What HMRC’s “accelerated payment notices” mean for athletes’ tax liabilitiesSimon Concannon
A significant number of sportsmen and women including over 100 professional footballers have reportedly received "accelerated payment notices" (APNs) from HM Revenue & Customs (HMRC), requiring them to pay disputed tax liabilities upfront.
What are Accelerated Payment Notices and what are their effects?
Over the last few years we have seen an increasingly hostile public attitude develop towards tax avoidance and tax planning, with ever more vociferous calls1 for government to close down tax "loopholes". One manifestation of this was the controversial new powers given to HMRC in last year's Finance Act 20142 to issue APNs.
According to HMRC,3 it is likely that it will issue APNs or follower notices to approximately 33,000 individual taxpayers concerning £5.1 billion of tax. Newspaper reports suggest4 a number of professional sports people are particularly likely to be affected by the new rules as a result of their high earnings, coupled with relatively short careers.
In essence, the new rules contained in the Finance Act oblige any disputed tax associated with schemes covered by the Disclosure of Tax Avoidance Schemes (DOTAS) Rules or the General Anti-Abuse Rule,5 to be paid upfront. Very broadly, the DOTAS Rules6 require that any tax planning scheme that is expected to confer a tax advantage7 (as defined in the legislation but which would include, for instance, a relief from tax, a repayment of tax or the avoidance of a possible assessment to tax) is to be disclosed to the HMRC. This enables HMRC to keep a track of tax schemes and who is using them. The General Anti-Abuse Rule, introduced in 2013, seeks to counter tax-motivated arrangements where the obtaining of a tax advantage was the main purpose, or one of the main purposes, of the arrangement.
Two points are critical here. First, the fact that a tax planning scheme has been disclosed under the DOTAS Rules does not make that scheme unlawful or even ineffective. It may be challenged at a later date by HMRC but it is possible that the courts may uphold its efficacy. This means that the APN, issued in connection with such a scheme, may require payment of a tax liability where there may in fact turn out to be no tax liability, with the tax planning being deemed to be effective. Second, that tax liability must be paid upfront – i.e. before the validity or otherwise of the tax planning scheme in question is determined.
This means that if HMRC disputes the validity of a scheme, the taxpayer will be unable to gain any sort of cash flow advantage from disputing payment, as the liability to pay cannot be deferred. It will also be of no avail to the taxpayer that they "played by the book" in that the scheme was disclosed to HMRC, or that they had acted on their accountant's advice, or even that the accountant may have discussed the validity of the scheme with HMRC.
Where an APN is issued to a taxpayer, the tax must be paid within 90 days of the notice. Previously the tax liability would not have become payable until after any appeal process had run its course, which could often be several years. Now the reverse is true – there may be a repayment of the tax that had to paid upfront but only at the end of what is likely to be a protracted appeal process. It is very easy to understand therefore why the recipients of an APN may face financial difficulty.
HMRC can also issue a "follower notice".8 This arises where HMRC has succeeded in the courts against the user of a particular type of tax planning scheme and can force taxpayers to amend their tax returns where judicial rulings have not been adhered to.
The issue of a follower notice requires the taxpayer to amend their return. The taxpayer must give HMRC a notice stating that they have taken the necessary corrective action and informing them of the additional tax payable as a result. Again, the taxpayer has just 90 days in which to do this and as a result the tax again becomes payable.
Implications for the sports industry
No one should be surprised that sports people engage in tax planning and, therefore, are particularly at risk of being issued with an APN or follower notice. Whereas most people can expect their earnings to rise during their 30s, 40s and 50s, the opposite is true for sportsmen. For many, their earnings are likely to have peaked by their early 30s. A lucky few may go on to find lucrative roles, for example as TV presenters, but for the majority the outlook is less glamorous and far from certain. It is prudent therefore for sports people to plan for their futures while their careers are at their peak.
Whilst the reputation of professional footballers for untrammelled extravagance and the "good life" is in many cases undeserved, it is also true that footballers (and other sports people) who have invested in tax planning schemes will often not have set aside money to meet a tax liability should the scheme be successfully challenged by HMRC. The sums involved will in many cases be substantial and the deadline for payment is a tight one. As such, it is not overly dramatic to talk of some professional footballers facing "penury".9
Film partnership arrangements have been particularly in the tax avoidance spotlight, notably those established by Ingenious Media, an investment company. Investors – with there being reportedly over a thousand of them including David Beckham and David Gower – incurred tax losses through investment in films.10 The investors could then offset their losses against other taxable income and, by this means, reduce their tax bills. HMRC maintain that the film partnership arrangements were established purely as a means to avoid tax. The investors, and Ingenious Media, deny this.
The taxpayer has no right of appeal against the issue of an APN. The only basis upon which the notice may be challenged is that the conditions for the issue of the notice have not been met, for example, that the scheme in question was not actually a DOTAS scheme, or that there is an error in the computation of the amount owing.
However, in February this year the High Court granted permission to investors in the Ingenious Media scheme for them to apply for judicial review in respect of the issue of APNs. Judicial review is the mechanism by which members of the public – including individuals, partnerships or companies – can challenge the decision-making of public authorities. Challenges can be brought on the grounds of illegality, irrationality or procedural impropriety. Likely grounds of challenge in this case are that the absence of a right of appeal contravenes human rights legislation (notably Article 6 of the European Convention on Human Rights, the right to a fair trial) and that the legislation is retrospective because it applies to schemes that were in existence before the accelerated payments legislation came into effect.
The High Court hearing is likely to be heard later this year but, in view of the sums at stake, it is most unlikely that matters will stop in the High Court. In the meantime, there is no suggestion of HMRC refraining from issuing more APNs pending the outcome of the judicial review proceedings.
Sports people (and others) who receive an APN and need time to pay would be well advised to begin discussions with HMRC as soon as possible. Given HMRC's view that the tax in question should already have been paid, they may not respond favourably to a request to defer payment, but there is nothing to be lost by asking the question. Otherwise, unfortunately, it is a matter of realising assets to meet the tax demand and then hoping for repayment (with interest) some years down the track if and when the scheme's lawfulness is upheld in the courts. No doubt those affected will also want to review the professional advice they were originally given to enter the scheme.
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About the Author
Simon is Head of Tax at national law firm Walker Morris LLP and has over 25 years of experience as a tax adviser and planner having built up considerable expertise and experience in corporate financial and property tax planning.