Ingenious investors granted leave to appeal in respect of failed judicial review challenge

Mon 07 Dec 2015

Earlier this year the case of Nigel Rowe, Alec David Worrall & Others v HMRC concerned a challenge to the accelerated payments regime (specifically partner payment notices or ‘PPNs’) by a group of investors in Ingenious film partnership schemes.  The High Court comprehensively rejected all of the arguments advanced by the taxpayers.

However, that is not the end of the story because the Court of Appeal has now granted them the right to appeal the decision.

The taxpayers had argued at the High Court that:

·         the Notices were issued in breach of the principles of natural justice.;

·         Condition B under the APN legislation was not satisfied;

·         the Notices were given in breach of the claimant’s legitimate expectation that they would not have to repay any tax in dispute until after the First Tier Tribunal had decided on all relevant issues;

·         the decision to give Notices was unreasonable / irrational in all the circumstances of their cases;

·         the exercise of the powers interfered with their right to property under Article 1 of the First Protocol (A1P1) and in breach of Article 6 of the Convention for the Protection of Human Rights, involving the retrospective imposition of a payment obligation the claimants could not have predicted when they joined the partnerships.

APNs have been particularly controversial because of their retrospective nature; allowing HMRC to demand payment of the disputed tax in respect of tax planning arrangements, despite them having been entered into in the past, provided enquiries are still open.  So, at the time the above taxpayers entered into the schemes concerned, their expectation was that they would not have to pay over any tax until any litigation with HMRC was settled.

The fact that APNs and PPNs are being demanded on the basis(in this case)  of schemes disclosed under the disclosure of tax avoidance schemes (DOTAS) regime  has further added to the controversy, since DOTAS was never designed for this purpose.  For example, DOTAS is very wide-ranging, requiring reporting of many arrangements, not all of which amount to ‘aggressive’ tax planning. 

Furthermore, there is no right of appeal against these tax demands: the taxpayer only has the right to make representations. 

The stakes could not be higher for HMRC and affected taxpayers alike.  We understand the appeal will be heard in late 2016.