‘Accelerated Payment Notice’ (or ‘Partner Payment Notice, nothing of substance turns on the distinction) judicial reviews are coming thick and fast (see: Rowe; Aston; Walapu). None so far have been successful before the Courts, although the first JR (Rowe v HMRC) had a fleeting success when the claimants were granted a temporary injunction against the APN, but Simler J swiftly overturned this. As an aside, I reckon at least one of these judicial reviews will make it all the way to the Supreme Court, but we’ll have to wait at least 2 more years for that to happen.
In order to understand why so many taxpayers are taking to JR, it is first necessary to revisit the statutory scheme. The APN regime broadly requires that taxpayers pay disputed tax upfront, before being able to challenge HMRC’s assessment through the normal channels. APNs may be issued, pursuant to FA 2014, s. 219 where the following conditions are satisfied:
- Either an enquiry or appeal are in progress;
- A tax advantage accrues from the particular arrangements; and
- A follower notice has been issued; the arrangements are DOTAS notifiable (FA 2004, s. 311); or a GAAR counteraction notice has been issued (FA 2013, Sch. 43, para 12).
Once an APN notice has been to the taxpayer, the money becomes payable within 90 days. There is no right of appeal against the APN, but merely the right to make representations to HMRC, as a means only of objecting to either the satisfaction of the conditions or to the amount submitted to be due. After taking into account the representations, HMRC may refuse to withdraw the APN.
Think about that for a moment. The entirety of the disputed amount becomes effectively instantly payable. If an APN has been issued for a taxpayer who entered into the once, seemingly, incredibly popular film schemes, the amount due could well be into the hundreds of thousands. As Jolyon Maugham QC has pointed out, taxpayers are left with little option but to fight the APN, but without any right of appeal against the APN available, the only route which can be taken is through the Administrative Court.
But a judicial review in the context of an APN will be tricky. There are, to the author’s mind, three potential strands to any JR argument in the context. The first is that the legislation itself is incompatible with the ECHR. The second is that one of the conditions expressed in the legislation has not been properly satisfied. The third is that some implied condition has not been satisfied.
For those interested, the judgments of Simler J in Rowe and Green J in Walapu respectively, fairly comprehensively close off the chances of attack under either of the first two strands where HMRC has its ducks in a row. I wish here only to comment briefly on the third potential strand. The stated intention of the APN regime is to ‘alter the economics of tax avoidance by stripping from parties to such schemes all of the liquidity advantages that they, hitherto, enjoyed’ (Walapu, para 1). This statement, for me, is loaded with one very important caveat which ought to be implied into the operation of the regime, namely, that APNs cannot be used retrospectively as a sword as I’ve set out in a previous blog (I will come back to this retrospective element later). They are merely to shift the disputed tax prior to court adjudication.
They cannot be used in conjunction with something which renders it akin to a threat, such as, for instance, a settlement offer from HMRC. Why? Because the interposition of a settlement offer would potentially infringe the Litigation and Settlement strategy (which provides that HMRC will either accept 100% or nothing where a dispute is of an all or nothing nature) if lower than the disputed amount and, more importantly, effectively seeks to restrict taxpayers’ access to the courts (a fairly important constitutional right). Where a taxpayer is offered a settlement of, say, £100,000 payable in reasonable monthly instalments or, if she refuses, must pay, say, £200,000 within 90 days, the taxpayer is left with little choice but to accept the former. The interposition of a settlement offer effectively decides the matter, thereby placing the power to decide disputes in the hands of HMRC. In combination, it is posited that these elements would render the issuance of an APN an abuse of power.
My mind was cast to this idea when reading the judgment in Walapu. The tone of the APN letter issued to the taxpayer, to my mind, was intimidatory by implication:
“The letter went on to explain the possibility for the Claimant to settle his tax affairs without the enquiry proceeding. It emphasised that whether he settled or not was entirely a matter for him but that if he did not wish to settle “…the current compliance check will remain open”. It was explained that there was no right of appeal against the APN but that if he disagreed with the notice he could make representations to the Revenue objecting” (para 28).
It doesn’t appear that the taxpayer was actually offered a settlement by the Revenue in the case, but was merely invited to enter into talks with HMRC. Additionally, if one reads the judgment, it becomes apparent that HMRC had engaged the taxpayer more or less from the day he issued his tax return claiming the losses produced by the tax scheme he entered into. The taxpayer was made aware of HMRC’s concerns about the viability of the tax scheme from the beginning effectively, and from such point, he was on notice that HMRC would pursue his case. To this end, HMRC’s conduct in respect of Dr Walapu appeared to be entirely above board.
Additionally, from the cases I have read so far, it does not appear that HMRC put an offer on the table seeking to coerce the taxpayers to settle and remove their access to the courts. HMRC appears so far to have carefully chosen the cases it has pursued with APNs. As such, this blog is perhaps academic!
A final note on why the implied conditions attaching to APNs issued for schemes entered into before the introduction of the regime as opposed to those entered into after the Finance Act 2014 should be different. For those who enter into schemes today, it is incontrovertibly clear that the disputed tax could become immediately payable. As such, the courts are unlikely to be sympathetic to taxpayers who have taken a risk and are suffering the entirely foreseeable consequences of their actions.