Beadle v Revenue and Customs Commissioners
| Jurisdiction | England & Wales |
| Neutral Citation | [2020] EWCA Civ 562 |
| Year | 2020 |
| Court | Court of Appeal (Civil Division) |
[2020] EWCA Civ 562
Sir Ernest Ryder Lord Justice Moylan and Lady Justice Simler
Court of Appeal (Civil Division)
Partner payment notices (PPN) – Penalty for late payment – Jurisdiction of FTT on appeal against penalty notice to entertain challenge to PPF – Whether reasonable excuse – Whether special circumstances – Applicability of FA 2014, s. 226 and Sch. 32 – FA 2009, Sch. 56, para. 9, 11 and 16 – Appeal dismissed.
The Court of Appeal has dismissed an appeal against the Upper Tribunal's decision that challenges to a PPN could not be made on public law grounds and that the FTT was correct in not considering the validity of the PPN in relation to a reasonable excuse or special circumstances defence against a penalty notice.
Mr Beadle (the appellant) was a participant in a marketed tax avoidance scheme who was served with a PPN in relation to the scheme. He made representations against the validity of the PPN, which were rejected, and was subsequently issued with a 5% non-payment penalty, having failed to pay the sum due on time.
Following Mr Beadle's appeal against the penalty notice, in Beadle [2017] TC 05993, the FTT held that it did not have jurisdiction to entertain challenges to the underlying PPN and in Beadle [2018] TC 06224 a second FTT judge held that there was no reasonable excuse for late payment of the PPN, nor were there special circumstances to justify a reduction in the penalty. The Upper Tribunal (UT) (Beadle v R & C Commrs [2019] BTC 512) dismissed the appeal against both decisions.
Mr Beadle appealed against the UT decision on two grounds:
- in the absence of any statutory appeal process against PPNs, collateral challenges to PPNs on public law grounds may be made by a taxpayer in the course of an appeal against a penalty notice; and
- where a reasonable excuse or special circumstances challenge to a penalty notice is made, the FTT may consider the validity of the PPN.
Counsel for Mr Beadle argued that the challenge was permissible because, although it is not possible to instigate proceedings (other than by way of judicial review) against public law decisions, there is no restriction on a public law challenge by way of defence to enforcement action unless prevented by “clear words” in primary legislation. Lady Justice Simler disagreed, on the basis that even if the primary legislation did not expressly exclude a public law challenge, this might be the clear and necessary implication when it was construed in the light of its context and purpose. In this case the purpose and policy intention of issuing a PPN was to prevent a taxpayer from being able to obtain a cash flow benefit from delaying payment of tax whilst an avoidance scheme was being contested, hence the deliberate omission of statutory appeal rights against the PPN itself. Moreover, the legislation provided ample opportunity to challenge a PPN by other means (making representations and, if still dissatisfied, by judicial review), and the underlying tax claimed to be due could be disputed using normal appeals procedures.
Lady Justice Simler also considered that the FTT were correct to hold that the validity of a PPN should not be considered in the context of a reasonable excuse or special circumstances challenge to a penalty notice. This was because the action of a reasonable taxpayer, who considered that the calculation of the tax underlying the PPN was unlawful, would be to pay the sum demanded and make any necessary challenges to the underlying liability in the meantime. Any other interpretation would circumvent the evident intention of parliament in relation to PPNs (to be able to collect the tax whilst proceedings were ongoing).
With the agreement of both Lord Justice Moylan and Sir Ernest Ryder, the appeal was therefore dismissed.
Provisions introduced by Finance Act 2014 were specifically introduced to prevent taxpayers who participate in tax avoidance schemes (including, as in this case, notifiable tax avoidance arrangements (DOTAS)) from obtaining a cash flow advantage by delaying payment of tax until the closure on an enquiry or final decision on appeal. This was achieved by requiring them to pay the tax on issue of an accelerated payment notice (APN) or, as in this case, a PPN (issued to each relevant partner). The purpose of these provisions would therefore be defeated if the APN/PPN were, in its turn, subject to the same appeals procedure as the original tax assessment.
Mr Keith Gordon and Ms Ximena Montes Manzano (instructed by Jefferies Essex LLP) appeared for the appellant
Ms Aparna Nathan QC and Ms Marika Lemos (instructed by HMRC Solicitor's Office) appeared for the respondent
[1] The appellant, Mr Beadle, is a taxpayer who participated in a tax avoidance scheme through a partnership, Ingenious Film Partners LLP (“the LLP”), which was involved in investments in films, in the year ending 5 April 2005. The LLP entered into arrangements (that were “DOTAS arrangements” for the purposes of s.219(5) Finance Act 2014 (“FA 2014”)) by which it claimed to realise a trading loss for that (and other) years. Mr Beadle claimed as a partner of the LLP, to carry back his share of that loss to reduce his taxable income for the tax year ending 5 April 2002 and he obtained relief by way of a repayment to him from The Commissioners for Her Majesty's Revenue and Customs (“HMRC”) of approximately £100,000 calculated by reference to income tax he had originally paid for that tax year. HMRC enquired into the LLP's tax return for (among other years) the tax year ending 5 April 2005, and on 30 November 2012 issued the LLP with a closure notice reducing the LLP's trading loss to nil. An appeal against the closure notice by the LLP is ongoing.
[2] This appeal concerns two decisions of the First-tier Tribunal (Tax) (the “FTT”) made in the course of an appeal by Mr Beadle against a penalty notice for non-payment of a Partner Payment Notice (referred to below as a “PPN”). The first decision by FTT Judge Jonathan Richards held that the FTT did not have jurisdiction in a penalty appeal to entertain a challenge to the lawfulness or validity of the underlying PPN. The second decision by FTT Judge Rupert Jones held that Mr Beadle had neither a reasonable excuse for late payment of the sum required by the PPN, nor were there special circumstances justifying a reduction in the penalty.
[3] Mr Beadle's appeals to the Upper Tribunal (Arnold J and Judge Jonathan Cannan, the “UT”, [2019] BTC 512), were dismissed. Mr Beadle now appeals to this court, with permission granted by the UT.
[4] It was and remains common ground that the decision by HMRC to serve a PPN is a public law decision by a public body and is in principle amenable to challenge by the recipient of the PPN on public law grounds by way of judicial review. As with any public law decision, in general, a PPN once given is presumed valid unless and until successfully challenged and in the event of a successful challenge (in a court of competent jurisdiction), it will be recognised as having had no legal effect. Furthermore, the FTT is a statutory tribunal and has no inherent jurisdiction, nor any jurisdiction to grant judicial review. However, that does not mean that the FTT never has jurisdiction to determine public law questions. A tribunal that has no judicial review jurisdiction may nevertheless have to decide questions of public law in the course of exercising the jurisdiction which it does have: see for example the discussion in Oxfam v R & C Commrs [2010] BVC 108 (Sales J at [68]).
[5] The central question on this appeal is whether the FTT does have jurisdiction to determine the validity of the underlying PPN in the penalty appeal proceedings with which this court is concerned. This depends on whether the general rule (derived in O'Reilly v Mackman [1983] 2 AC 237 at 285) that it is an abuse of the process of the court to permit a person to challenge a public law decision by means other than judicial review, applies here as HMRC contend, to prevent Mr Beadle from challenging the validity of the underlying PPN in the penalty notice appeal; or whether this is a case where the validity of the PPN arises as a collateral issue in what are essentially enforcement proceedings, so that fairness requires that the exclusivity principle does not apply, as Mr Beadle contends.
[6] For the reasons which follow, I consider that the FTT and the UT came to the right conclusions in each of the impugned decisions. Accordingly, if the other members of the court agree, Mr Beadle's appeal should be dismissed.
[7] I set out first the statutory provisions relevant to the accelerated (and partner) payment notice regime that are necessary for an understanding of this appeal.
[8] The core legislation is contained in sections 219–233 and Schedules 32–33 FA 2014. The provisions enable HMRC to require accelerated payments to be made by taxpayers on account of disputed or unresolved tax liabilities in certain prescribed circumstances. Section 219(1) FA 2014 provides that HMRC may give an “accelerated payment notice” to a taxpayer if Conditions A–C (set out at section 219(2)–(7)) are met. Where the taxpayer is or was a member of a partnership, Schedule 32 FA 2014 provides a parallel regime for the making of a PPN to each relevant partner of the partnership if the same Conditions A–C are met (Schedule 32, paragraph 3). For present purposes, there is no material distinction between accelerated payment notices and PPNs. Schedule 32 paragraph 3 provides:
3. Circumstances in which partner payment notices may be given
3(1) Where a partnership return has been made in respect of a partnership, HMRC may give a notice (a “partner payment notice”) to each relevant partner of the partnership if Conditions A to C are met.
3(2) Condition A is that–
- a tax enquiry...
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