Users of Tax Avoidance Schemes Face Massive Tax Demands

Legislation enables HM Revenue & Customs (HMRC) to demand upfront payment of disputed tax relating to tax avoidance schemes before enquiries and disputes are settled. These powers will severely impact on thousands of taxpayers.

The Government introduced legislation in July 2014 which enables HMRC to demand upfront payment. This will apply where the disputed tax is a 'tax advantage' arising from arrangements where the main (or one of the main) purposes of the arrangements is to obtain the tax advantage, and:

  • There is a final judicial ruling in another case which would deny the tax treatment adopted
  • Where the arrangements have been disclosed under the Disclosure of Tax Avoidance Schemes (DOTAS) rules; or
  • Where the tax treatment is subject to HMRC counteraction under the General Anti-Abuse Rule (GAAR)

Taxpayers who entered into disclosed tax avoidance schemes years ago may be sent demands for the tax provided an enquiry is still open. Furthermore, it is irrelevant that the merits of the scheme have not been tested in court — the tax will still have to be paid upfront.

According to HMRC, it is expected that 43,000 taxpayers are to be hit with demands amounting to £7.2 billion, which equates to an average of over £167,000 each. Clearly there will be many taxpayers who face much higher demands.

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