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Taxpayer Loses High Court Judicial Review Of PPNs

Monday 17th August 2015

The High Court has recently rejected the challenge by investors in Ingenious Media’s film partnership to the legality of certain partner payment notices [a form of Accelerated Payment Notice], which require the partners to pay the disputed tax liabilities upfront, and which were issued under new powers contained in FA 2014.

These powers permit HMRC to issue APNs in respect of tax avoidance schemes that are formally notified to HMRC through the DOTAS rules or where a GAAR counteraction notice has been issued, or are similar to ones already defeated in court and follower notices have been issued.  The disputed tax is held by HMRC whilst the dispute is resolved.

There is no formal right of appeal against an APN, written representations as to why the APN should not have been issued can be made to HMRC, or the taxpayer can apply to the Court for a judicial review.

In the case of Nigel Rowe and others v HMRC [EWHC2293] the claimants were not challenging the provisions themselves, which were contained in primary legislation, but the exercise of powers under the legislation.  In broad summary, the claimants contended that the notices issued in their cases were unlawful and of no effect because:

(a) 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 sums demanded under the notices are not due and owing; and that it was not reasonable to require payment prior to resolution of the parallel appeals on the underlying substantive tax dispute.

(b) The notices were ultra vires because Condition B was not satisfied. The amounts claimed do not result from the chosen arrangements since they do not result directly from an increase or reduction of an item in the partnership return. Further, absent legitimate enquiries, no tax will ever become “due and payable” within the meaning of FA 2014.

(c) The notices were given in breach of the claimants’ legitimate expectation that they would not have to pay any tax in dispute until after the FTT had decided all relevant issues, HMRC having not exercised the right to postpone repayment.

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

(e) The exercise of powers under the legislation involved an unlawful interference with property rights under ‘Article 1 of the First Protocol (the right to protection of property) and in breach of Art 6 of the Convention for the Protection of Human Rights’ involving the retrospective imposition of a payment obligation the claimants could not have predicted when they joined the partnerships referred to below.

HMRC’s case was that the exercise of discretion in issuing PPNs to the claimants was in accordance with the express language and purpose of FA 2014, and did not breach natural justice or their legitimate expectations. The decisions to give PPNs were not unreasonable or irrational and nor was there any breach of such Convention rights as they assert are engaged.

Mrs Justice Simler held that, despite the able and cogent submissions for the taxpayer,  the claims for judicial review failed on the grounds that:

(i) the PPNs were lawfully issued and the principles of natural justice have been adhered to by the statutory scheme and by HMRC in exercise of the discretion conferred by FA 2014.

(ii) Condition B was satisfied.

(iii) There has been no breach of the claimants’ procedural or substantive legitimate expectations.

(iv) The decision to give PPNs was neither unreasonable nor irrational. It represented a lawful exercise of the statutory discretion conferred by FA 2014.

(v) There has been no unlawful interference with the claimants’ possessions by the giving of PPNs in this case. Article 6 of the Convention did not apply but in any event, the claimants have had access to an independent and impartial tribunal on judicial review.

After the decision was released, HMRC announced that around 64,000 APNs would be issued by the end of 2016 expected to bring forward £5.5bn in tax payments for the Exchequer by March 2020.

If you would like further information on the above, please contact Keith Rushen on 0207 486 2378.

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