Some commentators have been apocalyptic about the introduction of Advanced Payment Notices (‘APNs’). The APN regime broadly requires that taxpayers pay disputed tax upfront, before being able to challenge HMRC’s assessment through the normal channels. It is certainly ‘game changing’ and frankly unprecedented in UK Law generally. But is this new regime unconstitutional?
Of course, the new regime is challengeable through recourse to Human Rights, but that is an argument for another day. A separate challenge, however, could lie in taxpayers taking a judicial review case on the basis of how the legislation ought to be interpreted.
I believe that there is an argument to be made that the legislation ought to be interpreted so as to apply prospectively only, in other words, that APNs should only apply to avoidance schemes which were entered into after George Osborne announced his intention to introduce APNs in March 2013.
This argument finds its grounding in the fact that the stated policy aims of APNs are to shift the economics of tax avoidance and to change the behaviour of taxpayers in relation to avoidance. As the law previously stood, there was an economic incentive for taxpayers to enter into avoidance schemes regardless of whether the scheme would ultimately fail or not. The resolution of the case would take years and in this interim, the taxpayer would have the advantage of utilizing the disputed monies (which would otherwise have been taken by HMRC). APNs rebalance the scales by forewarning taxpayers that entering into a scheme which is likely to fail will have the same effect as paying taxes in the normal course. In other words, they negate the economic incentive to enter into schemes.
It becomes clear then why the policy aims are not effectuated when the APN is applied retrospectively. Incentives and disincentives can only affect future behaviour. Surely the legislation ought to have no application for persons who previously entered into avoidance schemes? A biblical equivalent would be banishing Adam and Eve from the Garden of Eden without having forewarned either of such an effect if they were to eat an apple.
The courts traditionally view draconian powers of the State with a fair degree of skepticism and reduce the scope of otherwise plainly worded Parliamentary statutes so as to limit, as far as practicable, the encroachment upon civil liberties. As APNs fall into such a draconian category, when applied retrospectively to schemes which were entered into before APNs were even on the horizon, then there is ample opportunity for the Court to intervene and narrow the scope of the legislation. Although the thesis here that the legislation should only apply prospectively is clearly very bare, it is nevertheless an interesting proposition that has captured my mind for the day.