A taxpayer has lost his case at the Court of Appeal (CoA) where he held that he had the right to defend against the issuance of a partner payment notice (PPN) by way of a collateral public law challenge against the penalty relating to the PPN.
PPNs are issued under strict circumstances and are issued to partners of partnerships that have used disclosed marketed tax avoidance schemes. In this case, the taxpayer had used a scheme related to the film industry. Substantial losses were made by the partnership in the early years and the taxpayer used these losses to obtain a substantial refund from HMRC, around £100k. HMRC duly opened enquiries into the partnership’s returns and eventually issued a closure notice stating that the losses for tax purposes were nil. The partnership sought to challenge this closure notice. In the meantime, HMRC issued a PPN to the partners of the partnership and requested that the taxpayer make a payment of around £100k while the partnership litigated the partnership closure notice. The taxpayer challenged the PPN to HMRC who refused the challenge but the taxpayer didn’t pay the PPN within the required time limit. There is no recourse to the First-tier Tribunal (FTT) against the issuance of a PPN but a taxpayer can seek a judicial review. Eventually a penalty of 5% of the tax under the PPN was issued to the taxpayer.
The taxpayer appealed the penalty to the FTT. The FTT held that it didn’t have jurisdiction to hear the appeal and threw the case out, as did the Upper Tribunal again holding that the FTT didn’t have jurisdiction. The taxpayer appealed to the CoA holding that a citizen has a right to challenge penalties or enforcement procedures as a method of challenging the underlying public law.
The CoA found that the precedents used by the taxpayer didn’t merit the appeal to the FTT as its jurisdiction is limited by statute and PPNs are specifically not allowed to be appealed as the underlying tax case can. The point of the PPN (and accelerated payment notice) statutory scheme was to stop taxpayers having the cash flow advantages that tax avoidance schemes can offer as most cases take many years to flow through the tribunals and courts.
The CoA held that the FTT was correct to state that it didn’t have jurisdiction and dismissed the taxpayer’s appeal. The taxpayer could have sought remedy via a judicial review but chose not to.
The decision can be found at: Beadle v HM Revenue and Customs – Find case law (nationalarchives.gov.uk)
This case highlights that taxpayers have to be very wary when they receive follower notices and the related accelerated payment notices and/or partner payment notices. This is little room for manoeuvring after the receipt of these documents other than the challenge to HMRC or judicial review.
Please let us know if you have any questions on tax avoidance schemes involving partnerships, many have proven to be ineffective. We are experienced with these issues and can help with compliance or planning. Please contact us if you receive a follower notice and the related accelerated payment notice or partner payment notice.
