 year limit.

I think you'll find most of these assessments were discovery assessments.

HMRC had to use discovery because they hadn't opened an enquiry within the 12 month window.

The 4/6/20 year time limits, that everyone is referring to, apply to discovery.
SALF411 - Enquiries into Tax Returns: time limits for discovery assessments

[pimpernell]

I think you'll find most of these assessments were discovery assessments.

HMRC had to use discovery because they hadn't opened an enquiry within the 12 month window.

The 4/6/20 year time limits, that everyone is referring to, apply to discovery.
SALF411 - Enquiries into Tax Returns: time limits for discovery assessments

Yes. Discovery assessments being the only vehicle (until now) that HMRC have to raise back taxes and there are rules regarding elapsed time and intent.

I think my man is saying these rules apply COP 8 or not, and the intent part would have to be proven if an assessment were raised, and this gets more difficult for hmrc the longer the elapsed time.

APNs on the other hand seem to bypass this but I will ask for clarification when I talk to him today, and how he thinks hmrc might apply apns and the hard facts they'd need before issuing.