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Thousands of IT and banking contractors across the UK are set to be repaid tens of thousands in previously contested tax debts by HM Revenue and Customs (HMRC) after the tax authority admitted it should not have issued payment demands.

HMRC has retracted accelerated payment notices (APNs) from as many as 2,000 professionals involved in Isle of Man-based schemes designed to reduce their income tax during the 2000s.

Despite the fact these schemes remain disputed by HMRC, they acknowledged earlier this month that they failed to meet all the conditions requiring full payment of tax owed without having to obtain court rulings in its favour.

Adam Craggs, head of tax disputes, law firm RPC, said that while the authority was making the right moves, it was too little too late for many small businesses that have already been forced to sell off precious assets – even family homes – to settle the contested tax debts.

“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,” said Craggs.

The ‘human cost’ of APNs

Mr Craggs confirmed that none of his own clients have so far been reimbursed for their APNs and criticised HMRC for failing to “grasp the human cost” faced by APN recipients whose lives have been greatly affected by the outlandish demands.

Contractors have long been a key component in HMRC’s crackdown on tax evasion. Previously the tax authority has forecast up to 16,000 contractors – primarily working in IT, offshore oil and gas and banking – utilised tax saving schemes in the Isle of Man, where earnings were diverted through offshore trusts and paid out in the form of loans to alleviate income tax levels.

The case for independent judicial review

Craggs is a firm believer that the way in which HMRC can exercise its tax powers should be independently judged, not least regarding APNs which have crippled many suspected tax debtors.

“This case vindicates the objections raised by many in the tax profession – disputed tax, like any other amount in dispute, should only be payable once a tribunal or court has decided it is payable,” said Craggs.

“One party should not be able to demand payment from the other party in advance of their dispute being determined.”

HMRC commented that it did not wish to discuss individual cases, but insisted APNs were “only issued in tightly defined circumstances set out in legislation”.

“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.”

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