In a landmark ruling which could challenge the validity of the APN system, the UK tax office admitted that it was ‘unlawful’ to issue fines in relation to these arrangements.
It follows an earlier case rejected by the High Court in August last year which questioned the legality of the APNs.
‘Morally questionable’ system
Described by the tax industry as “morally questionable”, the controversial APN regime means the tax department can now demand payments that it believes a taxpayer owes before investigations into their affairs are even complete.
Often accompanied by threats to repossess the taxpayer’s property and make them bankrupt, individuals are given 90 days to pay the APN, with no right of appeal.
"Any taxpayer in receipt of an accelerated payment notice should not assume that HMRC has followed the correct internal processes and exercised its powers lawfully.”
In February, HMRC revealed that it has collected more than £2bn ($2.9bn, €2.6bn) in disputed tax from suspected avoiders since it brought in the APNs in 2014.
Representing hundreds of individuals affected by APNs, London-based law firm RPC launched a judicial review into the penalties, arguing they should not have been issued as under the HMRC’s DOTAS regime, EBTs were not ‘notifiable’.
RPC said Tuesday’s U-turn is a sign that the “controversial” and “draconian” APN regime is in “turmoil”.
The firm warned that it is still unclear whether the tax office has notified other potential victims, who paid the penalties because they were unable challenge the legality of their APNs.
Adam Craggs, partner and head of tax disputes at RPC, said: “HMRC’s policy of issuing accelerated payment notices seems to be ‘shoot first and ask questions later’.
“It is regrettable that the taxpayers concerned were put to the inconvenience and expense of having to commence judicial review proceedings before HMRC acknowledged that the APNs were unlawful.
“As this case demonstrates, any taxpayer in receipt of an accelerated payment notice should not assume that HMRC has followed the correct internal processes and exercised its powers lawfully.”
He accused tax officials of issuing the fines on an “industrial scale with little consideration to the constraints contained within the legislation.”
Craggs has previously lambasted the notices, warning that they provide “little incentive” for the tax office to actually complete their investigations.
Latest figures from HMRC show it is now handing out more than 3,000 APNs each month, having issued nearly 41,000 since they were introduced. It expects to have collected more than £5bn in fines for the Exchequer by March 2020.
Earlier this year, HMRC director general for enforcement and compliance Jennie Granger said the notices continue to “turn the tables” on individuals looking to avoid paying tax.
Since November 2015, new legislation means the tax office is also able to collect a debt due as a result of an unpaid APN directly from taxpayers’ bank accounts.
Craggs warns that APNs can result in taxpayers being made bankrupt or being forced to conduct a quick fire sale of their home or other assets, in order to raise the money to pay the sum demanded.
“It is extraordinary that taxpayers may face bankruptcy as a consequence of being unable to pay an amount demanded in an APN, when that sum remains in dispute and remains to be determined by an independent tribunal or court as being lawfully due,” he told International Adviser in November last year.