Tax & admin · 21 January 2016

HMRC to repay 2,000 contractors after admitting Advance Payment Notices should not have been issued

Advance payment notices
Some contractors may have had to sell their homes to meet the demands of APNs which have now been retracted

Almost 2,000 banking and IT freelancers who were forced to pay disputed tax upfront after receiving Advance Payment Notices (APNs) from the tax man last April are to have the disputed funds returned to them.

HMRC has agreed that the notices were sent out erroneously because the offshore tax arrangements that the individuals concerned had used were not subject to Disclosure of Tax Avoidance Schemes (DOTAS) legislation – and apologised to those affected.

However, Adam Craggs, head of tax disputes at law firm RPC, warned that the reversal had come too late for those who had been forced to sell assets to meet the tax authority’s demands.

“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.

The Telegraph reported in September 2015 that many of the contractors who had received the notices were being given just 90 days to pay amounts equal to the value of their annual salary.

The dispute over the legality of the Montpelier IR 35 Manx Partnership – a tax avoidance scheme which those due to be refunded took part in – is ongoing.

An HMRC spokesperson said: “APNs are only issued in tightly defined circumstances, set out in legislation,” the spokesperson said.

“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 If an APN is withdrawn that doesn’t mean there is no tax to pay.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.”

APNs were first introduced in 2014, and estimates have previously revealed that the government hopes to gain £455m in additional revenues by using them between 2016 and 2020 – with the vast majority of such notices being issued to self-employed individuals.

In addition to professional contractors, small sellers using online marketplaces have also faced demands to pay suspected tax shortfalls –  with the amount due estimated by HMRC by examining fees paid by individuals to selling platforms.

APNs are just one of the recent policy changes which seem to be having a negative impact on freelancers. Business Advice recently looked at these in more detail and explained why the attack is misguided.

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Hannah Wilkinson is a reporter for Business Advice. She studied economics and management at Oxford University and prior to joining Business Advice wrote for Kensington and Chelsea Today about business and economics – as well as running a tutoring company.

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