Avoidance Cases – What Happens To Repayment Claims?

Last week HMRC issued an update outlining its policy on withholding repayment claims in avoidance cases:

"HMRC aims to stop tax avoiders from acquiring an advantage, even a temporary advantage, over the majority of taxpayers who don't try to get around the rules."

The rationale being that in the year ended 31 March 2013, there were 32 decisions in the Tribunals and Courts in tax avoidance cases. HMRC won 26 of those cases (82%) with over £1bn protected.

"The small minority who engage in tax avoidance should not gain a tax advantage during the period from the tax due date to the time when we complete our enquiries and resolve any dispute......

Not only do we challenge the permanent tax result that the avoidance scheme claims to produce, but we also look to deny interim or temporary 'cash flow' benefits from engaging in avoidance, particularly where a scheme claims to give rise to a tax repayment or some other form of personal tax relief."

The methodology will be as follows:

"In appropriate circumstances, we withhold income tax repayments where the claims which produce them constitute (in our opinion) tax avoidance, and where we are challenging or considering challenging those claims by enquiry. If we are satisfied that a claim for repayment does not depend (or does not wholly depend) on tax avoidance, we do of course work with customers and their agents with a view to making an appropriate provisional repayment."

As to the time factor involved, HMRC state:

"If we withhold a repayment in any income tax case, our guidance makes it clear that there should be no undue delay in opening an enquiry."

As ever, views and comments are welcome.

Tax does have to be taxing.

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