A few potential lifelines have been offered to taxpayers who are unfortunate enough to find their tax affairs called into question by HMRC, following some recent court decisions.
Can you justify non-payment of an Accelerated Payment Notice?
If you receive an Accelerated Payment Notice (APN) from HMRC, you are likely to have to pay all of the disputed tax upfront, within 90 days of the APN, if you want to avoid additional penalties (see our previous article). Strictly speaking, there is no right of appeal against an APN, although there may potentially be grounds for objecting to the APN swiftly if you can demonstrate that your situation does not meet the conditions needed to issue an APN.
In the recent case of Chapman v HMRC, the First-Tier Tax Tribunal ruled that a taxpayer’s belief that an APN had been issued unlawfully could potentially constitute a reasonable excuse for non-payment of the APN. However, the Tribunal ruled against the taxpayer in this specific case, stating that such a belief could only be reasonable in exceptional circumstances. Although the taxpayer in this case asserted that he had been advised that the APN was unlawful and that a legal challenge would succeed, the Tribunal stated that no one should assume lightly that HMRC had acted unlawfully unless there was an obvious or gross error in the APN (which was not the case here). So while the judgment does offer some comfort to taxpayers who receive an APN, it remains to be seen how often in practice a belief in the unlawfulness of an APN will be considered a reasonable excuse for non-payment.
There have over the years been several unsuccessful attempts to challenge the legality of the APN regime itself, and in the recent decision in Rowe and others v HMRC and Vital Nut Co Ltd and others v HMRC, the Court of Appeal robustly dismissed the latest challenge to the legality of the APN regime. However, the Court of Appeal’s decision did raise some doubts about whether HMRC’s current financial hardship procedures are sufficient to address the significant impact that an APN could have on a taxpayer, and so there remains some scope that a taxpayer who is faced with financial hardship as a result of receiving an APN could potentially seek to challenge the regime on that basis.
Can you rely on HMRC’s own guidance on how it will exercise its tax powers?
A claim for breach of a “legitimate expectation” can potentially be brought against a public body (such as HMRC) which exercises its powers in a way that is inconsistent with a person’s legitimate expectation of how the public body would exercise its powers, provided that that expectation was reasonably based on either a “representation” made by the body, or its past conduct. In tax matters, this can be relevant in relation to how taxpayers might expect HMRC to exercise its powers in relation to certain tax treatments.
HMRC has produced several guidance manuals covering a range of tax issues, and they all include a notice to the effect that whilst the guidance provided is not to be assumed to be comprehensive or definitive in every case, it would be applied in normal cases. In the recent case of R (Aozora GMAC Investment Ltd) v HMRC, the High Court ruled that a statement made in one of HMRC’s manuals could therefore be considered a “relevant representation” for the purposes of bringing a claim against HMRC for breach of a legitimate expectation, if HMRC did not exercise its powers in accordance with that statement.
That said, in this particular case the taxpayer’s claim failed because the High Court found on the evidence that the taxpayer had not, in fact, relied on the statement in the manual (and therefore the taxpayer had not had a “legitimate” expectation that HMRC would exercise its powers in a certain way). Nevertheless, the judgment is still likely to cause concern for HMRC, as it establishes that the guidance provided in its manuals can potentially be used as the basis for a claim for breach of a legitimate expectation. It therefore seems likely that, as a result of this decision, HMRC will attempt to strengthen the caveats and disclaimers in its manuals.
In each of the above cases, the specific taxpayers were unsuccessful in their claims because the courts ruled against them based on the facts in each particular case. Nevertheless, these decisions have established that, in principle at least, taxpayers may be able to advance arguments and claims in relation to the above issues which they might not have been able to previously.
If you would like to know more about these or any other issues relating to tax disputes, please contact Michael Axe today for more information.