Tax Journal

The Queen (on the application of M Carlton and others) v HMRC

Date: 
14 February 2018

Partner Payment Notices

Our pick of this week's cases

In The Queen (on the application of M Carlton and others) v HMRC [2018] EWHC 130 (30 January 2018), the High Court dismissed an application for judicial review of partner payment notices (PPNs).

The claimants were members of limited liability partnerships and one limited partnership which invested in commercial property to take advantage of business premises renovation allowances (BPRA) introduced by FA 2005. HMRC opened enquiries into the partnership tax returns of two of the partnerships and issued PPNs; and the claimants sought judicial review of these PPNs. Four issues, which were common to Rowe [2015] EWHC 2293, were stayed pending the decision of the Court of Appeal in that case.

The claimants contended that there was no evidence to support the conclusion that the claimants’ purpose in entering into the arrangements had been the obtaining of a tax advantage, so that FA 2014 Sch 32 para 3 condition B was not fulfilled. The court considered that condition B simply required an increase or reduction in the partnership’s statement of its return, which resulted in a tax advantage for the partners. In particular, the condition could not be read as importing the concept of taxpayer’s purpose contained in s 201(3). The condition was therefore fulfilled in this case; the qualifying expenditure had substantially reduced the partnerships’ statements leading to loss relief for the partners.

The court added that the arrangements were notifiable under DOTAS so that condition C was fulfilled; the partnerships were loss schemes within the Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations, SI 2006/1543, reg 12. The court also rejected all other arguments put forward by the claimants. In particular, the fact that the claimants derived (or hoped to derive) commercial benefits from the partnerships was not sufficient to defeat the PPN legislation.

Read the decision.

Why it matters: This is yet another failed judicial review case against a PPN. Rather worryingly for taxpayers, the High Court has made it clear that Condition B focuses on the benefit to the taxpayer rather than on his purpose in entering the contentious arrangements. This is in line with the DOTAS legislation but this objective test is likely to be harsher for taxpayers.

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