Walapu v Revenue and Customs Commissioners

JurisdictionEngland & Wales
JudgeMr Justice Green
Judgment Date23 March 2016
Neutral Citation[2016] EWHC 658 (Admin)
Docket NumberCase No: CO/1948/2015
CourtQueen's Bench Division (Administrative Court)
Date23 March 2016

[2016] EWHC 658 (Admin)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

ADMINISTRATIVE COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Mr Justice Green

Case No: CO/1948/2015

Between:
Dr. Walapu
Claimant
and
Her Majesty's Revenue & Customs
Defendant

David Southern QC and Rebecca Murray (instructed by GRM Law) for the Claimant

Akash Nawbatt (instructed by HMRC Solicitor's Office) for the Defendant

Hearing dates: 23 rd– 24 th February & 15 th March 2016

Mr Justice Green

A. Introduction: Issues and conclusion

1

This claim for judicial review concerns the scope and effect of Chapter 3 of the Finance Act 2014 which entitles the Defendant (" HMRC" or the " Revenue") to impose upon persons suspected of tax avoidance an obligation to, in effect, pay on account the amount the Revenue considers represents understated tax. Under existing rules promoters of tax avoidance schemes must notify the schemes to HMRC which can then allocate a reference number to the scheme which taxpayers who are members of the scheme must then include on tax returns. In this way the Revenue is alerted to the fact that a taxpayer is party to a notified tax avoidance scheme. The Act requires parties to tax avoidance schemes to pay the disputed tax within a fixed period of time from receipt of an "accelerated payment notice" ("APN") which may be issued and payment required before the tax is assessed. The express objective of the Chancellor of the Exchequer, in promoting this legislation, was to alter the economics of tax avoidance by stripping from parties to such schemes all of the liquidity advantages that they, hitherto, enjoyed. An important consideration leading to the new provisions was the experience of HMRC of dealing with aggressive delaying tactics and strategies engaged in by tax avoidance scheme promoters. Documentary evidence placed before this Court by the Revenue showed that, not infrequently, the unravelling of tax avoidance schemes could take many years prior to HMRC being in a position to assess a taxpayer's liability and then obtain payment. In the interim participants held money that HMRC considered was due to the State and promoters of tax avoidance schemes continued to be in a position to promote their schemes as having longevity.

2

The legality of the APN system introduced by the Finance Act 2014 was challenged by a taxpayer who had been formally assessed but which was subject to appeal in Rowe et ors v The Commissioners for HM Revenue & Customs [2015] EWHC 2293 (Admin) (" Rowe"). In that case it was argued that the system was unlawful because, in essence, it violated legitimate expectations, defeated natural justice, infringed Article 6 of the European Convention on Human Rights (" ECHR"), denied citizens access to the courts, and infringed the fundamental right to property set out in Article 1 of the First Protocol to the ECHR (" A1P1"). In a cogent and careful judgment Mrs Justice Simler rejected all of these arguments. A further, and particular, aspect of the scheme was considered by the Court of Appeal in R(on the application of De Silva) v The Commissioners for Her Majesty's Revenue & Customs [2016] EWCA Civ 40 where the Court of Appeal upheld the position adopted by the Revenue.

3

There is however an important factual distinction between the present case and those that have preceded it. In these earlier cases the Revenue had formally assessed the claimant's tax liability and from then onwards what was in dispute (through the appeal process) was a crystallised tax liability owed by the Claimant to HMRC. In the present case, the Claimant has in his tax return claimed relief against past income tax assessments but he has not yet had the present claim formally assessed. The APN which has been imposed upon him requires – he submits — the payment on account of an unassessed tax liability that has not accrued. It is argued that this is a fundamentally different position to the case of an assessment which is under appeal. Mr David Southern QC, who appeared for the Claimant, argued that to require a citizen to pay to the Revenue a sum which was not a sum assessed for tax constituted a profound violation of the citizen's private rights. The new system created by the Finance Act 2014 conferred a draconian power upon the HMRC which they now deployed in relation to a targeted segment of society (tax avoiders) in an unfair and unjust way which involves diluted and ineffective procedural protections. Mr Southern QC did not shy away from seeking a declaration of incompatibility of the new system with the Human Rights Act 1998 (" HRA 1998").

4

I should, before going on, say a word about the manner in which the present dispute has evolved. In its initial form the claim for judicial review was, in substantial part, identical to that addressed in Rowe and the importance of the distinction between an APN issued during an enquiry, on the one hand, and an APN issued following assessment but pending appeal, on the other hand, featured only lightly. However, in the light of the case law referred to above the Claimant's case changed and a new case emerged only shortly prior to the oral hearing of this judicial review. The Revenue, pragmatically, has taken the view that it is better to address the new arguments now instead of seeking an adjournment to permit the case properly to be pleaded and particularised with the concomitant delay in clarification of the law. In the event, the Claimant was allowed considerable latitude and, indeed, one argument (concerning the scope and effect of the transitional arrangements relating to notifiable tax avoidance schemes) only took real shape halfway through the hearing. Again, the Revenue agreed to address the argument and gave "overnight" disclosure to the Claimant of certain documents in order that a properly formulated written submission could be prepared and served. The emergence of the point necessitated a second oral hearing to address the issue. I am grateful to the Revenue for the sensible approach it has adopted to the resolution of this dispute.

5

The conclusion that I have arrived at is that the claim, in its various forms, fails. The reasons are analogous to those articulated by Simler J in Rowe. However, given the differences in the factual context and the evolved nature of the arguments advanced, I have not simply followed the ruling in Rowe. I have arrived at my own conclusions, though having full regard to the logic of the judgment in Rowe.

6

Mr Southern QC described the nub of his client's objections as " due process". He accepted that his various Grounds were, in material respects, different ways of advancing a single core objection. It is, in this regard, helpful to stand back from the minutiae of the argument. The Claimant does not (nor could) challenge the legitimacy of the objective pursued by Chapter 3 of the Finance Act 2014, namely to alter the economics of tax avoidance. The Treasury estimates that tax avoided amounts to c. £14 billion. One way of attacking tax avoidance schemes is to unravel them individually by assessing the tax due and then fighting the scheme promoters through the Courts and Tribunals in protracted litigation. But an alternative approach is, ex ante, to negate the incentive for such schemes to be entered into in the first place. HMRC says that they win over 80% of the cases that they fight to a litigated conclusion and settle many more along the way. They have now introduced a detailed and systematic internal process designed to enable them, at a much earlier stage, to form a clear conclusion as to the understated tax. They are confident in the robustness of the procedure devised. By imposing the APN before a full assessment the Revenue conveys the signal to potential participants in tax avoidance schemes that: (a) the ultimate prospects of success are small; and (b), there will be no, or at least a greatly reduced, liquidity benefit from participating in a scheme pending a final determination of the legality of the scheme through litigation.

7

By this new system, the Revenue seeks to reduce the incentive for taxpayers to subscribe to tax avoidance schemes. Lawyers, accountants and others advising upon such schemes will be bound, in accordance with their professional obligations, to advise promoters and their prospective clients of this different state of affairs. The experience of the HMRC is that the effect of the Finance Act 2014 has already led to a substantial downturn in the number of new tax avoidance schemes being notified to it.

8

The new arrangements thus: pursue a legitimate objective; are targeted precisely upon the class of persons who engage in the activity sought to be suppressed; and incorporate a vigorous process whereby the APN is likely to correlate to the actual tax position. These factual conclusions go a long way to answering the Claimant's criticisms. However, some Grounds are more specific and concern an alleged omission of particular procedural rights within the legislative scheme. Specifically, the Claimant objects to the absence of a right of representation prior to the issuance of the APN and the absence of a right of appeal. Neither argument is, in my judgment, sustainable. Both the statutory framework and the internal procedures introduced by HMRC provide ample opportunity for addressees of APNs to make their views known comprehensively to the Revenue. There is nothing deficient or unfair in these arrangements which could, remotely, amount to a denial of a right of representation. As to the alleged deficiency of the right of appeal there is, again, nothing in the point. If a taxpayer is aggrieved by the issuance of the...

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