‘Condition C’ has proved to be a successful ground of challenge for taxpayers contesting the validity of APNs in judicial review proceedings.
HMRC has withdrawn accelerated payment notices (APNs) it issued to hundreds of taxpayers as a result of a judicial review claim lodged on their behalf by City law firm RPC. The sums involved exceed £50m.
The arrangements in question involved an employee benefit trust which was first implemented in 2003. The arrangements were notified to HMRC in 2004, under the relevant disclosure of tax avoidance schemes (DOTAS) provisions in force at that time.
HMRC issued several hundred APNs to taxpayers who had participated in the arrangements and the validity of the APNs was subsequently challenged by way of judicial review proceedings in November 2015.
One of the grounds of challenge was that condition C (in FA 2014 s 219(4)) was not met. Condition C is that, amongst other things, the chosen arrangements are ‘DOTAS arrangements’. Section 219(5) defines DOTAS arrangements as meaning ‘notifiable arrangements’ which have been allocated a scheme reference number. In other words, the arrangements must be notifiable under the DOTAS regime, as a matter of law. The fact that the arrangements were notified to HMRC is irrelevant for the purposes of ascertaining whether condition C has been satisfied.
HMRC took some six months to consider this ground of challenge before finally accepting that the arrangements were not notifiable under the DOTAS regime and that the APNs would therefore be withdrawn. HMRC has confirmed that the arrangements were ‘implemented before the introduction of the DOTAS legislation with no significant changes to its operation since then’. As such, it would appear that HMRC accepts that, as the arrangements in question were first made available pre-DOTAS (and therefore were not-notifiable), because its operation has not changed, it has effectively been ‘grandfathered’ in and any subsequent DOTAS regulations do not affect the issue of notifiability.
It is understood that there are a large number of EBT arrangements currently under challenge by HMRC and in respect of which APNs have been issued. Recipients of such APNs will no doubt wish to consider carefully whether their APN was validly issued and in particular whether condition C has been satisfied in the circumstances of their case.
HMRC may have to accept this ground of challenge in relation to other similar EBT arrangements as it is obliged to be consistent in its approach and to treat all taxpayers in a similar position in the same way.
Each case will have to be considered on its own particular facts and although in this instance there was no basis on which HMRC could reasonably argue that condition C was satisfied, other taxpayers have been less successful when arguing that their arrangements were not notifiable under the DOTAS regime (see, for example, R (Graham and others) v HMRC [2016] EWHC 1197 (Admin)).
What is clear, is that following this successful challenge, the condition C ground is likely to remain one of the central grounds of challenge for those taxpayers who are challenging the validity of their APNs in judicial review proceedings.
Home >Articles > HMRC withdraws APNs following 'condition C' challenge
HMRC withdraws APNs following 'condition C' challenge
‘Condition C’ has proved to be a successful ground of challenge for taxpayers contesting the validity of APNs in judicial review proceedings.
HMRC has withdrawn accelerated payment notices (APNs) it issued to hundreds of taxpayers as a result of a judicial review claim lodged on their behalf by City law firm RPC. The sums involved exceed £50m.
The arrangements in question involved an employee benefit trust which was first implemented in 2003. The arrangements were notified to HMRC in 2004, under the relevant disclosure of tax avoidance schemes (DOTAS) provisions in force at that time.
HMRC issued several hundred APNs to taxpayers who had participated in the arrangements and the validity of the APNs was subsequently challenged by way of judicial review proceedings in November 2015.
One of the grounds of challenge was that condition C (in FA 2014 s 219(4)) was not met. Condition C is that, amongst other things, the chosen arrangements are ‘DOTAS arrangements’. Section 219(5) defines DOTAS arrangements as meaning ‘notifiable arrangements’ which have been allocated a scheme reference number. In other words, the arrangements must be notifiable under the DOTAS regime, as a matter of law. The fact that the arrangements were notified to HMRC is irrelevant for the purposes of ascertaining whether condition C has been satisfied.
HMRC took some six months to consider this ground of challenge before finally accepting that the arrangements were not notifiable under the DOTAS regime and that the APNs would therefore be withdrawn. HMRC has confirmed that the arrangements were ‘implemented before the introduction of the DOTAS legislation with no significant changes to its operation since then’. As such, it would appear that HMRC accepts that, as the arrangements in question were first made available pre-DOTAS (and therefore were not-notifiable), because its operation has not changed, it has effectively been ‘grandfathered’ in and any subsequent DOTAS regulations do not affect the issue of notifiability.
It is understood that there are a large number of EBT arrangements currently under challenge by HMRC and in respect of which APNs have been issued. Recipients of such APNs will no doubt wish to consider carefully whether their APN was validly issued and in particular whether condition C has been satisfied in the circumstances of their case.
HMRC may have to accept this ground of challenge in relation to other similar EBT arrangements as it is obliged to be consistent in its approach and to treat all taxpayers in a similar position in the same way.
Each case will have to be considered on its own particular facts and although in this instance there was no basis on which HMRC could reasonably argue that condition C was satisfied, other taxpayers have been less successful when arguing that their arrangements were not notifiable under the DOTAS regime (see, for example, R (Graham and others) v HMRC [2016] EWHC 1197 (Admin)).
What is clear, is that following this successful challenge, the condition C ground is likely to remain one of the central grounds of challenge for those taxpayers who are challenging the validity of their APNs in judicial review proceedings.
