Accelerated Payment Notices

Steve Baker Excerpts

Friday 18th March 2022 Commons Chamber

[Mr Steve Baker (Wycombe) (Con)]

I am extremely grateful to the House authorities for giving me the opportunity to introduce this Adjournment debate, which I have sought for a long time. I am also grateful to the Minister for being here, to my constituents for their help with the drafting of my speech, and to the House of Commons Library for its support.

I know that all Members in all parts of the House support the efforts of Her Majesty’s Revenue and Customs to secure the tax revenues that are necessary for the running of this country’s public services. To that end, we need procedures that enable those in HMRC to be efficient revenue collectors, especially when faced with the spectre of evasion and contrived but ostensibly lawful avoidance schemes. While these mechanisms need to give HMRC the tools that are necessary for it to work effectively, they must also be balanced and fair so that they do not inadvertently create injustices.

During the debates on the Bill that became the Finance Act 2014, I, along with several of my colleagues, expressed concern about the potentially far-reaching consequences of some of the anti-avoidance provisions being proposed. It was a concern widely held among taxation experts. In July 2014, an article in the Financial Times stated:

“The tax authority’s new powers have been criticised as unfair and even unconstitutional by the Law Society and Chartered Institute of Taxation. Concerns relate not only to the payment of disputed tax before any tribunal decision, but also the absence of a right to appeal.”

Our present Deputy Prime Minister and Justice Secretary, my right hon. Friend the Member for Esher and Walton (Dominic Raab)—whom I have notified of my mention of him—wrote a paper on this subject in February 2017. In one paragraph, he wrote:

“The UK taxman has gained new, punitive powers in recent years, which have corroded the basic fairness of the system...New powers include Accelerated Payment Notices…and Direct Recovery of Debts…Such powers undermine the basic tenets of British justice, allowing HMRC to bully taxpayers into paying debts without proper safeguards.”

I have asked my right hon. Friend if he will please make representations within the Government. He went on to argue that HMRC should be subjected to financial penalties when APNs were wrongly used. He observed:

“This would incentivise greater oversight within HMRC and prevent HMRC bullying taxpayers without proper recourse.”

I agree that the application of APNs has fundamentally changed the basic tax rules and the fairness of the system. The Law Society, the Chartered Institute of Taxation and our Justice Secretary—as well as me—all warned that APNs would create serious injustices.

I would like to illustrate an injustice by reference to the experience of one of my constituents and many like him. In the 2006-07 tax year, my constituent invested a considerable sum in two enterprise zone projects. At the time, this was uncontroversial; enterprise zones were created by the Thatcher Government specifically to attract private sector capital into the regeneration of depressed regions. That is a subject that should be close to everyone on the Conservative Benches under this Government; we are seeking to level up, and we need to do it with private sector investment.

The first example of such a zone was in 1981 in the London docklands on the Isle of Dogs. Those derelict docks were successfully transformed into Canary Wharf, essential to the success of the City of London as a world financial centre. For 30 years or so, the system worked well, and a large number of new jobs were created in erstwhile depressed regions, many of which had suffered from the decline of traditional industries, such as coalmining and steelmaking. This was levelling up 1980s style, and it proved very effective for decades.

Successive Governments offered 100% capital allowances to individuals who invested their money in projects within enterprise zones. My constituent invested in an office project in the Lanarkshire enterprise zone, which was fully let on completion to John Lewis Partnership and Carillion. His other investment was in a warehouse development in East Durham enterprise zone, initially let to a seafood processing firm and now operated by Biffa as one of Europe’s most advanced plastic recycling facilities—all worthy things. Both projects have been highly successful in creating valuable employment and economic activity in two formerly depressed areas—exactly what the Government sought when offering the tax incentives. However, the outcome for investors has not been at all successful; they have lost the whole of their investment.

Let us fast-forward to the banking crisis of the mid-2000s. Due to concerns about the wider state of the public finances, HMRC was instructed to aggressively pursue all opportunities to maximise tax receipts. Following the Finance Act 2014, HMRC levied APNs on taxpayers to recoup those capital allowances. That meant that they lost both their investment and the tax incentives that the Government had offered to induce them to invest. These taxpayers have no right of appeal against their savings being taken from them, and I am told that HMRC is not even prepared to discuss their cases with them, despite all this going back to early 2007. HMRC, having decided to pursue serial litigation, tells taxpayers that they cannot even begin to settle their cases until the litigation has played out. That could take years or even decades.

The then Financial Secretary to the Treasury, David Gauke, made this argument in favour of introducing APNs:

“The Government will not tolerate tax avoidance and Accelerated Payments has been a real game changer. It is no longer possible for these individuals to avoid tax and sit on the money while their affairs are investigated.”

Here is the problem for the Government: there is a real danger that that is exactly the tactic now being used by HMRC against taxpayers. We must be vigilant in ensuring that HMRC is not seizing taxpayers’ savings and then engaging in the same kind of delaying tactics that HMRC itself found unacceptable. It is the case that HMRC is now sitting on taxpayers’ money, including my constituent’s, while investigating those claims.

My constituent is in his 70s and, having seen his retirement savings taken by HMRC in 2016, has absolutely no idea when he will be able to recoup what has been taken from him. In the meantime, HMRC refuses to give any reason why it deems his enterprise zone projects to be undeserving of the promised tax allowances. To me, this is a really serious injustice.

Most of these taxpayers are just ordinary people—I do not particularly like the term, but they are normal people. They are decent, sensible people who were investing where Governments incentivised them to invest. Any of us could have been drawn into such things when the Government specifically offered tax breaks to get people to make those investments. My constituent is a retired surveyor. Many others involved are professional people in sought-after sectors, including the health service.

In 2014, the chief executive officer of HMRC, Lin Homer, apologised for the seven-year delay in settling these capital allowance claims. Some seven years later, we are no further forward, and we may be saying just the same thing in another seven years. I really feel that my hon. Friend the Minister could agree with me that this is wholly unreasonable and that, in a fair and democratic society, we should see things move on.

I think there is a compelling case for abolishing APNs and, indeed, direct recovery of debts. Although I would like that to happen, I will instead make four modest proposals for reform. First, there should be greater oversight of the APN process to ensure fairness; that is something the now Justice Secretary raised in 2017, and I believe it is long overdue. Secondly, APNs should be repaid to the taxpayer when a test case is lost. At the moment, HMRC is obliged to refund APN payments to the successful claimants in a litigation; however, they do not refund APNs to other taxpayers, despite HMRC citing the case as its basis for contesting those other taxpayers’ claims. That is anomalous, and should be changed.

Thirdly, HMRC should not be permitted to retain APN moneys for more than five years. That is a reasonable timespan over which to settle tax claims, and would act as an incentive for HMRC to expedite the process. If it chooses to take longer, often—as in my constituent’s case—by citing a lack of staff resources, the taxpayer should not be the one to suffer. Fourthly, as the now Justice Secretary recommended in 2017, there must be meaningful penalties where HMRC is shown to have levied APNs unreasonably. That should limit any bullying of taxpayers by HMRC by giving the taxpayer some financial recourse.

The public can only have confidence in our tax collection system if it is honest and fair, and seen to be so. The Government themselves offered investors these tax breaks, and it will look suspiciously like a scam if the system uses delay and unfair tactics to deny investors what they were promised. I believe my constituent’s predicament highlights precisely why some of us expressed concern about the enabling legislation. The basic fairness of the system has been corroded, and we must put that right, not only for taxpayers but for the people who work at HMRC. Having been on the Treasury Committee for a long time, I have seen how hard those people work and with what good intent, particularly during the covid crisis. My goodness, what things they achieved in making sure we built a bridge through this crisis—it is often forgotten that we did so. We need to resolve this system, in the interests of not only taxpayers but everyone who works at HMRC, so we do not end up with Members of Parliament reluctantly standing up in the House of Commons to criticise the work those people do in the public interest.

[The Exchequer Secretary to the Treasury (Helen Whately)]

I congratulate my hon. Friend on securing today’s debate and setting out his argument so clearly. I listened carefully to his constituent’s experience, and I take on board the issues he has raised. As I am sure my hon. Friend knows, I am unable to go into an individual case at the Dispatch Box, but I will set out the Government’s overall position on the accelerated payment notices that are the subject of this afternoon’s debate,.

The top line—as, in essence, my hon. Friend said himself—is that tax is paid for our public services. Without that revenue, schools could not open, roads would go unrepaired, and the NHS would be unable to treat the sick. Therefore, we all agree it is only right that the Government do all we can to make sure the correct tax is paid at the correct time, and that we clamp down on those who shirk their fair share. That is why the Government continue to take tough action to tackle tax avoidance, and Parliament has granted HMRC a range of powers to do so. Accelerated payment notices are one of those tools. As my hon. Friend mentioned, they were introduced through the Finance Act 2014 with the goal of changing the economics of tax avoidance, because tax disputes can often take years to resolve. Before APNs were introduced, users of tax avoidance schemes could purposely string out disputes and unfairly benefit from the cash generated by their liabilities until the matter was resolved. That situation was clearly wrong, especially when contrasted with the behaviour of the majority of taxpayers, who pay what they owe on time and swiftly resolve any queries with HMRC.



There is not, and has never been, any principle that disputed tax should sit with the taxpayer rather than the Exchequer. APNs ensure that the tax in avoidance disputes sits with the Exchequer while that dispute plays out. APNs have meant that the Government could remove this unjust advantage from tax avoiders, so that instead of enjoying unfairly gained cash, avoidance scheme users would have to hand over any disputed tax to HMRC until matters were resolved. That was a significant change.

In the eight years since their introduction, APNs have brought forward over £5.6 billion in revenue to fund those vital public services.

[Mr Steve Baker]

Is not the fundamental problem, though, that whether a scheme is an avoidance scheme is often contested? Is not the problem that whether or not this is a just retention of funds, it is often subject to the judgment of courts to see whether something is or is not lawful?

[Helen Whately]

I absolutely hear my hon. Friend’s point. Let me come to some of the checks and balances, and I take his wider point about HMRC’s powers in that regard.

To take a step back, I recognise, in the specific case we are discussing, how deeply worrying such a dispute can be for the individuals involved. That is one reason why fairness is HMRC’s guiding principle when dealing with such matters and why it is right that although, on the one hand, HMRC has the capability to robustly tackle tax avoidance, that is balanced with checks to make sure that it does not over-reach its powers.

We recognise that tools such as APNs must be carefully targeted. That is why they can be used only in tax avoidance cases and in limited prescribed circumstances, and they have important safeguards. There must be an active dispute between HMRC and a taxpayer either in the form of an open tax inquiry or a live tax appeal. That dispute must be about tax being either underpaid or overclaimed as a result of avoidance. And APNs cannot be issued unless one of the following applies. First, the individual issued with an APN has used an avoidance scheme that has already been defeated in court and they have consequently been given a follower notice—a legal request from HMRC to the individual to settle their avoidance dispute. Secondly, the information on the scheme must have been provided to HMRC under the disclosure of tax avoidance schemes—the DOTAS regime. Thirdly, HMRC must have taken action to challenge the taxpayers’ use of the avoidance scheme under the general anti-abuse rule—the GAAR. In addition to those conditions, APNs can be issued only with the approval of an oversight board of senior policy, technical and legal members of HMRC.

My hon. Friend correctly highlighted that there is no right of appeal against an APN. However, under the legislation, HMRC must examine any representations against a notice, and nothing is due from the taxpayer until HMRC has finished those considerations. I should point out that an APN does not in any way inhibit a taxpayer’s right to continue their dispute with HMRC or to appeal against its conclusions, and taxpayers who believe that their dispute is not being suitably progressed can apply to the tax tribunal to resolve it. I make it clear that if a dispute against HMRC is settled, any disputed sums paid under an APN will be repaid with interest, providing the taxpayer with redress where applicable.

In short, accelerated payments are a fitting response to the problem of individuals who purposefully spin out tax disputes and unfairly benefit from the funds in question. That has been backed up by the courts, which have examined cases where taxpayers have tried to challenge HMRC’s use of accelerated payments and have found APNs to be proportionate, reasonable and fair. Mr Justice Green said in one case that

“the provisions in the Finance Act 2014 are perfectly fair and adequate. There is no need for the Court even to consider the need for supplementation through the implication of additional duties.”

HMRC continues to ensure that APNs are used appropriately. For example, the implementation of APNs was included in a review of HMRC’s powers and safeguards. Following that review, the published guidance on APNs was updated. I stress that APNs do not increase someone’s tax liability. Instead, they simply require an individual to pay the tax they would have owed had they not joined an avoidance scheme.

[Mr Baker]

I am extremely grateful to the Minister for giving way. As she goes through her speech, I am reminded of something that I have impressed on Ministers in the past. A problem with DOTAS is that perfectly decent, normal people who want to pay the right amount of tax can get drawn into schemes because the nature of a DOTAS registration is misrepresented. Could we have a boilerplate that firms are required to place prominently before their customers, so that customers can be told, “The reason this scheme is registered with DOTAS is because HMRC thinks it doesn’t comply with the rules. It is not how Parliament intended things to work, and you will probably have HMRC coming after you later”? If normal taxpayers who intend to pay the right amount tax could see such a boilerplate, they would not be drawn into such schemes and we would not have nightmares such as this.

[Helen Whately]

My hon. Friend makes an important point about how, if I understand him correctly, we can help taxpayers have the information and awareness that they may be taking a tax risk—a risk of doing something that could be seen as tax avoidance. HMRC already takes steps to communicate in that way, and I am happy to take up his specific suggestion with the Financial Secretary to the Treasury, whose area this is, to see whether more can be done.

Returning to the point I was in the middle of making, I recognise that individuals in such circumstances can face significant bills, which is why HMRC is committed to working positively and empathetically with anyone with an APN facing payment difficulties, including, where appropriate, agreeing more time to pay. HMRC teams are trained to identify customers who may need extra help managing their financial affairs. I urge anyone who is worried about being unable to make a payment to contact HMRC to work out an individual approach.

In conclusion, I emphasise that Ministers cannot intervene in HMRC’s operational decisions and individual cases, but if HMRC is directly provided with information about this case, its officers will look into it. The Government value every penny of tax revenue. That is true at any time, but particularly so now as we recover from the economic consequences of covid-19 and face new demands on public finances. That is why HMRC must continue to tackle tax avoidance and pursue the tax owed to the Exchequer.

Question put and agreed to.