HMRC to repay tax to thousands of banking and IT contractors

Banking and IT contractors forced to stump up tens of thousands of pounds to settle contested tax debts last year are now in line to be repaid, after the UK tax authority accepted it should not have issued payment demands.

HM Revenue & Customs has withdrawn so-called accelerated payment notices from up to 2,000 individuals who took part in Isle of Man-based schemes designed to cut their income tax during the 2000s.

Adam Craggs, head of tax disputes at law firm RPC, said that the authority’s first mass reversal of payment notices had come too late for those who had to sell assets, even homes, to settle bills that typically ran into tens of thousands of pounds.Although the partnerships, promoted by Montpelier Tax Consultants, remain disputed, HMRC conceded this month that they did not meet all the conditions allowing it to demand full payment of tax owed before obtaining court rulings in its favour.

“Taxpayers should not be forced to sell or remortgage their family home in order to pay an APN when the underlying dispute remains unresolved and it may ultimately be decided that nothing is owed,” he said.

Mr Craggs added that HMRC “has not grasped the human cost” faced by many recipients of payment notices, whose finances and marriages have been strained by the demands.

None of his firm’s clients have yet been reimbursed by the tax authority, which in its letter wrote, “sorry for the inconvenience caused”.

Paul Noble, a tax director at law firm Pinsent Masons, said HMRC withdrew its APNs after concluding that the Montpelier IR35 Manx partnership did not have to be registered with the authority under a process known as Dotas (disclosure of tax avoidance schemes) — a prerequisite for notices to be issued.

Contractors have been a major target for HMRC in its drive to recover billions of pounds in tax that it deems to have been deliberately avoided.

The authority has previously estimated that 16,000 or so contractors — predominantly working in the IT, banking, and offshore oil and gas industries — have used schemes such as those marketed by Montpelier, where earnings are diverted through offshore trusts and paid in the form of loans to mitigate income tax.

A dedicated settlement opportunity for individuals to settle disputed tax on contractor loans closed in September.

HMRC aims to issue a similar number of notices again by the end of this year, as part of efforts to recoup a total of £5.5bn in unpaid tax associated with schemes deemed to constitute tax avoidance.Since late 2014, HMRC has issued more than 32,000 payment notices — which must be settled within 90 days of receipt — collecting over £1bn in tax ahead of tribunal rulings on disputed arrangements.

Mr Craggs said there should be independent judicial oversight of how HMRC exercises its powers, not least APNs which have been criticised for bankrupting tax debtors.
“This case vindicates the objections raised by many in the tax profession — disputed tax, like any other amount in dispute, should only be payable once a tribunal or court has decided it is payable,” he said. “One party should not be able to demand payment from the other party in advance of their dispute being determined.”

HMRC said that it did not comment on individual cases, but that APNs were “only issued in tightly defined circumstances set out in legislation”.

“We act quickly to correct the position once we become aware that things are not correct. If an APN is withdrawn that doesn’t mean there is no tax to pay. The underlying tax dispute remains until it is settled or litigated.”

A first tier tax tribunal ruled in HMRC’s favour last year against members of the Montpelier IR35 Manx partnership, who can appeal against the decision.