Mr Justice Charles said that when exercising its discretion to issue an APN HMRC should have considered the fact that it had previously agreed to postponement of the tax. But he said that it was clear that the UK parliament had intended to change the position as regards payment of tax so that HMRC had "a power to effectively reverse the existing agreements and promises made by them". The taxpayers' unfairness arguments were outweighed by HMRC's arguments regarding the clear intention of parliament when introducing the APN legislation, he ruled.
APNs were introduced in 2014 and give HMRC power to require payment of tax upfront, before a dispute about the efficacy of a tax scheme has been settled by the courts. One situation in which APNs can be issued is where a tax scheme has been notified to HMRC under the Disclosure of Tax Avoidance Scheme (DOTAS) rules.
"I am sure the man on the street will find this a difficult decision to understand when HMRC has been found to have not acted correctly but nonetheless HMRC walk away with a victory due to what many will consider a technicality," said Steven Porter, a tax disputes expert at Pinsent Masons, the law firm behind Out-Law.com.
"The Court’s decision that HMRC’s approach ignored the principles of good administration and was therefore unlawful should be good news to taxpayers in a similar position. It is extremely unfortunate that HMRC argued and convinced the Court that even if they were wrong the claimants shouldn’t win because, if HMRC had considered the matters they should have, they would still have decided to issue an APN," Steven Porter said.
Mr Dickinson and a number of other individuals received loans from an offshore trust under a 'contractor loan' scheme, which had been notified to HMRC under the DOTAS rules. HMRC argued that the individuals were subject to income tax on the amounts loaned, rather than the loans being taxed as benefits in kind, which would have resulted in a much smaller tax charge.
Following the appeal by the individuals against discovery assessments, in February 2014 HMRC agreed to postpone the tax until the liability was resolved by the First-tier Tribunal. However, in 2015 HMRC issued APNs, requiring the disputed tax to be paid, before the issues were resolved by the tribunal.
The taxpayers applied for judicial review arguing that the giving of the APNs was an abuse of power because it breached the express and direct promise made to them by the postponement agreements which gave rise to a legitimate expectation that the disputed tax would not be collected from them until after their appeals had been decided. They said that the issue of the APNs was conspicuously unfair as a matter of procedure and substance.
In his decision Mr Justice Charles disagreed with HMRC's argument that it had a duty to issue APNs whenever it had the power in relation to DOTAS arrangements and that postponement agreements could simply be ignored.
However, he said "the macro-political policy issues flowing from the terms and underlying purpose of the APN legislation undermine the force of the clear and unambiguous promises given by the postponement agreements because the legislation provides a change in the underlying statutory test and approach to the issue when disputed tax should be paid".
This meant that the "giving of APNs is unlikely to be an abuse of power if the arguability of the tax dispute and other conditions for giving them are satisfied, as they are here, although they do not warrant a "one approach fits all" approach or one that has regard only to those policy issues reflected in legislative change"
Audrey Cook, another tax disputes expert at Pinsent Masons said: "The case confirms that HMRC does not have a duty to ‘blanket-issue’ APNs whenever it considers the statutory conditions have been met but rather a power, and the exercise of that power is governed by public law principles."
"Whilst the judgment may be encouraging to taxpayers who are currently party to APN judicial review proceedings which contain similar grounds, no doubt HMRC will be emboldened by the decision as it has been handed what might be described as a ‘get out of jail free’ card in its approach to issuing APNs to taxpayers en-masse, despite breaching its public law obligations," she said.