In Beadle v HMRC [2020] EWCA Civ 562 (29 April), the Court of Appeal dismissed the appeal against a penalty for late payment of an accelerated payment in a partner payment notice (PPN) and confirmed that the FTT has no jurisdiction to consider the validity of a PPN as a defence to a late payment penalty.
Although this case concerned a PPN, because the rules applicable to (and the policy purpose underlying) accelerated payment notices (APNs) are substantively the same, this decision applies equally to APNs.
As a member of a limited liability partnership (LLP) that entered into arrangements intended to result in a trading loss, Beadle claimed to carry back his share of the loss against an earlier tax year, so he received a repayment from HMRC.
HMRC opened an enquiry into the LLP’s return and issued a closure notice reducing the loss to nil. HMRC also issued a PPN to Beadle requiring him to pay the understated tax. Beadle made representations to HMRC about the PPN’s invalidity but did not make a claim for judicial review. He also did not pay the PPN on time, so HMRC issued a penalty notice. He appealed, arguing that the invalidity of the underlying PPN meant no payment was due and that his genuinely held belief about the PPN’s invalidity constituted a reasonable excuse (or at least special circumstances) for the late payment.
Beadle’s appeals to the First-tier Tribunal (FTT), the Upper Tribunal (UT) and the Court of Appeal were dismissed.
The Court of Appeal decided that taxpayers are by clear and necessary implication precluded from raising a public law challenge, i.e. the invalidity of a PPN or an APN, at the penalty and enforcement stages of the accelerated payments regime. This is because:
a PPN/APN ensures that the disputed tax is held by HMRC until the dispute is resolved, removing the cash flow benefit from the taxpayer during the dispute and therefore deterring tax avoidance schemes;
a PPN/APN doesn’t determine the amount of tax ultimately due: if the taxpayer wins in the substantive tax appeal, the amount paid under a PPN/APN will be repaid with interest;
enabling taxpayers to challenge a penalty by raising the invalidity of the PPN/APN notice ‘would amount to a statutory appeal by the back door against the PPN [or APN]’ when parliament had expressly not provided any right of appeal against such a notice;
the taxpayer has a statutory right to make representations about the PPN/APN to HMRC, and, while that procedure is ongoing, the obligation to make the accelerated payment is suspended and the amount due may well be reduced; and
the taxpayer can also challenge the validity of the notice through judicial review.
The court also held that the UT had not made an error in law in upholding the penalty without regard to Mr Beadle’s genuine belief that the notice was invalid. Such a belief does not constitute a reasonable excuse for late payment or special circumstances.
Why it matters: Taxpayers cannot invoke the invalidity or perceived invalidity of a PPN or an APN as a defence to a late payment penalty notice. A genuinely held reasonable belief that the underlying PPN/APN is invalid also does not constitute a reasonable excuse for failing to pay the accelerated payment on time and does not amount to special circumstances justifying the reduction in the penalty.
Since the FTT doesn’t have inherent jurisdiction to hear judicial review claims, if taxpayers want to challenge the validity of PPNs or APNs, they must do so by way of a claim for judicial review to the High Court, ensuring that they have first exhausted the statutory representations procedure made available under the APN/PPN regime.
In Beadle v HMRC [2020] EWCA Civ 562 (29 April), the Court of Appeal dismissed the appeal against a penalty for late payment of an accelerated payment in a partner payment notice (PPN) and confirmed that the FTT has no jurisdiction to consider the validity of a PPN as a defence to a late payment penalty.
Although this case concerned a PPN, because the rules applicable to (and the policy purpose underlying) accelerated payment notices (APNs) are substantively the same, this decision applies equally to APNs.
As a member of a limited liability partnership (LLP) that entered into arrangements intended to result in a trading loss, Beadle claimed to carry back his share of the loss against an earlier tax year, so he received a repayment from HMRC.
HMRC opened an enquiry into the LLP’s return and issued a closure notice reducing the loss to nil. HMRC also issued a PPN to Beadle requiring him to pay the understated tax. Beadle made representations to HMRC about the PPN’s invalidity but did not make a claim for judicial review. He also did not pay the PPN on time, so HMRC issued a penalty notice. He appealed, arguing that the invalidity of the underlying PPN meant no payment was due and that his genuinely held belief about the PPN’s invalidity constituted a reasonable excuse (or at least special circumstances) for the late payment.
Beadle’s appeals to the First-tier Tribunal (FTT), the Upper Tribunal (UT) and the Court of Appeal were dismissed.
The Court of Appeal decided that taxpayers are by clear and necessary implication precluded from raising a public law challenge, i.e. the invalidity of a PPN or an APN, at the penalty and enforcement stages of the accelerated payments regime. This is because:
a PPN/APN ensures that the disputed tax is held by HMRC until the dispute is resolved, removing the cash flow benefit from the taxpayer during the dispute and therefore deterring tax avoidance schemes;
a PPN/APN doesn’t determine the amount of tax ultimately due: if the taxpayer wins in the substantive tax appeal, the amount paid under a PPN/APN will be repaid with interest;
enabling taxpayers to challenge a penalty by raising the invalidity of the PPN/APN notice ‘would amount to a statutory appeal by the back door against the PPN [or APN]’ when parliament had expressly not provided any right of appeal against such a notice;
the taxpayer has a statutory right to make representations about the PPN/APN to HMRC, and, while that procedure is ongoing, the obligation to make the accelerated payment is suspended and the amount due may well be reduced; and
the taxpayer can also challenge the validity of the notice through judicial review.
The court also held that the UT had not made an error in law in upholding the penalty without regard to Mr Beadle’s genuine belief that the notice was invalid. Such a belief does not constitute a reasonable excuse for late payment or special circumstances.
Why it matters: Taxpayers cannot invoke the invalidity or perceived invalidity of a PPN or an APN as a defence to a late payment penalty notice. A genuinely held reasonable belief that the underlying PPN/APN is invalid also does not constitute a reasonable excuse for failing to pay the accelerated payment on time and does not amount to special circumstances justifying the reduction in the penalty.
Since the FTT doesn’t have inherent jurisdiction to hear judicial review claims, if taxpayers want to challenge the validity of PPNs or APNs, they must do so by way of a claim for judicial review to the High Court, ensuring that they have first exhausted the statutory representations procedure made available under the APN/PPN regime.
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