APN judicial review fails

High Court rules Accelerated Payment Notices are here to stay

A claim for judicial review over the legality of Accelerated Payment Notices (APNs) has failed in the High Court, paving the way for HMRC to continue with its plans to issue around 64,000 APNs to individuals who have participated in tax avoidance schemes, by the end of 2016.

Following legislation enacted last year, the accelerated payment rules, give HMRC the power to force taxpayers to pay disputed tax in advance of any ruling in a tax tribunal. Should the taxpayer win their case, then the money is refunded with interest.

The legal challenge to APNs was brought by 154 members of film Limited Liability Partnership (LLP) schemes promoted by Ingenious Media Plc. Whilst they accepted that there could be no challenge to the legislative provisions and therefore PPNs can lawfully be issued, the claimants disputed the the exercise of powers under the legislation.

The claimants contended that the APNs served on them were unlawful and had no effect because:

1. They were issued in breach of the principles of natural justice because they were never afforded the opportunity to make representations as to why in all the circumstances, they should not have been issued. In particular, they had no opportunity to explain why the tax being demanded was not due and owing, and why it was unreasonable for HMRC to require payment upfront and ahead of resolution of their appeals.

2. They went beyond the powers bestowed on HMRC as one of the three conditions for serving a notice was not satisfied.

3. They were given in breach of the individuals’ legitimate expectation that they would not have to pay any tax in dispute until after the First Tier Tax Tribunal had decided all relevant issues.

4. The decision to give notices was unreasonable/irrational in all the circumstances of their cases.

5. The exercise of powers under the legislation involved an unlawful interference with property rights and therefore breached Human Rights, as did the retrospective imposition of a payment obligation the individuals could not have predicted when they joined the LLPs.

Natural Justice

Any public body decision making must be fair and must accord with the principles of natural justice. If not and deemed unfair, then it can be quashed.

The claimants position with regard to the APNs were that they represented urgent demands for money (that may or may not become due at some time in the future) within short time limits, backed by penalties. It is in this context that they maintained HMRC acted unlawfully by failing to give them a right to make representations before the notices were issued, and the failure to both to explain the basis of the sum demanded and provide the taxpayer with a proper opportunity to refute the claims.

The judge however did not share this sense of injustice for a number of reasons. In the first instance, the accelerated payment does not involve any determination of the final tax liability but only determines where the tax should be held pending resolution of the dispute.

APNs do not deprive the taxpayers their statutory right to challenge the underlying tax liabilities by way of appeal to the tax tribunals. Instead their effect is “that the claimants do not have the benefit of keeping the money pending resolution of the underlying appeal.” The notices are therefore a temporary measure and do not finally determine any tax obligations. Whilst the judge acknowledged the severe consequences for a taxpayer who might have to sell their home to meet the demand, he balanced this by saying that hardship was a risk to any participant in a tax avoidance scheme who did not make provision for the scheme failing.

Unfortunately each of the claimants points was rejected and the claims for judicial review therefore failed. Whilst this will be a disappointing result for all those opposed to APNs and that have campaigned against them, there is the possibility of an appeal.

David Richardson, Director of Counter Avoidance, HMRC, said, “This is an important result, and good news for the vast majority of taxpayers who do not try to avoid paying their fair share of tax.

Those who use tax avoidance schemes need to know they can no longer hold on to the money while their affairs are investigated. They have to pay their tax up front like everybody else.

We expect to complete the issue of around 64,000 notices tax by the end of 2016 bringing forward £5.5bn in payments for the Exchequer by March 2020.

HMRC wins 80% of all avoidance cases that people litigate, and many more are settling before things get to that stage.”

In 2014/15, around 10,000 APNs were issued generating £568 million (net after refunding £28 million following legal challenges).