HMRC Enquiry letters on Loans from EBT and other schemes

[Vegas]

Anyone else getting the feeling that this is going to open a can of worms when the APNs are issued early next year...

[jbryce]

I'm pretty sure. (I confess I did a response earlier this morning on this point and then deleted it and went back to check).

If there is an assessment and HMRC want the tax, they would have to apply to amend the postponement application. That opens them to challenge as it should be.

To use an APN in this situation would be to cut across the self assessment process and truly be retrospection which is a charge HMRC is anxious to deny.

All the guidance says that there just needs to be an open enquiry. The implication is that the enquiry has not been finished which would usually result in an assessment (or no change).

That said, where there is tax already under appeal and postponed, that postponement can be altered by the APN code. My reading of part 2.5.7 of the guidance says that the postponement is simply cancelled. Is that an APN issued when an assessment is outstanding? Perhaps.

The effect is the same, tax is due.

My HMRC contacts tell me that the power to amend postponement applications where there are active litigations or settlement negotiations will not be used as constitutionally there are a number of bear traps here.

Interesting. So if you have a COP8 and a discovery assessment can you settle on the COP8 and wait for the discovery assessment to play out?

[Rob79]

Are you sure about that?

My understanding is an APN can be issued for any open tax dispute involving a DOTAS scheme ie. it doesn't matter whether it's just an open enquiry (COP8) OR an assessment/closure notice which has been appealed.

I'm pretty sure. (I confess I did a response earlier this morning on this point and then deleted it and went back to check).

If there is an assessment and HMRC want the tax, they would have to apply to amend the postponement application. That opens them to challenge as it should be.

To use an APN in this situation would be to cut across the self assessment process and truly be retrospection which is a charge HMRC is anxious to deny.

All the guidance says that there just needs to be an open enquiry. The implication is that the enquiry has not been finished which would usually result in an assessment (or no change).

That said, where there is tax already under appeal and postponed, that postponement can be altered by the APN code. My reading of part 2.5.7 of the guidance says that the postponement is simply cancelled. Is that an APN issued when an assessment is outstanding? Perhaps.

The effect is the same, tax is due.

My HMRC contacts tell me that the power to amend postponement applications where there are active litigations or settlement negotiations will not be used as constitutionally there are a number of bear traps here.

[DonkeyRhubarb]

If you have an ASSESSMENT, you will NOT get and APN.

Are you sure about that?

My understanding is an APN can be issued for any open tax dispute involving a DOTAS scheme ie. it doesn't matter whether it's just an open enquiry (COP8) OR an assessment/closure notice which has been appealed.

[Rob79]

Ok, I have an APN question.

We appear now to have established that a contractor (eg. me) who had previously received a Discovery Assessment (DA) can now be 'eligible' for an APN.

What if my appeal against the DA was based on two challenges:

1) the usual argument that the scheme is valid, etc.
2) the DA itself is invalid due to the 'information made available to an officer of the board' (in the context of s29 and how it was interpreted in the Charlton/Corfield case) within the content of the return and the content of other correspondence between my advisor and HMRC during the enquiry window.

I understand that there is a clear cut reason to issue an APN if I had appealed the DA exclusively on the basis of 1). But what about 2)? I would think an APN would overstep the mark a little in this instance because I would no longer be entitled to the statutory protection (against discovery assessments) provided to me by s29(5).

What do we think?

I'm a little confused here.

If you have an ASSESSMENT, you will NOT get and APN. You may have the tax postponed via an appeal against that assessment released. If so, you have the right to challenge that release.

If you have an open year (COP8, letter from HMRC) but no assessment, then you might get an APN. The chances are that if you are in this position and your scheme has a DOTAS number, you will be a lucky winner of the APN lottery,

In either event argument 1 is not going to get the APN withdrawn. HMRC will just argue that the tax is in dispute and that the substantive dispute is going (slowly) through the usual channels.

Argument 2 is difficult. Discovery has been expanded massively in recent decisions. It's even argued by HMRC that if the officer who examined your return was not as competent as a hypothetical officer should have been, then this is a discovery!

Getting into Tribunal on discovery (even if res judicata did not apply) would take perhaps a year or more after HMRC use all their practice to delay and defer.

Best position to go for if you don't yet have an assessment is to apply to HMRC for a closure notice and then appeal when they refuse. If they issue a closure notice, then they MUST assess. Once they've issued the assessment, no APN.

[DonkeyRhubarb]

What do we think?

I suspect HMRC's response will be pay now and take up your discovery argument with the FTT.

[Boobetty]

APN question

Ok, I have an APN question.

We appear now to have established that a contractor (eg. me) who had previously received a Discovery Assessment (DA) can now be 'eligible' for an APN.

What if my appeal against the DA was based on two challenges:

1) the usual argument that the scheme is valid, etc.
2) the DA itself is invalid due to the 'information made available to an officer of the board' (in the context of s29 and how it was interpreted in the Charlton/Corfield case) within the content of the return and the content of other correspondence between my advisor and HMRC during the enquiry window.

I understand that there is a clear cut reason to issue an APN if I had appealed the DA exclusively on the basis of 1). But what about 2)? I would think an APN would overstep the mark a little in this instance because I would no longer be entitled to the statutory protection (against discovery assessments) provided to me by s29(5).

What do we think?

[Rob79]

I was assuming DOTAS since APNs are only concerned with DOTAS schemes.

As an aside, it seems a little unfair that people are effectively being penalised for complying with DOTAS. I'm betting that many which didn't register, and won't be affected by APNs, were chancing their arm a bit.

Agreed.

Time and space does not allow for my version of the history here.

Suffice to say that HMRC are aware of some schemes that were not registered and should have been and are active in chasing them.

[DonkeyRhubarb]

unless you have a DOTAS number, I think not.

I was assuming DOTAS since APNs are only concerned with DOTAS schemes.

As an aside, it seems a little unfair that people are effectively being penalised for complying with DOTAS. I'm betting that many which didn't register, and won't be affected by APNs, were chancing their arm a bit.

[Rob79]

The APN legislation has two separate sections dealing with this:

213 Content of notice given while a tax enquiry is in progress

214 Content of notice given pending an appeal

213 applies where there is only an open enquiry (COP8). 214 applies where there is an assessment (discovery), or closure notice, which the taxpayer has appealed.

In either case you can get an APN.

What Mr Rhubarb says is correct.

There is a process to be followed here. To issue an APN, three conditions have to be present.

Condition A - there is a tax enquiry in progress or an open appeal. - This could be a COP8 or an assessment or HMRC advising that they have opened enquiries.

Condition B - the return/claim asserts that a particular tax advantage results from arrangements. - A bit woolly but essentially if HMRC thinks that there is tax planning in question.

Condition C - either a) Follower Notice issued, or b) DOTAS registration, or c) action under GAAR.

(See pages 35 to 39 of the HMRC guidance issued 17th July.

So if you have a COP8, there is an open enquiry (condition A), HMRC think you have a tax advantage (condition B), but is condition C satisfied?

unless you have a DOTAS number, I think not.

For the moment at least you may not get an APN in that situation.