Companies across the North East could be facing an uncertain future as a result of a clampdown on tax avoidance schemes, according to the regional arm of insolvency trade body R3.As HMRC steps up its campaign against individuals, organisations and businesses that have used disputed tax schemes, R3 is highlighting the increasing number of regional firms that are receiving demands for substantial amounts of potentially unpaid tax and National Insurance contributions.
The disputed schemes came in a range of guises including employee benefit trusts, contractor loans and film partnerships.
When new legislation relating to them was introduced in 2011, companies that had used them before that date were offered the opportunity to make a settlement out of court, but this concession has now been withdrawn.
Any recipients of an Advanced Payment Notice (APN), which will typically be for the estimated tax plus interest and penalties, will now have to pay it, even though any court case in which they’re involved may eventually be won.
While a judgement has been made this week in favour of HMRC against Rangers Football Club on their improper past use of employee benefit trusts to pay players and staff, Allan Kelly, chair of R3 in the North East and a partner with RSM, believes the use of these tax schemes has not been limited to just big business and celebrities.
He says: “Up until 2011, these sorts of tax schemes were widely used as a way to remunerating their senior staff by small businesses operating in many sectors where we have a strong regional presence, such as IT, finance, construction, offshore oil & gas, and property.
“These firms were, generally speaking, acting in line with professional advice and had no reason at the time to think that these arrangements were not legitimate, and some even received tax rebates as a result.
“While some no doubt wanted to withdraw profits and minimise tax, others used it as a way to help their businesses through the recession. Many of these are now receiving large tax demands when they have limited, if any, ability to pay, and the resulting pressure on their cash flow could force some companies into distress or insolvency as a result.
“APN payments may also not always be recognised in accounts as a prepayment unless companies are certain of recovery of the payment from HMRC which may be difficult and this therefore may also impact on retained profits, balance sheet worth and possibly even credit ratings going forward.
“It’s also possible, though as yet unclear, that HMRC could, in some cases, seek to make directors personally liable under available legislation.”
HMRC has said it expects to issue a further 40,000 demands across the UK by the end of 2016, and it is now collecting monies outstanding by issuing accelerated payment notices, a new tool which obliges companies to pay up within 90 days. It has raised £1 billion in tax so far in this way and aims to raise £5.5 billion by March 2020.
While there are a number of test cases still in progress that may bind all companies associated with similar schemes, a recent challenge was firmly rejected by the High Court, and Allan Kelly is advising companies that received such demands to work with the taxman to clarify their individual positions.
He continues: “HMRC has issued more than 24,000 notices across the UK since August last year, and expects to have issued around 64,000 by the end of 2016, so there are still many companies which have yet to receive a demand through the door.
“With HMRC set to gain powers to collect tax debts directly from bank accounts under the Finance Bill, and with growing public opinion that everybody should pay their dues, it is more important than ever for companies to engage with HMRC at an early stage and take professional advice to explore all options available.”