Thousands of taxpayers and businesses are about to risk having more than £7 billion in disputed tax snatched from their bank accounts by HM Revenue & Customs (HMRC).
HMRC will receive clearance to claim the cash when the Finance Bill 2014 receives Royal Assent within a few days.
The bill gives HMRC new powers to take the money by issuing an accelerated payment notice.
Anyone receiving the notice has 90 days to pay or HMRC will grab the cash.
The claims mostly cover employee benefit trusts, contractor avoidance, partnership losses, stamp duty and tax avoidance schemes under investigation by HMRC.
In total, HMRC has 65,000 open tax disputes, but the notices will only be issued to 43,000 individuals and 10,000 businesses in cases HMRC expects to win.
Tax avoidance schemes redundant
The measure is a notable change in tax collection policy.
For the first time, taxpayers must pay what HMRC thinks they owe upfront – and then the taxpayer can try to reclaim the money with interest by appealing the decision.
The move makes tax avoidance schemes almost redundant as dozens have been taken before tribunals and the courts by HMRC and lost their argument that they were legal and above board ways of minimising tax liabilities.
The 43,000 individual claims include hundreds of wealthy sports stars and celebrities.
The government has switched tactics to make taxpayers pay upfront for entering an avoidance scheme because of the cost of taking them to court to overturn their claim. Meanwhile, the Treasury coffers are losing cash flow worth billions which the government has to make up by borrowing.
Often, tax avoidance schemes have been dubbed tax deferral schemes because they delay the payment of tax rather than avoid the liability altogether.
In some cases, HMRC has battled tax avoidance promoters for five years or more to reclaim hundreds of millions in unpaid tax.
The implication of paying upfront is huge for tax avoidance promoters as well.
The notices are expected to trigger a deluge of misselling claims as taxpayers argue the promoter’s claims misrepresented their schemes. The taxpayers in the schemes would also have paid the promoters hefty fees to join the scheme which they are likely to demand back.
“Everyone has to pay their fair share of tax and a small number of people try to avoid their responsibility by entering into a tax avoidance scheme,” said a spokesman. “All this new power does is say to the taxpayer that if you are sure you are right you do not have to pay this tax, then challenge the ruling and prove your point.”