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R (on the application of Rowe and Others) v HMRC

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In R (on the application of Rowe and Others) v HMRC [2017] EWCA Civ 2105 (12 December 2017), the Court of Appeal dismissed an appeal against the decision of the High Court, itself dismissing claims for judicial review of partner payment notices (PPNs).

Mr Rowe had participated in a scheme established by Ingenious Media. The taxpayers in the various appeals grouped with Mr Rowe had made ‘carry-back’ claims, ‘sideways claims’ or a combination of such claims in respect of their share of partnership losses. HMRC opened an enquiry into Mr Rowe’s 2004/05 tax return and subsequently issued a closure notice removing any of the claimed losses from the return. HMRC later on wrote to the taxpayers who had engaged in the Ingenious scheme, including Mr Rowe, warning them that they would shortly be issuing PPNs in respect of the partners’ loss claims. The PPNs were duly sent.

Mr Rowe’s first ground was that the issue of the PPN was outside the statutory purpose in FA 2014 because the aim of the legislation was to disincentivise the use of tax avoidance schemes, and the tax scheme implemented by Mr Rowe had been used before FA 2014. However, the court found that the object of the powers conferred on HMRC was to disincentivise other taxpayers from entering into such schemes. The court added that the power to issue accelerated payment notices (APNs) should only be available if the designated officer forms the view that the tax scheme does not work, ‘having diligently weighed up to the appropriate extent all the information available’. HMRC should therefore take a view on the effectiveness of a scheme before issuing an APN. 

The second issue was whether HMRC could fairly apply the APN/PPN regime retrospectively to those taxpayers who had entered into marketed tax schemes before the FA 2014 was enacted. The court found that the presumption against retrospectivity could be excluded by clear words. In any event, the issue of the APNs had not changed the taxpayers’ entitlement to claim losses; it had only created an obligation to make a payment on account.

The court also found that there had been no breach of natural justice, since taxpayers could make representations and HMRC had to consider the effectiveness of the scheme. Finally, the European Convention on Human Rights (Art 6) did not apply, as the issue of APNs did not involve the exercise of punitive powers.

Read the decision.

Why it matters: Rowe was the lead case for 81 taxpayers who had participated in schemes established by Ingenious Media PLC. The decision runs to some 231 paragraphs, thus covering in detail every possible argument against the validity of APNs – only some of which are summarised above. Like all the previous judicial attempts at challenging APNs, it failed.

Also reported this week:


Issue: 1382
Categories: Cases