Eamonn Dunne and Another v HM Commissioners for Revenue & Customs

This is an application for an interim injunction by the two claimants in this case, Mr Dunne and Mr Gray. The draft order they seek would require the defendants, Her Majesty's Commissioners for Revenue and Customs ("HMRC") to refrain, first, from issuing any partner payment notices to the claimants until judgment in this claim and, second, from giving any notification under paragraph 5(4) of Schedule 32 to the Finance Act 2014 ("the 2014 Act"), except to withdraw a partner payment notice or amend it to specify a payment of nil. Third, the order they seek would restrain HMRC from taking any steps to issue penalty assessments pending the determination of this claim. Fourth, the draft order seeks to restrain HMRC from enforcing the partner payment notices issued to the claimants.

HMRC's position is that it is willing to agree to, or to submit to, an order for interim relief by which, in so far as the claimants serve witness statements providing evidence of hardship, HMRC would not without first applying to the court take steps to enforce any sum due and payable under any partner payment notice. That that obligation would be without prejudice to HMRC's ability to issue accelerated payment notices or partner payment notices, determine any written representations, issue any notice of surcharge or penalty, or claim interest in respect of any failure to pay any surcharge or penalty, HMRC also seek liberty to apply to the court should they consider that there is a need to enforce payment in advance of a decision on the judicial review claim, liberty, in so far as they consider that the issues raised in this claim have been determined by a decision of the court in respect of another claim, also to apply to the court. So that is the dispute on this application for interim relief.

The application for interim relief arises in the context of an application for judicial review which has been brought by the claimants challenging partner payment notices ("PPNs") which have been issued by HMRC. A similar application for interim relief was decided by Simler J on 26 March of this year in a the case of Nigel Rowe and others v HMRC. She rejected an argument that the court should grant interim relief in this form and in fact made an order in the form suggested in this case by HMRC. I gather that permission to apply for judicial review has been granted in the Rowe case. Although the Rowe case concerns a different type of scheme from the scheme that is at issue in this case, some at least of the general legal issues between this case and Rowe are similar.

It is also apparent from HMRC's skeleton argument in this case, which I am told is very similar, but not identical, to the skeleton argument that was relied on by HMRC in the Rowe case, that the decision of the House of Lords in Factortame (No. 2) [1991] 1 AC 603 was at least canvassed in the skeleton arguments in Rowe.

The PPNs in this case demand from the claimants the payment of a sum of £332,733.50. HMRC's general position in relation to this application is that some form of interim relief or undertaking would be appropriate but as the draft that I have already summarised suggests, the proposal would be that HMRC should not enforce, that is to issue legal proceedings in the county court, any sums which are due under the PPNs or take proceedings to enforce any associated penalties.

HMRC's position, however, is that it would strongly oppose any form of order which would prevent HMRC from operating the regime which Parliament has laid down, either by not issuing any further PPNs, or by not continuing to consider representations submitted by the claimants in relation to those PPNs, or by making any decision on those, or by issuing any penalty notices. So that is the nature of the dispute between the parties.

I should say something about the statutory scheme which is helpfully summarised in an appendix to HMRC's skeleton argument. The 2014 Act introduced two new regimes as part of the policy of countering tax avoidance. The first set of provisions concerned follower notices ("FNs"). The provisions about those are contained in Chapter 2 of Part 4 of the 2014 Act and Schedule 31 to the 2014 Act. The second set of relevant provisions concern accelerated payment notices ("APNs") and PPNs. The provisions about those are in Chapter 3 of Part 4 of, and Schedule 32 to, the 2014 Act.

A PPN can only be issued if three conditions set out in paragraph 3 of Schedule 32 to the 2014 Act, are met. Condition A is that there is a tax enquiry in relation to a partnership return for an appeal. Condition B is that the return or appeal is made on the basis that a particular tax advantage results from the particular arrangements. Condition C is that one or more of the several requirements is or are met. One of those conditions is that the chosen arrangements are DOTAS arrangements.

In this case HMRC has issued PPNs on the basis that condition C was satisfied, by reason of the fact that the chosen arrangement was a DOTAS arrangement. DOTAS arrangements are defined in section 219(5) of the 2014 Act as including notifiable arrangements to which HMRC has allocated a reference number under section 311 of the Finance Act 2004.

One of the points of challenge that is raised by Mr Gordon on behalf of the claimants in this case is that these are not DOTAS arrangements. He accepts that they were notified to HMRC and that HMRC has allocated a reference number to them but he says that they were notified on a precautionary basis and that it is not accepted by the claimants that they are in fact notifiable arrangements. He took me to the relevant regulations and argued that none of the relevant hallmarks, as they are called, of a notifiable arrangement is present in this case. It is sufficient to record that there is an argument about that between him and Mr Yates on behalf of HMRC. He also contended that the PPNs in this case are invalid as a matter of law, in short because there are two mistakes in relation to the dates given in the notices. The dates are wrong by a matter of one day.

The effect of a PPN is to require its recipient to pay the amount specified in the PPN. In the case of a PPN which is issued on the basis that the chosen arrangements are DOTAS arrangements, the relevant amount ("the understated partner tax") is defined in paragraph 4(3)(b) of Schedule 32 as:

"the additional amount that would become due and payable by the relevant partner in respect of tax if… such adjustments were made as are required to counteract so much of what the designated HMRC officer so determines as the denied advantage as is reflected in a return or claim of the relevant partner."

The "denied advantage" is defined in paragraph 4(4)(b) of Schedule 32 as:

"so much of the asserted advantage as is not a tax advantage which results from the chosen arrangements or otherwise".

Mr Yates summarises this by saying that the amount specified in a PPN which is based on a DOTAS arrangement is the amount of tax that would be payable in so far as the relevant tax avoidance arrangements operate in accordance with an HMRC officer's view. For example, if the HMRC officer does not consider that the chosen arrangements give rise to any effective tax advantage then the PPN would require payment of a sum which reflects the situation as if the tax planning had failed in its entirely. In a nutshell on the facts of this case, Mr Yates explained that the claimants in this case got more tax relief in year 1 of the arrangement than all the money which they invested in the scheme, and that the effect of the PPNs in this case is to disallow the difference between the relief claimed and the cash which was contributed to the scheme in year 1 of the scheme. And that is how the sum of £332,733.50 is arrived at.

The effect of the statutory scheme is that if a PPN is issued validly the relevant partner has 90 days beginning with the day on which the PPN is given to make written representations to HMRC (paragraph 5 of schedule 32.) Paragraph 5(1) says that this paragraph applies where a PPN has been given to a relevant partner and has not been withdrawn. By paragraph 5(2) the relevant partner has 90 days beginning with the day when that notice is given to send written representations to HMRC objecting to the notice on the grounds that Condition A, B or C in that paragraph has not been met, or objecting to the amount specified in the notice under paragraph 4(1)(b).

Paragraph 5(3) then imposes a duty on HMRC to consider any representations that have been made in accordance with sub-paragraph (2). Sub-paragraph (4) imposes a duty on HMRC, having considered the representations, to determine if representations have been made under sub-paragraph (2)(a) whether to confirm the PPN with or without amendment, or to withdraw the PPN, and, if representations have been under sub-paragraph (2)(b), and the notice has not been withdrawn under sub-paragraph (a), to decide whether a different amount ought to have been specified as the understated partner tax, and then to confirm the amount specified in the notice, or amend...