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Accelerated payment notices and penalties

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Accelerated payment notices (APNs) and their substantially identical relatives partner payment notices (PPNs) have been controversial since the day they were born. Broadly, they give HMRC the right in some circumstances to demand payment of tax, pending resolution of any dispute as to whether the tax in question is correctly chargeable under the substantive law. Controversially, there is no appeal against them – merely the right to make ‘representations’ which HMRC are required to ‘consider’.

The process of judicial review (JR) may be used to challenge an HMRC decision: but not only is this expensive; it is also limited in that it can be used only to question the process by which HMRC have reached their decision in any particular case (as distinct from the conclusion reached).

There are penalties for a failure to comply with an APN. There are the usual rights of appeal against penalties; in particular, the penalty must be set aside if you have a ‘reasonable excuse’ for the failure.

In Sheiling Properties Ltd [2020] UKUT 175 (TCC), the company had received an APN, had had representations rejected and had, with others, issued JR proceedings. Pending the outcome of the proceedings it had not paid the tax demanded by the APN, so HMRC had duly sought penalties.

The question considered by the Upper Tribunal (UT) was therefore whether a genuine belief that the validity of an APN would be overturned in JR proceedings was a ‘reasonable excuse’ for failure to pay the tax demanded by it.

The UT drew a distinction between ‘substantive invalidity’ and ‘procedural invalidity’. By the first the UT meant ‘where the taxpayer believes that the tax payment accelerated by the notice is not owed by him, either because he does not owe it at all or because it has been wrongly calculated’ and by the second ‘where the taxpayer believes that, regardless of whether he owes the tax, the APN has not been issued in compliance with one or more of the statutory conditions imposed by FA 2014.’

Following the Appeal Court decision in Beadle [2020] EWCA Civ 562, the UT considered that belief in ‘substantive invalidity’ could never be grounds for appeal against a penalty for non-payment.

In fact, the Appeal Court had not made any explicit differentiation between ‘substantive’ and ‘procedural’ invalidity, holding that in an appeal against a penalty for failure to pay tax demanded by an APN, the courts were not entitled to consider the validity or invalidity of an APN at all.

This is startling. It means that the courts have declared that even if you can show beyond any doubt at all that HMRC’s calculation of the tax demanded by the APN is wrong, that is no defence to a penalty levied for non-payment.

The UT nonetheless thought that the position might be different for ‘procedural invalidity’ and concluded that on balance an objectively reasonable belief in the procedural invalidity of an APN was capable of being a ‘reasonable excuse’ for not paying it (though on the facts of Sheiling, it wasn’t). Confusingly, the UT then suggested that the sort of thing it had in mind might include ‘an obvious or gross error in the notice, such as where the decimal point had slipped in the statement of the amount to be paid’ (despite the fact that, on the UT’s definition, this would appear to be a ‘substantive’ invalidity, not a ‘procedural’ one).

In fact, the procedural requirements for the issue of an APN or PPN are so undemanding – essentially a statement that it’s an APN/PPN and of the paragraph under which it’s issued; a statement of the amount demanded; and an explanation of your obligations and rights – that ‘procedural invalidity’ should be very rare.

All of which leaves us back in the position that where an APN or PPN is demonstrably wrong but upheld by HMRC (which is not as uncommon as you might have thought), the only choices are either to pay it or to apply the expensive sledgehammer of judicial review.

This is no way to run a tax system.