High Court judge Mr Justice Green disappointed those fighting accelerated payment notices in tax disputes by turning down the judicial review of a doctor who used a Liberty Syndicate scheme promoted by Mercury Tax Group.<
The judicial review of Dr Walapu v HMRC  EWHC 658 (Admin) concerned a public health consultant who participated in Liberty Syndicate 21, which made a net business loss for tax purposes of £370,688 between 1 February and 20 March 2008.
On that basis, he submitted a tax return on 5 September 2008 claiming entitlement to a repayment of £106,016.74.
The Liberty syndicate scheme was notifiable to HMRC under the disclosure of tax avoidance schemes (DOTAS) legislation introduced in Finance Bill 2004 and was assigned a scheme number for users to enter on their tax returns. Yet HMRC actually paid back that sum within days, before a flag was placed on his computer record on 23 September with the warning: “Do not repay any losses arising from scheme 55413422, trading in financial instruments.”
An enquiry was opened into Dr Walapu's 2008 tax return the following February 2009. Six years later, he received an APN to cover the sum repaid as a result of the disputed scheme.
According to evidence presented at the judicial review, Dr Walapu was not the only Liberty syndicate participant to receive a repayment from HMRC. Nine other people receivied repayments totalling £529,309.64 - most of which also went out before the tax department . All but two of the other nine repayments in Liberty Syndicate 21 were made automatically within a few days of the receipt of the individual's tax return before a signal had been set to prevent repayment.
Dr Walapu sought a judicial review on both technical and human rights grounds. On his behalf David Southern QC argued that the APN required the payment on account of an unassessed tax liability, which constituted a violation of his rights.
The APN system created by the Finance Act 2014 gave HMRC “draconian powers” that it was using in an unfair and unjust way, without any right to appeal, the QC argued.
These points did not impress the judge. “Neither argument is, in my judgment, sustainable,” he wrote.
“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…
“If a taxpayer is aggrieved by the issuance of the APN procedure he may seek judicial review of it, or, compel… HMRC to issue a closure notice within a specified period, upon which occurrence the normal rights of appeal are engaged.”
The judge also dismissed the idea that APNs imposed a “deprivation” on the taxpayer. There was no deprivation, he said, “but only a requirement that pro tem the claimant pay the money to the Revenue. If he wins it is returned with interest and if he loses it is rightly retained by the state.”
The whole point of the APN regime was to alter the economics of tax avoidance by removing liquidity advantages from taxpayers and promoters engaging in tax avoiding schemes, he concluded.
“Even if there had been such a challenge I would have held in favour of the Revenue, taking into account that in cases such as this the case law accords to the decision maker a broad margin of appreciation.”
On the technical point, Walapu’s legal team argued that Claimant's final ground which is that the APN issued to the Claimant was ultra vires. It is submitted that the Syndicate Scheme was not notifiable under the Finance Act 2004 and/or the DOTAS Regulations 2006 and as such there was no power on the part of the HMRC to issue the APN. The gravamen of the issue turns upon whether the Syndicate Schemes are substantially the same as the Partnership Schemes. This flows from an exemption from the duty to notify in Section 308(5) Finance Act 2004. This provides:
"(5) Where a person is a promoter in relation to two or more notifiable proposals or sets of notifiable arrangements which are substantially the same (whether they relate to the same parties or different parties), he need not provide information under subsection (1) or (3) if he has already provided information under either of those subsections in relation to any of the other proposals or arrangements".
The premise underlying the claimant's argument is that the Liberty Syndicate 21 schemes did not need to be notified to HMRC because it was substantially similar to partnership schemes that had been notified under DOTAS in 2006.
The purchasing a dividend that gives rise to a trading loss, and the non-taxability of the dividend was the same in both schemes and the partnership was transparent for tax purposes and therefore irrelevant.
Again the argument fell on deaf ears. After reviewing the chronology and structure of the Mercury Group partnership and syndicate schemes and the legislative changes blocking them and introducing the DOTAS regime, Mr Justice Green concluded, “In my judgment it is clear that the syndicate schemes were not substantially similar to the partnership schemes.”
The Walapu judicial review is the third to be turned down by the High Court. Although Mr Justice Green wrote that the issues involved in this case were “stark” they might not be in other cases, which might require the courts to oversee HMRC’s judgement.
“This might, in a proper case, involve the court in looking closely at the facts but the Court might ultimately decide a case on rationality grounds rather than black and white merits,” the judge wrote - suggesting that we haven’t heard the end of similar disuptes.
In his summary of the case, Oxford academic and tax law blogger Stephen Daly predicted: “I reckon at least one of these judicial reviews will make it all the way to the Supreme Court, but we’ll have to wait at least two more years for that to happen.”