An Accelerated Payment Notice can create an immediate and potentially serious financial challenge for a business. Rather than waiting for a tax enquiry, appeal or tribunal case to reach its conclusion, HM Revenue & Customs may require the disputed amount to be paid upfront.
For companies that have already used the funds within the business, this can produce a sudden cashflow shortfall. Directors therefore need to understand what an Accelerated Payment Notice means, the relevant deadlines and how the demand could affect the company’s wider financial position.
This guide provides a general overview of Accelerated Payment Notices and the potential insolvency implications for UK businesses. It is not a substitute for specialist tax or legal advice.
▶ Watch the video summaryUnderstanding Accelerated Payment Notices and Their Legal Framework
What Is an Accelerated Payment Notice?
An Accelerated Payment Notice, usually referred to as an APN, is a formal notice issued by HMRC requiring a taxpayer to pay an amount of disputed tax before the underlying dispute has been finally resolved.
Before the APN regime was introduced, a taxpayer involved in a tax dispute could often retain the disputed funds while an HMRC enquiry or appeal continued. As complex disputes can take several years to resolve, this could provide a considerable cash flow advantage.
An APN reverses that position. The disputed money is paid to HMRC while the substantive tax dispute continues. Its purpose is not to decide whether HMRC or the taxpayer is ultimately correct, but to determine which party holds the money in the meantime.
The APN regime was introduced by the Finance Act 2014 as part of the Government’s wider response to tax avoidance arrangements. An APN generally relates to a liability that is already the subject of an open enquiry or appeal. It does not, by itself, create a completely new tax assessment.
APNs can be issued to individuals and companies. Related rules also apply where disputed tax advantages arise through partnership arrangements.
The Legislative Basis for APNs
The principal legislation governing APNs is contained in Part 4 of the Finance Act 2014. This gives HMRC the power to issue a notice where the statutory conditions are met and sets out the rules covering representations, payment deadlines and penalties.
The legislation was introduced alongside the follower notice regime. Together, these measures were designed to discourage taxpayers from continuing disputes involving arrangements that HMRC considers to be avoidance, particularly where similar arrangements have already been defeated in the courts.
Subsequent legislation has amended and refined parts of the regime, but the central principle remains the same: a taxpayer may be required to pay the amount connected with a disputed tax advantage before the underlying case is concluded.
The Disclosure of Tax Avoidance Schemes regime, known as DOTAS, is particularly relevant. DOTAS requires certain arrangements to be disclosed to HMRC and allocated a scheme reference number. Participation in a DOTAS-notified arrangement can be one of the circumstances bringing a taxpayer within the scope of the APN legislation.
The APN process operates alongside the existing tax system. An HMRC enquiry, assessment or tribunal appeal can continue after the APN has been paid. Payment does not, on its own, settle or concede the underlying dispute.
Conditions That Must Be Met for HMRC to Issue an APN
HMRC cannot issue an APN simply because it disagrees with a tax return. The statutory conditions in the Finance Act 2014 must be met.
Broadly, there must first be an open tax enquiry or an ongoing appeal relating to a tax assessment or determination.
The return, claim or appeal must also involve a tax advantage resulting from particular arrangements. HMRC must then be able to connect the case to one of the relevant statutory triggers. These include circumstances in which:
- a follower notice has been issued;
- the arrangements are subject to the DOTAS rules; or
- a counteraction notice has been issued under the General Anti-Abuse Rule.
HMRC’s view that tax is likely to be payable is therefore not enough by itself. The notice must fall within the legal framework established by the legislation.
This does not necessarily mean that the disputed arrangements have already been conclusively found to be ineffective in the recipient’s individual case. The underlying enquiry or appeal may remain unresolved after the APN is issued.
Follower Notices and Their Relationship to APNs
A follower notice is separate from an APN, although the two notices may be closely connected.
HMRC may issue a follower notice where it considers that a judicial ruling in another case is relevant to the taxpayer’s arrangements. The notice requires the taxpayer to take corrective action, such as amending a return or withdrawing an appeal, on the basis that the earlier ruling resolves the substantive issue.
An APN deals with payment. A follower notice deals with the taxpayer’s continued position in the dispute. A business may therefore receive one notice without the other, although follower notices and APNs are sometimes issued together.
A follower notice can only be issued where HMRC considers that there is a relevant judicial ruling and the relevant statutory requirements are satisfied. Businesses can make representations against a follower notice, but there is no standard right to appeal the notice itself to the Tax Tribunal.
Separate penalties may apply if the recipient does not take the corrective action required by a follower notice. These are distinct from penalties imposed for failing to pay an APN.
Receiving both notices can therefore place a business under pressure on two fronts. It may face an immediate payment demand while also having to decide whether to continue the underlying dispute. Specialist tax and legal advice will usually be required alongside an assessment of the company’s ability to fund the amount demanded.
Accelerated Partner Payment Notices in a Partnership Context
Where the arrangements involve a partnership, HMRC may use an Accelerated Partner Payment Notice. These notices are commonly described as APPNs, although the term Partner Payment Notice is also sometimes used informally.
The partnership tax system can make these cases more complicated because the partnership submits a partnership return, while the resulting profits or losses are generally allocated to the individual partners.
An accelerated partner payment is therefore normally sought from the relevant partner rather than from the partnership as a single taxable entity. The amount attributed to each partner will depend on matters such as the partnership return, the allocation of profits or losses and the tax position reported by that partner.
Partners receiving notices may consequently face different payment demands even though the amounts arise from the same arrangements. Changes to the partnership position can also affect the corresponding individual tax liabilities.
Anyone receiving a partnership-related notice should ensure that advice is coordinated between the partnership, its representative partner and the affected individual partners.
Navigating the APN Process: Obligations, Responses and Consequences for UK Businesses
How HMRC Calculates the Amount Specified in an APN
An APN will specify the amount that HMRC believes represents the tax advantage obtained from the disputed arrangements. The legislation generally describes this as the understated tax.
HMRC may use information from the taxpayer’s returns, DOTAS disclosures, correspondence, compliance checks and other available records to calculate the figure. In a company case, this could involve corporation tax or other relevant liabilities. Different rules may apply where the arrangements concern Income Tax, National Insurance contributions or partnership allocations.
The APN amount is a payment on account of the disputed liability. It is not necessarily the final amount that will become payable once the enquiry or appeal has concluded.
The notice will normally focus on the disputed tax advantage rather than incorporating every possible amount of interest connected with the underlying case. However, interest may continue to arise under the applicable tax rules, depending on the final outcome and the nature of the liability.
Errors can occur where HMRC has used incomplete information, misunderstood the arrangements or calculated the relevant tax advantage incorrectly. The recipient should therefore check the figure promptly against the underlying returns and calculations with an appropriately qualified adviser.
The 90-Day Window: Representations and the Right to Challenge
A recipient generally has 90 days from the date on which the APN is given to make written representations to HMRC.
Representations may be appropriate where the recipient believes that the statutory conditions for issuing the notice were not met or that the amount specified is incorrect. The submission should explain the grounds clearly and provide relevant evidence.
For example, the recipient may provide:
- corrected financial or tax calculations;
- copies of relevant returns and amendments;
- evidence showing that HMRC has used incorrect figures;
- information demonstrating that the required statutory conditions were not satisfied; or
- documents explaining why the arrangements or tax advantage have been misunderstood.
HMRC must consider valid representations and then confirm, withdraw or amend the notice. Its decision should be communicated to the recipient in writing.
However, the representations process is limited. It is not a full appeal against HMRC’s view of the underlying arrangements. Arguments about whether the tax planning ultimately succeeds will ordinarily continue through the existing enquiry, appeal or tribunal process.
The 90-day period should therefore be treated as an urgent deadline. Directors should not delay simply because they believe the original tax position was correct.
Payment Obligations and Deadlines
Unless representations are made, the APN amount will generally be payable within 90 days of the notice being given. The precise deadline should be stated on the notice and must be checked carefully.
Where valid representations are submitted within the permitted period, the payment position is temporarily affected while HMRC considers them. If HMRC confirms the notice following its review, the recipient will normally be given a further period in which to pay. The revised date will be explained in HMRC’s response.
Paying an APN does not mean that the taxpayer has accepted HMRC’s interpretation of the arrangements. The underlying enquiry or appeal can continue.
If the taxpayer eventually succeeds, HMRC will ordinarily repay the amount that is no longer due, together with any applicable repayment interest. If HMRC succeeds, the accelerated payment is set against the final liability.
Businesses should therefore distinguish between two separate questions:
- whether the APN must be paid now; and
- whether HMRC is ultimately correct about the tax liability.
The first may require immediate cash flow planning even though the second remains unresolved for some time.
The Absence of a Right of Appeal Against an APN
There is no general statutory right to appeal an APN to the First-tier Tribunal.
This restriction was a deliberate feature of the regime. Parliament provided a representations process but did not create the same tribunal appeal rights that apply to many tax assessments and penalties.
The taxpayer can still pursue any existing appeal concerning the underlying liability. However, that appeal does not usually suspend the requirement to pay the APN.
A legal challenge to the validity of an APN itself may potentially be made by judicial review. This is a specialist court procedure concerned with the lawfulness of HMRC’s decision-making rather than a rehearing of the entire tax dispute.
The threshold for judicial review is high, strict time limits apply and the cost risks can be significant. It is therefore not a routine alternative to the representations process.
A business that believes an APN was issued unlawfully should obtain specialist legal advice quickly. At the same time, directors must consider what will happen if the demand remains payable and the company cannot fund it.
APN Penalties: What Happens If You Do Not Pay?
Penalties can be imposed where an APN is not paid by the applicable deadline.
The initial penalty can be 5% of the unpaid amount. Further 5% penalties may arise if the amount remains outstanding for five months and again if it remains outstanding for 11 months after the original payment date.
The penalties are calculated by reference to the APN amount that remains unpaid at the relevant point. They can therefore add substantially to the overall burden, particularly where the original notice involves a significant sum.
Unlike the APN itself, an APN penalty can be appealed. Grounds may include that the penalty was not correctly imposed or that the taxpayer had a reasonable excuse for the failure. The availability and strength of any appeal will depend on the particular circumstances.
Financial difficulty alone should not be assumed to prevent a penalty. Businesses should engage with HMRC and take professional advice before the payment deadline wherever possible.
For a company already experiencing cash flow problems, repeated percentage-based penalties can make recovery increasingly difficult. Directors should incorporate the potential penalties into any financial forecasts rather than considering only the amount shown on the original notice.
HMRC Enforcement Action Following Non-Payment of an APN
Once an APN becomes payable, HMRC can pursue it as a debt even though the underlying tax dispute has not yet been resolved.
Depending on the circumstances, enforcement may involve demands for payment, debt collection activity and court proceedings. HMRC may also consider insolvency action where the debt remains unpaid.
For a limited company, this can include serving a statutory demand or presenting a winding-up petition. For an individual recipient, bankruptcy proceedings may be possible.
An ongoing tax enquiry or tribunal appeal will not necessarily prevent HMRC from recovering the APN. This is one of the most significant practical features of the regime: the dispute can continue, but the payment obligation may still be enforced.
A winding-up petition can severely restrict a company’s options. It may affect bank accounts, damage relationships with suppliers and customers, and make a solvent restructuring considerably more difficult.
Directors should therefore seek advice before enforcement reaches that stage. Even where the company cannot pay in full, early action may preserve options that will no longer be available once a petition has been advertised or a winding-up order has been made.
Settlement Opportunities and Resolving the Underlying Tax Dispute
HMRC may offer settlement terms in relation to some disputed arrangements. A settlement can bring the underlying dispute to an end and establish the taxpayer’s final liability without the time, expense and uncertainty of continued litigation.
Paying an APN does not automatically mean accepting a settlement. Equally, rejecting a settlement does not normally remove the obligation to pay an APN.
The decision whether to settle should be taken with specialist tax and legal advice. From a commercial perspective, the business will also need to consider whether it can afford the costs and risks associated with continuing the dispute.
Relevant financial considerations may include:
- the amount required under the proposed settlement;
- the prospects and possible financial outcome of an appeal;
- interest and penalties that may continue to arise;
- legal and professional fees;
- the effect on working capital; and
- the potential impact of enforcement action.
Timing is also important. A settlement discussion does not necessarily postpone an APN deadline. Unless HMRC confirms otherwise, the business should continue to work on the basis that the notice must be dealt with by the date specified.
An insolvency practitioner does not determine whether a tax settlement is legally or technically correct. However, they can assess whether the company can fund the proposed terms, whether doing so would prejudice other creditors and whether the business would remain viable afterwards.
The Impact of APNs on Business Cash Flow and Financial Viability
The most immediate effect of an APN is often the removal of cash from the business before the underlying dispute has concluded.
This can be particularly damaging for an SME or owner-managed company. The funds may have been used for wages, stock, rent, loan repayments or other working capital requirements. A requirement to pay HMRC within a relatively short period can therefore create a cash flow crisis even where the company had previously been trading successfully.
Directors should assess the APN alongside all existing and foreseeable liabilities. Paying HMRC will not remove the company’s obligations to employees, lenders, landlords, suppliers and other creditors.
Warning signs that the APN could lead to insolvency include:
- an inability to pay the notice without missing other liabilities;
- increasing reliance on extended supplier credit;
- missed PAYE, VAT or other HMRC payments;
- use of emergency borrowing simply to meet day-to-day costs;
- unpaid wages or pension contributions;
- legal action from creditors;
- lenders reducing or withdrawing facilities; and
- liabilities exceeding the value of company assets with no credible recovery plan.
Directors should prepare short-term cash flow forecasts covering different outcomes. These may include paying the APN in full, securing an agreed payment arrangement, settling the underlying dispute or continuing the appeal.
The sooner the financial effect is understood, the greater the opportunity to protect the business and its creditors.
Insolvency Considerations for Businesses Facing APNs
Where an APN cannot be paid without placing the company’s future at risk, advice from a licensed insolvency practitioner should be obtained as early as possible.
The insolvency practitioner can review the company’s cash flow, assets, liabilities, creditor position and future trading prospects. This helps establish whether the company remains solvent and whether a rescue or restructuring option is realistic.
Possible procedures may include a Company Voluntary Arrangement. A CVA allows a company to propose an arrangement with its unsecured creditors, usually involving payments over an agreed period. Whether HMRC will support a proposal depends on its terms, the company’s compliance history and the anticipated return compared with alternative procedures.
Administration may be appropriate in some cases where a viable underlying business needs protection from creditor action. Administration creates a statutory moratorium and gives an appointed administrator time to pursue one of the procedure’s statutory objectives, which may include rescuing the company or achieving a better result for creditors than liquidation.
Where the APN and the company’s other liabilities mean that continued trading is no longer viable, a Creditors’ Voluntary Liquidation may need to be considered. A CVL provides a formal process for closing an insolvent company, realising its assets and distributing available funds to creditors in the statutory order of priority.
HMRC has preferential status for certain taxes collected or deducted by a business on behalf of others, including qualifying VAT, PAYE and employee National Insurance contributions. However, not every amount owed to HMRC is preferential, and the ranking of an APN-related claim will depend on the nature of the underlying tax. This should be assessed on a case-by-case basis rather than assuming that all HMRC debt receives the same treatment.
The commencement of an insolvency procedure may affect HMRC’s ability to take or continue certain enforcement action. The precise position will depend on the procedure, its timing and whether court proceedings have already begun.
Directors should not wait for HMRC to issue a winding-up petition before seeking help. By that stage, restructuring options may be restricted and the risk of compulsory liquidation will be considerably higher.
Early advice allows directors to understand:
- whether the company is currently insolvent;
- whether it can continue trading safely;
- how payment of the APN would affect other creditors;
- whether further borrowing would be appropriate;
- whether a rescue procedure is feasible; and
- whether an orderly liquidation is necessary.
An APN does not automatically mean that a company must enter insolvency. However, it is a significant demand that should be incorporated into the company’s financial planning immediately.
Where the company cannot pay the notice and its other debts as they fall due, directors must consider their duties to creditors and avoid taking steps that could worsen creditor losses. Coordinated advice from a tax specialist, solicitor and licensed insolvency practitioner may be required to address both the disputed liability and the company’s financial position.
The earlier directors act, the more likely they are to retain control over the next steps and preserve the widest possible range of options.
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