Private client tax partner RSM
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Collecting tax: Can HMRC change its mind?

8th Feb 2019
Private client tax partner RSM
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Change mind

A case concerning a contractor loan scheme, Dickinson & Ors v HMRC, has caused debate over whether HMRC has the right to change its mind when it comes to collecting tax. It all hinges on the taxpayers’ legitimate expectation.

Facts of the case

The claimants where John Dickinson and a large number of other taxpayers. They all became employees of an Isle of Man incorporated company (AML), and were all employed to work for ‘end users’ in the UK.

The claimants received salaries and interest free loans from AML. The salaries were subject to income tax and National Insurance contributions and the loans were taxed under the existing benefit in kind legislation. The use of the loan scheme was declared on the taxpayers’ tax returns (for those who submitted returns) under the disclosure of tax avoidance scheme (DOTAS) requirements.

In February 2013 HMRC issued discovery assessments in respect of the AML loan scheme. At that point, the amounts claimed by HMRC became due and payable. However, HMRC agreed postponement of the tax due with the claimants until the assessments had been finally determined.

In February 2015, following the introduction of the accelerated payment notices (APN) regime by FA 2014, the taxpayers were issued with APNs in contradiction of HMRC’s previously agreed position.

Taxpayers’ argument

HMRC’s postponement agreements were clear promises and gave the taxpayers every reason to expect that no payment would be sought until the appeals had been concluded. The taxpayers argued that issuing the APNs was a breach of those promises, and the APNs should be cancelled.

The case was heard as a judicial review in the High Court in 2017 (EWHC 1705) and in the Court of Appeal in 2018 (EWCA Civ 2798). Both of those courts disagreed with the taxpayers.

Court of Appeal decision

The Court of Appeal judge quoted comments from the High Court decision that there was ‘tension between the resources available to HMRC and uncooperative taxpayers who use complicated tax avoidance schemes’.

The Court of Appeal judge also referred to the High Court judge’s observation that taxpayers who were responsible and cooperative, and who have disclosed their tax affairs fully, should not be penalised, and in fact should be able to place reliance that HMRC will accept their calculations and tax liabilities within reasonable time frames.

On the other hand, the Court of Appeal noted that APNs were introduced to stop all taxpayers, whether cooperative or not, from obtaining a cashflow advantage by participating in tax avoidance schemes. The judge also observed that HMRC has applied the APN regime to broadly all schemes which had a disclosure of tax avoidance schemes (DOTAS) scheme reference number.

Although the High Court believed it should have been clear to HMRC that the arrangement was an income extraction scheme, it considered that the claimants should equally have been aware that they were entering a scheme that could be investigated by HMRC. The claimants must have known that, unless the loans were a sham, they were repayable and should therefore have kept aside sufficient funds to cover the eventual need for repayment and to meet any potential tax liabilities.

The High Court and the Court of Appeal identified faults in the way HMRC implemented the APN legislation, but concluded that these were outweighed by the need to treat all taxpayers equally, and to take account of the new APN rules. This decision was explicitly influenced by the fact that APNs were introduced to accelerate the collection of tax under DOTAS schemes compared to the system that operated previously.


The issue of APNs and follower notices has been a game changer in the relationship between HMRC and taxpayers with open tax enquiries.

The High Court concluded that the claimants should have been aware of the risks of entering into ‘marketed tax avoidance’ arrangements and planned their finances accordingly. Regardless of how individual taxpayers feel about this conclusion, it has been endorsed by the Court of Appeal, and provides a strong indication of how the courts are likely to react in similar cases in the future.

APNs have created a conflict between different versions of fairness, and it is not possible to satisfy all of these at the same time. The Dickinson case shows the courts directly considering matters such as cashflow, and concluding that Parliament has prioritised the early collection of tax over the possibility that any liability will eventually be cancelled.

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