Moore Stephens said the “Accelerated Payment” rules, due to come into force this month, introduce “a prospect of being made bankrupt” that will lead taxpayers to settle disputed cases rather than take an appeal to court.
David Elliot, restructuring partner at the company, added that a demand to pay tax up front could put taxpayers under financial strain and lead to personal bankruptcies or business insolvencies before the technical merits of the arrangement have been tested.
“The potential impact of these new HMRC powers is so huge that an independent appeal process should be introduced,” he said. “HMRC has said that it will use discretion under its time to pay arrangements if a taxpayer can’t afford to pay the money upfront, but that is not good enough when the taxpayer’s entire way of life may be at stake.”
Announced by chancellor George Osborne in March’s Budget, the proposals allow HMRC to make taxpayers pay disputed tax in advance, rather than waiting for the outcome of a tax tribunal ruling.
The requirement to pay upfront will apply retrospectively to any dispute which is ongoing on the day the rules come into force if the tax planning scheme in question has been notified to HMRC under the Disclosure of Tax Avoidance Scheme.
The Treasury has estimated that 33,000 individuals and 10,000 businesses will potentially be given accelerated payment notices by HMRC
Elliot also said that businesses hit with an accelerated payment notice may already face a contingent liability.
This means that any dividends taken out of the business by its shareholders could later be deemed illegal and therefore repayable, shifting the liability for payment away from the company itself.
He said: “Directors, who are also shareholders, taking dividends from a company that has used a tax planning scheme, may face claims against their own assets if the company is unable to pay an advance notice bill.”
HMRC’s plans have already faced heavy criticism, with Andrew Watters, director at Thomas Egger LLP describing them as a result of its “frustration” at the current system.
“The report on HMRC proposals to target disputed tax bills is a sign of their frustration at the delays in collecting what they believe to be the ‘correct’ amount of tax,” he said. “HMRC believe that some are simply using the legal process as a delaying tactic to paying their tax.
“In a balanced playing field, one might think that when the taxpayer wins the HMRC should pay a penalty for inconveniencing the taxpayer and forcing him to litigate. No such plans have been proposed.”
It was also criticised by the Chartered Institute of Taxation, with president Stephen Coleclough questioning the notion of giving HMRC “unprecedented executive powers”.
“If this is to proceed, HMRC should issue comprehensive guidance at the same time as the Bill is published to show what situations are to be tackled in this way. It should only apply to members of the same scheme or very close variants of it.
“These emergency measures should not be a permanent state of affairs.”
