Accelerated Payment Notices (APNS), Judicial Review and Interim Relief
In over 32 years of working in tax, I find it difficult to think of any tax legislation that has been as bitterly contested, both in consultation and subsequently, as the Accelerated Payments provisions eventually enacted in the 2014 Finance Act. It is hardly a surprise, therefore, that the Courts and Tribunals have been extremely busy in the last two years with legal disputes arising from that legislation. In summary, Accelerated Payment Notices (APNs) are issued in cases where taxpayers have been participants in certain tax avoidance arrangements to which HMRC object, and where certain conditions apply, but where the dispute has not yet been resolved by agreement or through the Court and Tribunal system.
The Government took the view, not unreasonably, that, in some circumstances, the taxpayer may well retain a significant cash flow advantage from his participation in a tax avoidance scheme until the underlying dispute is resolved, and to the detriment of the public purse. The purpose of APNs is therefore to eliminate that advantage and to ensure that it is not available for participants in future tax avoidance arrangements.
Judicial review is the process by which decisions made by public authorities are scrutinised by the Courts. There was a time when judicial review was extremely rare in tax disputes, partly because tax legislation generally gave taxpayers the right to appeal against HMRC’s decisions, but also because the degree of unreasonableness on the part of HMRC that had to be demonstrated by the taxpayer was very high indeed. The standard required for the decision of a public body to be challenged in judicial review was perhaps most clearly articulated by Lord Diplock in Council of Civil Service Unions v Minister for the Civil Service (a case concerning trade union membership at GCHQ). In his Lordship’s words, the public body’s decision must be “…so outrageous in its defiance of logic or accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at it.”
I was involved in my first judicial review case in 2003 which the client (rather predictably) lost and I was very aware at the time that generally you had to be extremely annoyed with the Inland Revenue (as it then was), have no other avenue of appeal under the Taxes Acts, and have very deep pockets to go down that route. I therefore thought that case would probably be my last experience of judicial review. Times have changed, however, and judicial review is now a much more commonly used remedy in taxation matters – perhaps arguably because HMRC and Governments are rather more inclined these days to behave in a manner which is as outrageous as Lord Diplock’s standard requires. Certainly, the idea that HMRC could deprive a taxpayer of a significant sum of money without having to make an argument to justify that result before the relevant Court or Tribunal was almost inconceivable 14 years ago.
However, in the case of APNs, judicial review is in fact the only possible avenue of legal challenge for taxpayers. The relevant legislation does not allow for appeals to be made against APNs; although it provides that taxpayers can make representations, these are handled internally by HMRC without any external supervision or review by the Courts or Tribunals. Representations are routinely made in respect of APNs because even if HMRC rejects the representations, the mere fact that they have been made will delay the due date of the payment. However, in my experience, HMRC just as routinely rejects them out of hand, ignoring any argument in the representations.
APNs and Interim Relief
Over four thousand taxpayers have made applications to the High Court for judicial review of HMRC’s decisions to issue APNs on numerous grounds (thus far, the only ones that have succeeded have been on the basis that the underlying conditions for issue of the APNs were not met). In almost every case, claims for interim relief will have been made, asking the Court to delay payment of the APNs until their legality has been judicially determined. For most applicants, this is likely to be when the decision in the Rowe case is final. Rowe, which involves participants in the Ingenious Media arrangements, is listed for hearing by the Court of Appeal on 18 July 2017, but an appeal to the Supreme Court is highly likely, whoever wins the case.
In the past, interim relief has often been granted by the High Court without objection from HMRC. However, the amount of tax at stake in APN judicial review cases (now more than £756 million) is such that HMRC could not have been expected to take this lying down, especially as the whole purpose of the APN legislation was to remove a cash flow advantage that interim relief effectively, (although, dependent on the outcome in Rowe, perhaps only temporarily) restores.
In the middle of last year, Sir Kenneth Parker heard the case of R (on the application of Vital Nut Co. Ltd and another) v HMRC  EWHC 1128. His decision was that for a corporate entity to make a successful claim for interim relief, “it is necessary for those responsible to set out fully in a witness statement the current and future position of the corporate entity in question, supported by proper quantitative information, typically in the form of a source and application of funds or a cash-flow statement which can satisfy the court that if the claimant had to pay, then the ordinary operation of the business would be significantly undermined and perhaps, at the limit, put in real jeopardy.”
In the more recent case of R (on the applications of VVB Engineering Services Ltd and others) v HMRC, the Court also had before it applications for interim relief. Counsel for the taxpayers argued, inter alia, that HMRC’s slow progress in advancing determination of the substantive point at issue justified the grant of interim relief without conditions in this case. (This is a common complaint as HMRC are very quick to object to arrangements they consider to be motivated by tax avoidance but much slower to put forward legal arguments in support of their viewpoint.) The argument was that HMRC should not benefit from payment of the APNs while it delayed proceedings on the substantive issue – which seemed a reasonable point given that part of the justification for the APN legislation was that taxpayers in turn should not benefit from dragging out proceedings. However, in VVB, Supperstone J gave these arguments short shrift, deciding firstly that the “balance of convenience” lay in ensuring that HMRC could recover the tax in dispute before trading risks, etc., eroded that possibility, and secondly, that the Court was in no position to judge in judicial review proceedings whether HMRC’s conduct regarding the substantive dispute was dilatory or not.
The judgments in Vital Nut and VVB will come as bitter blows to those many applicants who filed judicial review applications and interim relief claims in the hope that doing so would enable them to defer payment of their APNs but who are not able to demonstrate hardship to HMRC’s or the Court’s satisfaction. While it appears that many of those applicants who do provide witness statements in the manner suggested by the Courts are waiting a very long time before HMRC examines and, where appropriate, takes issue with them, there are clearly potential costs implications in pursuing interim relief claims of which applicants should be mindful.
One of the grounds upon which HMRC has opposed interim relief claims has been that HMRC offers time to pay APNs in appropriate circumstances and this is sufficient to deal with the mischief of hardship. It might be argued that being offered time to pay a liability that you do not believe to be due at all is not the most attractive of offers. Although there are cases where taxpayers have participated in schemes that, even at the time, might have been soberly assessed as having very little prospect of success, there are equally those grey areas where arrangements are subject to APNs but the position is far from clear cut and there is no direct case law authority for HMRC’s objections. While it is not yet impossible that a Court may be persuaded to grant relief in such a case, Vital Nut and VVB show that applicants will almost certainly have a very steep hill to climb to get to that point.