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Contractor Loan Schemes and Accelerated Payment Notices

Written by Jon Cooper

As the HMRC issue the first tranche of Accelerated Payment Notices (APNs) to individuals who have operated under offshore Contractor Loan schemes, we are taking stock of the current position.

Firstly, if you receive an APN, there is no right of appeal or to postpone the payment which is due within ninety days unless there is an error in fact within the notice.

Given that to date there has been no ruling that any scheme to which the APN relates is not tax-compliant, many eminent legal minds argue that this runs contrary to natural justice.

In this scenario, the only legal remedy for a receipt of an APN is to seek a Judicial Review which considers the decisions of public bodies on the grounds of illegality, irrationality or procedural impropriety.

However, the consequences need to be thoroughly understood before embarking on this route as it will be both costly and time-consuming process. In addition, HMRC may well seek costs if they ultimately win.

Most importantly, the timeframe is strict. A claim has to be filed promptly which means no later than three months after the grounds to make the claim first arose. For the recipient of an APN, the date that the notice is issued would be the start of this period. So the clock is running and the response of the scheme promoters will be critical.

The process is clearly laid out and does require substantial activity in the initial phases:

In February, the High Court granted around one hundred of the members of the Ingenious Media film partnership a Judicial Review of the APNs issued on their scheme stating that this was “clearly a case where permission should be granted”.

In this case, the central bases for arguing that issue of the APNs were unlawful are:

The participants also contend that the APNs would have the impact of further slowing down the process of ruling whether or not the substantive scheme is, indeed, a vehicle for tax avoidance.

It is worth bearing in mind that the granting of a Judicial Review is, in itself, relatively rare. Independent research by Thomson Reuters indicates that less than 10% of applications are successful.

However, the process is slow and the review decision probably will not be until late summer at the earliest.

The outcome has fundamental consequences for both parties. If the decision goes against the recipients of the APNs, this will leave them with potential life-changing tax payments to make in a situation where there is no certainty that there is actually any tax due. If the decision goes against HMRC, by inference, the power of parliament has been successfully challenged both on a constitutional and European level that has far-reaching implications outside tax avoidance.

Clearly, with so much to lose, neither party will be mindful to accept the ruling. So there is every expectation that the case will ultimately be appealed to the Supreme Court for a final decision.

In the meantime, HMRC will be continuing with the process of issuing APNs.

We are currently working with a number of clients who have operated under Contractor Loan Schemes and would be pleased to review your circumstances. Please email us at welcome@cooperfaure.co.uk for further details.

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