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Court of Appeal highlights 'real prospect of success' of accelerated payment notice judicial review

Investors in the Ingenious Media film partnership schemes have been granted the right to appeal the High Court's dismissal of their challenge to HM Revenue and Customs (HMRC), which had required up-front payment of disputed tax.03 Dec 2015

Steven Porter a tax disputes expert at Pinsent Masons, the law firm behind Out-Law.com, said that the Court of Appeal had highlighted the investors' "real prospect of success" of their challenge to HMRC's issuing them with 'partner payment notices' (PPNs), as well as the importance of the issues to be considered. Pinsent Masons is acting for over 80 investors involved in the appeal, which is expected to be heard towards the end of next year.

"The High Court's judgment in July did not, in our view, address some of the serious issues which use of PPNs in relation to these schemes poses," he said. "In many cases, HMRC checked and repaid the tax in question over 10 years ago – and is now trying to claw it back using new legislation."

"Taxpayers are being faced with notices demanding the upfront payment of millions of pounds, prior to any formal decision by the courts or tribunals. HMRC is moving much more quickly and aggressively than ever before. It is important that the new powers face proper scrutiny," he said.

Members of limited liability partnerships (LLPs) set up by Ingenious Media to invest in films had challenged HMRC's new powers to require advanced payment of disputed tax in the High Court, which ruled in favour of HMRC in July. The investors had claimed that HMRC did not issue the PPNs lawfully because it had adopted an "industrial process" for issuing the notices, rather than exercising the discretion called for by the legislation that implemented the new power. They also argued that the notices were issued in breach of their legitimate expectation that they would not have to pay any tax in dispute until after the First Tier Tribunal had decided on all relevant issues.

HMRC introduced accelerated  payment notices (APNs) in July 2014. They allow it to demand the payment of disputed tax associated with a tax avoidance scheme up front – before a tribunal or court has decided whether or not the scheme is effective. PPNs are similar to APNs, but are used when the notice is given to a member of a partnership or LLP.

The law allows HMRC to issue an APN or a PPN if a scheme demonstrates certain 'avoidance hallmarks', such as being subject to disclosure requirements under the Disclosure of Tax Avoidance Schemes (DOTAS) rules. They can be issued in relation to schemes that were entered into before the APN and PPN legislation came into force. Before HMRC gained the new powers, it had to win a tribunal case before it could demand disputed tax in these cases. Accelerated payments will be repaid with interest if the scheme is ultimately proven to work.

HMRC had issued over 25,000 APNs as of September 2015, enabling it to collect £1 billion in payments from users of tax avoidance schemes that it would not previously have been able to collect until disputes in relation to the schemes had been resolved.