Audit file issues – Accelerated Payment Notices

  • Ian Pickering
  • 26 February 2019 00:00

Mercia carries out hot and cold audit file reviews for a significant number of firms and there are often themes or specific audit areas which we observe as part of those reviews which cause firms difficulty.  I have seen a number of instances recently during audit file reviews which involve the presence of Accelerated Payment Notices in the company’s accounts.  The treatment of these in the accounts can have implications from an audit perspective which is often overlooked.

A number of limited companies have been subject to Accelerated Payment Notices where HMRC has questioned the legitimacy of tax schemes in which the company has had some involvement.  An Accelerated Payment Notice (APN) is a requirement to pay an amount on account of tax or National Insurance Contributions. HM Revenue and Customs issues APNs to taxpayers involved in avoidance schemes disclosed under the Disclosure of Tax Avoidance Schemes rules, or counter-acted under the General Anti Abuse Rule.  APNs have been used effectively as a means of generating cash flow for HM Revenue and Customs in tax avoidance cases where it would otherwise have had to wait until the end of the assessment and appeals process to secure the tax, penalties and interest owed.

Ethical considerations

Are you acting for the client in connection with the underlying scheme which is subject to the APN?  If so, then you may have a problem.  The FRC Ethical Standard is fairly explicit on the subject of tax advocacy.  A firm must not accept, continue or carry out an audit engagement if there is any threat of advocacy which would compromise its independence.

This knowledge of the firm’s non-audit services may not be in the possession of audit staff and emphasises the importance of the involvement of the Responsible Individual (RI) in the planning process.  It is often apparent on audit files that the consideration of the auditor’s appointment and , in particular, ethical issues are undertaken at a level which is too junior with audit staff making assumptions on matters that the RI would need to be consulted on.

How has the matter been treated in the accounts?

Often the payment is regarded as recoverable and simply treated as a miscellaneous debtor and the key audit assertion requiring verification will be recoverability.  As with any other debtor the auditor must document evidence to support this assertion. This may not be easy as there will undoubtedly be a degree of uncertainty in many of these cases along with a resolute attitude amongst the directors that they will ‘fight to the death’ with HMRC over it.  Whilst feelings may run strong, the likelihood of winning the argument may not be quite as strong.  HMRC claim a significant level of success in connection with these matters in respect of the tax claimed ultimately being payable.


The presence of APNs should prompt the auditor to consider the treatment adopted in the accounts and whether it is appropriate.  Where there are payments made under APNs which have been treated as recoverable and included in the accounts on this basis the appropriate level of professional scepticism must be evidenced.  This means that the likelihood of recovering the tax must be assessed and backed up by evidence on which the auditor has exercised professional judgment in arriving at a conclusion.

How can we help?

We offer a wide range of independent reviews to help you comply with the many regulations now facing accountants and auditors.  Our experienced team are able to review your audit files to assess audit quality and compliance with audit regulations and standards.

We are also able to offer regulatory reviews in specialist areas such as Practice Assurance and Designated Professional Body Investment Business. For more information click here


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