What APNs do is enable HMRC to require taxpayers who have engaged in certain types of behaviour – behaviour that has hallmarks of ‘bad’ tax avoidance – to cough up the tax they say they’ve saved by that behaviour whilst the courts decide whether they’ve actually saved it. From a tax collection perspective, they’re rather a good thing – for reasons I set out here – and were a key part of the radical panoply of measures introduced by the Coalition to tackle tax avoidance.
From a tax collection perspective. But nothing’s ever quite as it seems.
Because another great advantage of APNs was a political one. They brought forward taxes that Government thought it was going to receive anyway. But the wacky way in which Government accounting works meant that the receipts from them could be treated as new income. The best way to think of APN receipts is like the one-off cash flow boost a business gets by factoring its receivables for the first time. Nothing wrong with a cash flow boost – but Government accounting means that one-off boost is treated like ongoing income and can be used to support additional year-on-year spending, or help spin a narrative that Government was reducing the deficit, or enable Government to pretend to have been tougher on public spending than it really has been. Remarkably, in Government accounting terms you can get a P&L boost just by fiddling around with items on your balance sheet. I wrote about this trick here and here (forgive the title of that latter piece – I got a bit over-excited before the last General Election). And we’re talking about big numbers: this, and the other iterations of this trick, added up to over £10bn per annum.
Anyway. Back to the Press Release. It’s a marvellous round number, £1bn. But how does it compare with what Government predicted it would collect? The forecast revenues can be seen here (at page 22), here (at page 57) and here (at page 33). We’re a a little over 5 months through the tax year 2015-16 and so we should have received all the revenues from 2014-15 (£425m) plus 5/12ths of those from 2015-16 (£2,102m x 5/12) or £1,300m – 30% more than the £1bn actually received. Put a mute on that trumpet, HMRC.
More worryingly still, from Government’s perspective, is that this money is only contingent and – as I pointed out in a piece called ‘Our Big Tax Gamble’ here – there’s a decent chance that the contingency will come home to roost and Government will have to give it all back. When I wrote ‘Our Big Tax Gamble’, the possibility was a theoretical contingency. But it’s a little more than that now: the Supreme Court has just said it will hear substantive arguments in the biggest case of them all: the so-called Eclipse Film Partners case. It wouldn’t do that unless it was interested in those arguments.
If the Government loses in Eclipse it won’t just have to give back some of that £1bn – it will also have to relinquish future anticipated tax receipts of a multiple of that sum.
[Note: I am lead Counsel in Eclipse].
[Note: I am grateful to @strongerinnos and iamconsistent (see comments below) for pointing out what I shall – to save my blushes – describe as ‘improvements’ to my maths.]