Since HMRC acquired the power to issue APNs in 2014, over 75,000 of those notices have been sent out to individuals and companies. As we explained in our newsletters on 15 July 2015 and 13 August 2015, the taxpayer has only 90 days to lodge objections to the APN or pay up.
Objections can be made on the basis that the conditions for issuing the APN have not been met, or the calculation of the tax due is wrong. Once those points have been checked, the only option is to pay. There is no formal way to appeal against the principle of an APN. Some taxpayers have attempted to challenge the process using judicial review, but all have ultimately failed.
Where the APN is received by a company the directors will need your advice to decide whether the payment should be reflected solely in the company’s balance sheet, or whether it should be expensed through the profit and loss account.
If the directors believe the tax planning which gave rise to the tax dispute was sound, and the tax will be repaid by HMRC once the dispute is settled, the accounting adjustments can be confined to the balance sheet. These will be; a debtor balance for the amount expected to be repaid by HMRC, and a creditor balance for the type of tax it relates to, eg: PAYE and NIC. You will have to consider the requirements of FRS 102, or FRS 105 when deciding whether the debt will be fully recoverable.
If the board agrees that the tax scheme has failed and the tax is due, that tax liability will become an expense of the business, eg as PAYE and NIC as part of payroll costs. However, you may wish to consider whether a prior-year adjustment should be made, where the additional expense is significant.
Our tax investigation experts can help with further queries in this area.
For more information contact DFC accountants in Cardiff, Wales.