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High Court dismisses accelerated payments challenge

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The High Court has rejected a judicial review application challenging the legality of accelerated payment notices, as well as their compatibility with human rights (Nigel Rowe and others v HMRC [2015] EWHC 2293). The application was made by 154 taxpayers involved in film partnership schemes. All are or were members of Ingenious Media plc schemes (members of one or more of three partnerships: Ingenious Film Partners; Ingenious Film Partners 2 LLP and Ingenious Games LLP).

The appellants claimed that HMRC’s action in issuing the partner payments notices were unreasonable, breached natural justice and represented an abuse of their rights under the European Convention on Human Rights to a fair trial and protection of property. They also claimed it took away the legitimate expectation they had when they joined the avoidance scheme that they wouldn’t have to pay tax before the dispute had been resolved. The High Court found in HMRC’s favour on all the challenges.

David Richardson, HMRC’s director of counter-avoidance, said it was ‘an important result, and good news for the vast majority of taxpayers who do not try to avoid paying their fair share of tax’.

Jason Collins, head of tax at Pinsent Masons – the law firm that acted for the appellants – said: ‘We are disappointed by the judgment, which in our view does not does not adequately address a number of serious issues raised by this new legislation.  For many of the claimants, HMRC checked and repaid the tax in question over ten years ago when it could have instead held on to the money pending any further investigations – yet it is now trying to use new legislation to claw money back.’

He added: ‘A number of judicial review applications in relation to APNs issued in respect of other arrangements have been stayed pending the outcome of the Ingenious Media application, so the decision will have implications for a large number of investors. We cannot comment at this stage about whether the applicants in Rowe & Worrall will be seeking to appeal.’

Tim Stovold, head of tax at Kingston Smith, commented: ‘Individuals who had been pinning their hopes on the judicial review being successful may now be faced with bankruptcy as the tax at stake for some runs into millions. The regime serves as a major disincentive to participate in tax avoidance schemes – but it has been applied to tax planning implemented many years before the accelerated payments notices were ever known about.’

Andrew Watters, tax director at Thomas Eggar, observed that the judgment ‘does not mean taxpayers cannot make “representations”.  However, in the past many such representations were based on broad claims as to whether HMRC had the right to issue APNs.  Following the High Court judgment, such representations are unlikely to be given much weight by HMRC. A more fruitful approach would be a review to see whether there had been some breach in procedure, or some argument as to the quantum of tax due.  But following the judgment, HMRC will now proceed on the basis that APNs “work” and they will be issuing a lot more.’

A similar judicial approach was taken in R (on the application of Dunne) v HMRC [2015] EWHC 1204 (reported in Tax Journal, 26 June 2015), in which the High Court granted interim relief in relation to partner payment notices, but only in the limited terms accepted by HMRC. (See also the article ‘APNs: can the taxpayer avoid the immediate obligation to pay?’ (Steve Bousher), Tax Journal, 12 June 2015.)

Separately, HMRC has since issued a brief factsheet, Ten things about accelerated payment notices, for taxpayers in receipt of an accelerated payment notice requiring payment of tax liabilities in connection with avoidance schemes. See