R (on the application of Archer and Another) v Revenue and Customs Commissioners

JurisdictionEngland & Wales
Judgment Date28 March 2018
Date28 March 2018

High Court (Queen's Bench Division)

Mr Justice Green

R (on the application of Archer & Anor)
and
Revenue and Customs Commissioners

Conrad McDonnell (instructed by KPMG LLP) appeared for the claimant

David Yates (instructed by HMRC Solicitor's Office) appeared for the defendant

Procedure – Accelerated payment notice (APN) issued to both husband and wife – Judicial review claim against HMRC compromised in appellant's favour – Appellant applied for costs – Claim for judicial review premature as had statutory right under FA 2014, s. 222 to make representations – Costs application refused in High Court – Appeal dismissed.

The High Court dismissed an appeal against an earlier decision to refuse a costs order against HMRC following a judicial review conceded in the taxpayer's favour.

Summary

Mr Archer had participated in a tax avoidance scheme which purported to result in a reduction of his income tax liability by £6m. HMRC investigated the scheme and concluded that it was effective, but considered that it created a capital gains tax liability for Mr Archer's wife, Mrs Archer, of £6m. HMRC later changed their position in relation to the efficacy of the scheme and decided that they no longer accepted that Mr Archer had a loss. HMRC indicated that they would accept that £6m was due from either Mr or Mrs Archer.

HMRC issued accelerated payment notices (APN) to both Mr and Mrs Archer under FA 2014, Pt. 4, Ch. requiring them each to pay £6m.

Mr and Mrs Archer applied for a judicial review against the APNs on the grounds that they had been unlawfully issued. Shortly afterwards Mr and Mrs Archer made representations objecting to the notices under FA 2014, s. 222.

HMRC withdrew the notice issued to Mrs Archer, admitting that they had not followed best practice requirements where both spouses played a part in avoidance arrangements.

Mrs Archer applied for a costs order against HMRC to cover the costs incurred in the initial stage of preparing and issuing judicial review proceedings, on the basis that the judicial review had succeeded as HMRC had withdrawn the contested decision.

The decision of Master Gidden of 12 June 2017 concluded that, prima facie, Mrs Archer was entitled to her costs. However it refused to make such an order because Mrs Archer should instead have exploited her statutory right under FA 2014, s. 222 to make representations to HMRC which it said could and almost certainly would have led to resolution of the dispute. The judicial review claim was therefore premature.

Mr and Mrs Archer appealed against Master Gidden's decision on the basis that the claim was not premature because the apparent alternative of s. 222“had many inherent limitations” and therefore it was appropriate to have issued the claim form as a protective measure.

Mr Justice Green held that the Master did not err in his conclusion that the right to make representations pursuant to FA 2014, s. 222 was an appropriate alternative remedy which the taxpayer could (and should) have exhausted before bringing judicial review proceedings. The appeal accordingly failed.

Comment

The High Court agreed with the previous decision of Master Gidden that it was premature for the taxpayer to have commenced judicial review proceedings against HMRC's issue of an accelerated payment notice (APN) when there was a statutory right to make representations to HMRC about the APN.

JUDGMENT
Mr Justice Green:
A. Introduction

[1] There is before the court an appeal against the decision of Master Gidden of the 12th June 2017 relating to costs. The Appellant had commenced judicial review proceedings against the Commissioners for HM Revenue and Customs (“HMRC”). That claim was compromised in the Appellant's favour. However, the Master concluded that there should be no order for costs upon the basis that the claim for judicial review was premature because the Appellant had failed to exploit the statutory right to make representations to HMRC which exists under section 222 Finance Act 2014 (“FA 2014”) and which could and almost certainly would have led to resolution of the dispute.

[2] The present appeal turns, in substance, upon the correctness of the conclusion of the Master to this effect. Mr McDonnell for the Appellant argues that the issue arising is a discrete issue of principle; Mr Yates for HMRC accepts that there is a point of principle arising but adds that at base the Master's decision was premised upon his condemnation of the litigation conduct of the Appellant and as such is fact sensitive and based upon the exercise of judgment, which this court, on appeal, should be loath to interfere with.

[3] For reasons that I set out below I am of the conclusion that the ruling of the Master was based primarily upon his conclusion that the Claim for judicial review was premature and, as to this, I agree with the Master. In so far as his ruling is based upon conclusions about the conduct of the Appellant then this was secondary but, nonetheless, amounts to an exercise of discretion which on appeal I would not wish to disturb.

[4] I would record my gratitude to both counsel for their focused and thoughtful written and oral submissions. These showed that whilst at first blush the issue might appear straightforward even light excavation reveals a series of complications which flow from the analysis. I have therefore endeavoured to stay within the confines of the facts of the case. However there is at the heart of this case a point of broader significance and I have set out my views on this below. I have also identified other issues that I refrain from expressing a decided view upon. These can be explored in other cases where the facts are more clearly on point.

[5] My end conclusion is that the Master did not err. He correctly concluded that it was premature to commence judicial review proceedings pending the exercise of the statutory right to make representations and a decision thereupon by HMRC. Accordingly, there is no basis for overturning his decision on costs.

B. The relevant facts

[6] The facts are complex. I summarise them as follows. During 2006 the Appellant's husband, Mr Archer, had participated in a tax avoidance scheme which resulted in him claiming an income tax loss pursuant to section 551 Income Tax (Trading and Other Income) Act 2005 (“ITTOIA”). He filed a tax return for 2005/06 declaring income tax payable by him which was, in consequence of the scheme, reduced by circa £6,000,000 than would otherwise have been the case. His tax advisors had disclosed the scheme to HMRC pursuant to the Disclosure of Tax Avoidance Schemes Regulations (“DOTAS”), as they were required by law to do. HMRC had given the scheme a reference number pursuant to the Regulations. Mr Archer duly provided that reference number to HMRC in his return thereby alerting and notifying HMRC that his liability could be subject to the assessment that HMRC might make as to the effectiveness of the notified scheme.

[7] The scheme can be summarised (at the risk of over-simplification) in the following way. Mr Archer sold Certificates of Deposit (“CDs”) at a loss to a third-party bank. This was achieved in three discreet steps. First, Mr Archer granted to his wife an option to purchase the CDs from him at an undervalue. Second, Mrs Archer sold the option to the bank it being of value since it conferred the right to acquire the CDs at below market price. Third, the bank exercised the option. The Appellant analyses the situation in the following way: the acquisition by Mrs Archer of the option and its sale created a liability to capital gains tax unless it was exempt. Under normal capital gains tax rules a gain on the sale of an option relating to CDs was exempt from tax since a gain made in relation to CDs would be exempt from capital gains tax. The correctness of that capital gains tax analysis was in issue between the taxpayer and HMRC at the material times in 2014, but has subsequently been resolved for practical purposes by an agreement reached between the parties pursuant to s.54 Taxes Management Act 1970.

[8] This tax avoidance scheme was investigated by HMRC over the course of a number of years. On the 22nd September 2011 HMRC concluded that the scheme was effective and that the losses claimed were accordingly permissible and on that date HMRC communicated with Mr Archer's advisors, KPMG, their decision not to pursue further arguments in respect of Mr Archer's claimed loss under section 551 ITTOIA.

[9] In the same letter, however, HMRC stated that they considered that Mrs Archer had approximately £6,000,000 of capital gains tax to pay for 2005/06 in consequence of her participation in the tax avoidance scheme entered into by Mr Archer. Mrs Archer, the Appellant in the present proceedings, had not claimed any tax advantage for herself pursuant to the scheme but she had been a counterparty to transactions concluded by Mr Archer.

[10] As of 2011 the position of HMRC was that Mr Archer had no further tax to pay for 2005/06 but, instead, Mrs Archer was liable to pay £6,000,000 in capital gains tax.

[11] On the 27th March 2013 HMRC wrote to KPMG to summarise the position: HMRC confirmed that it had already accepted the loss arising on Mr Archer so “… the dispute is now solely on the tax effect on Mrs Archer.” The position adopted by HMRC was that there was a liability. It was that of either Mr or Mrs Archer; but not both.

[12] Subsequently, on 11th July 2013 HMRC, in a telephone call with KPMG, indicated that they had changed their position in relation to the efficacy of the scheme and that they no longer accepted Mr Archer had a loss for 2005/06.

[13] On the 30th July 2014 various Commissioners of HMRC met to consider a formal settlement proposal submitted by Mr Archer. His proposal involved neither Mr Archer nor Mrs Archer paying additional tax for 2005/06. That proposal was rejected. However, the Commissioners indicated that they would accept a proposal pursuant to which Mr Archer conceded his loss...

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