How do I know if I have used an avoidance scheme?
Whether it involves Stamp Duty Land Tax avoidance, Class E share schemes, EBT/EFRBS, or other trust-based arrangements, should HMRC suspect a breach of Disguised Remuneration rules or an unauthorised tax advantage, they will likely pursue recovery. Various arrangements fall within the scope of HMRC’s reach, and whether you have received a letter or not, seeking professional advice regarding the next steps and clarification on the arrangement is advisable to avoid further penalties down the line.
What are my options if I have used an avoidance scheme?
Settling with HMRC, whether through voluntary restitution or during an open enquiry, is a viable option. A settlement can take various forms, from time-to-pay arrangements to agreeing on a tax figure. It is crucial to scrutinise any proposed figure from HMRC for potential errors, whether in the tax basis or arithmetic. Settling with HMRC can be a lengthy and often stressful process. Engaging with a professional can assist with the process, ensuring that you, as the client, achieve the most favourable and accurate outcome.
For those unwilling to settle but seeking resolution, applying to the First Tier Tax Tribunal (FTT) for a Closure Notice is an alternative. This order compels HMRC to conclude its tax enquiry within a set period, usually between 3 and 6 months. This approach can be effective, especially with widely used schemes, as it accelerates decision-making and can be a powerful settlement tool when used correctly. This option is only available to those who have an enquiry with HMRC.
If there is no immediate need for action, waiting for HMRC to conclude an enquiry is an option. However, prolonged enquiries may result in larger tax bills due to accruing penalties and interest. The threat of Accelerated Payment Notices (APN) or Follower Notices (FN) also looms, potentially requiring taxpayers to settle outstanding taxes on short notice. Just because you have not heard from HMRC for a long period certainly does not mean that the enquiry has gone away.
Understanding time limits is crucial:
Opening Enquiries: HMRC typically has 12 months from the return filing date to open an enquiry, but discovery assessments can extend up to four years.
Careless or Deliberate Errors: In cases of a “careless error” or “deliberate error,” the time period extends to six and twenty years, respectively.
Protective Claims and Standstill Agreements: Disguised Remuneration schemes may not have a limitation period, but NIC recovery is limited to a strict six-year window. HMRC may issue protective claims or propose Standstill Agreements to halt the limitation period, but caution is advised before entering such agreements.
What can you do?
Seek professional advice to navigate the complexities of HMRC enquiries and potential claims against advisers. Our Tax Disputes Team is ready to assist and guide you through the available options, allowing you to focus on your business rather than dealing with HMRC complex challenges. Please contact us today for more information.
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