UK film partnership investors force HMRC to suspend up-front payment notices

Thursday, 12 February 2015

The England and Wales High Court has granted permission to UK film investors to challenge the accelerated payment notices (APN) they have received.

Last year's Finance Act granted HM Revenue and Customs the power to issue these notices, which require users of tax avoidance schemes to pay disputed tax within 90 days before any tribunal has ruled on the matter. HMRC has issued APNs worth over GBP1 billion since the new regime came into force last summer.

However, there is considerable professional concern from both the accountancy and the legal professions regarding recipients' lack of access to the courts to challenge them. As a result, some of the affected taxpayers have applied for judicial review of the validity of the legislation.

The first such challenge was lodged by more than 100 investors in film partnership arrangements set up by the investment company Ingenious Media. These arrangements are regarded by HMRC as tax avoidance vehicles, but their participants insist that they are genuinely engaged in trading. They are contesting HMRC's view at the First-tier Tax Tribunal which has not yet come to a decision. In the meantime, though, the participants have been issued with APNs.

There was some delay while the England and Wales High Court considered whether to grant leave for these claims to proceed, but permission has now been obtained to proceed to a full hearing.

The notices are now suspended until the full judicial review hearings. These will take place this summer, said Jason Collins of law firm Pinsent Masons, which is acting for the Ingenious Media taxpayers.

The key point is whether the APN powers breach human rights law – in particular, the right to a fair hearing, and the general prohibition on retrospective legislation. The legislation provides the recipient of an APN with no right of appeal, except to HMRC itself and even then only on the grounds that the notice was wrongly issued. There is no defence that the scheme is, in fact, valid.

'In the absence of a right of appeal against an APN, judicial review is effectively the only remedy potentially available to the recipient', said Collins.

'There are several grounds for arguing that the APNs in these cases were unlawful', noted Collins. These include the fact that the absence of a right to appeal is not compatible with human rights legislation. Another possible challenge is that the legislation is retrospective, because it allows HMRC to issue notices against any scheme now registered under the DOTAS (Disclosure of Tax Avoidance Schemes) regime, even if the scheme was begun before the APN rules came into force.

According to Michael Avient of tax accountancy firm UHY Hacker Young, one of the main grounds for judicial review is the argument relating to legal validity raised in the case of De Silva and Dokelman v HMRC (TCC-JR/10/2012). UHY is the instructing accountant in respect of this case, which is currently listed to be heard in the England and Wales Court of Appeal in March.

Another judicial review, which arises from HMRC's inconsistent approach to the issue of tax enquiries, is also due to be heard in March, for which, again, UHY is the instructing accountant. 'If HMRC lose either case it could have far reaching implications for the validity of a large number of APNs', said Avient.

UHY believes that registered tax avoidance scheme users that have not yet received an APN will almost certainly get one in due course, unless the judicial review succeeds. It is especially concerned that HMRC is planning a 'tsunami' of APNs against taxpayers who have claimed the Business Premises Renovation Allowance. For some of these taxpayers, the loss of tax relief and the resulting APN demands may have dramatic consequences and even lead to bankruptcy – even if their allowance claims are eventually found to be valid, says Avient.

An HMRC spokesperson quoted in Tax Journal said: 'We are prepared for possible challenges to the accelerated payments legislation[...]. We are confident of our position and we will be pressing to have any challenges that emerge resolved as quickly as possible. We will be continuing to issue APNs and people should continue to pay them.'


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