Pyrrhic victory against HMRC on APNs

The Archers, who won their appeal against HMRC’s issue of an Accelerated Payment Notice (‘APN’), have been refused an Order for their legal costs on the basis that they should have first exhausted their statutory right to make representations to HMRC directly.

The couple were parties to a complicated tax avoidance scheme that created an income tax loss for Mr. Archer in the region of £6m. HMRC accepted that the scheme was effective but determined that, as a corollary, it also created a capital gains tax liability for Mrs. Archer of £6m as she was on the other side of her husband's transactions.

The Archers challenged HMRC’s determination but, when legislation authorising HMRC to issue APNs came into force in July 2014, APNs were issued to both Mr. and Mrs. Archer. An APN requires a taxpayer to pay the full amount of disputed tax immediately without waiting for a court or tribunal decision on the dispute. No right of appeal is available though, in principle, an application for judicial review may be made.

Mr. and Mrs. Archer  challenged HMRC on the issue of the Notices on the basis that they had been unlawfully issued. At the same time they applied for judicial review. 

The Archers contended that HMRC could not ‘genuinely or rationally’ have determined that tax of £6m was properly payable by both Mr. and Mrs. Archer since it had already accepted that one of them would have to pay but not both.

HMRC withdrew the notice issued to Mrs. Archer and acknowledged, with regret, that it had not followed best practice in circumstances where both spouses had played a part in avoidance arrangements.

The Archers then applied to the High Court for an Order against HMRC to cover £500,000 of legal costs incurred in the initial stage of preparing, and issuing, proceedings for judicial review. Their position was that the claim for judicial review had succeeded as HMRC had withdrawn the contested APN. 

The Archers maintained that, while there was no admission of unlawful conduct, the only sensible interpretation of the facts was that HMRC acknowledged that it had acted unlawfully.

However, last summer the High Court refused to make the Order. It decided that the Archers should have pursued their statutory right under s.222 of the Finance Act 2014 to make representations to HMRC directly in an attempt to resolve the dispute.

The Archers appealed against the High Court's decision but their claim has now been rejected again in the Administrative Court. 

It was held that the Archers could have required HMRC to confirm, or withdraw, the APN following statutory representations by them and that HMRC had a duty to make such a determination. The application for judicial review was therefore not a ‘remedy of last resort’. Instead, the s. 222 procedure was ‘an adequate alternative remedy which should have been exhausted before a Claim Form was issued.’ 

Mr. Justice Green concluded in relation to the earlier decision of Master Gidden, 'It was premature to commence judicial review proceedings pending the exercise of the statutory right to make representations and a decision thereupon by HMRC. Accordingly, there is no basis for overturning his decision on costs.’