Taxpayer judicial review cases challenging HMRC rose by nearly a fifth in 2016, with concerns about the use of controversial APN powers cited by the tax profession as a contributing factor.
According to city law firm RPC, the Revenue faced a record-high 90 applications for judicial reviews last year, up from 76 in 2015, as more taxpayers than ever sought to challenge the tax authority’s decisions.
While many in the profession believe the increase can be attributed to HMRC’s increasing use of accelerated payment notices to combat tax avoidance, the rise has also been blamed on the intense political pressure to increase tax yield.
The rise in judicial review cases adds weight to concerns raised in the tax profession about the potential misuse of accelerated payment notice (APN) powers acquired by HMRC in recent years.
Designed to tackle tax avoidance, the APN regime allows HMRC to demand tax it believes it is owed before the dispute is settled. Those affected have 90 days to pay the sum with no right of appeal.
The introduction of APN rules was among the most controversial measures in the 2014 Budget, and the Revenue recently revealed that it has issued more than 70,000 APNs since the introduction of the measures, bringing in more than £3bn in extra tax revenue as a result.
|What are judicial reviews?
Judicial review is the complex process of challenging the lawfulness of public authority decisions in the High Court. The reviews are often used to contest unreasonable behaviour – for example, a failure by HMRC to follow its own guidance or contradicting a previous ruling or precedent.
Many of the individuals who have challenged the Revenue’s decisions through judicial review in recent years have been ordinary taxpayers – often contractors from sectors such as IT or the medical profession – and the amounts of tax in dispute have often been relatively modest. However, larger corporates are also now increasingly challenging HMRC decisions by way of judicial review.
‘Falling short of the mark’
Commenting on the story Adam Craggs, head of tax disputes at RPC, stated that with the new powers HMRC has gained in recent years, it is important it exercises its powers in a reasonable manner.
“HMRC has a duty to act fairly and lawfully, but more and more taxpayers are finding that it is falling short of the mark,” said Craggs.
‘Changed the economics of tax avoidance’
Commenting on the report an HMRC spokesman pointed out that the authority has won all five judicial reviews decided by the courts on the accelerated payments regime.
“Accelerated payments have changed the economics of tax avoidance,” continued the statement, “by requiring those under investigation for tax avoidance to pay the disputed tax upfront, putting them in the same position as the majority of taxpayers who pay first and dispute later.”
For Ian Hyde, partner at Pinsent Masons, the rise is symptomatic of a wider frustration with the Revenue.
“Judicial reviews are born of a lack of remedy, where people do not have anywhere to take their complaint,” said Hyde. “APNs famously do not have a right of appeal, which is why you end up doing judicial reviews about the reasonableness of [HMRC’s] decision”.
Because HMRC has been encouraged to find more money by the government, Hyde believes it is taking a much more hard-line approach to taxpayers’ affairs.
“The APNs have produced a lot of money,” said Hyde, “but once you’ve set that standard the Revenue’s masters expect them to produce that every year, and if you stop most avoidance schemes you’re not going to get money from them in future years. Therefore, you’ve got to find it somewhere else, and the Revenue is now pushing on points it hasn’t previously pushed on.
“That’s okay in the short term, but it does create problems for the administration of the tax system in the long term because you haven’t got a working relationship with the Revenue you can rely on”.
Know where your remedy lies
For tax accountants, Hyde stated that when faced with a Revenue dispute it’s important to understand where your remedy lies.
“Judicial reviews are in a different court, the High Court, and you’ve got to do it as soon as you can. It creates more administration and frustration for taxpayers because they have to run cases in two different courts, the tax tribunal and the High Court. That can’t be good for the tax system”.