England and Wales High Court (Administrative Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		16 March 2017

Mr Justice Supperstone :

1. These cases are three of many judicial review claims challenging accelerated payment notices ("APNs") and partner payment notices ("PPNs") issued by HMRC to tax payers under Part 4, Chapter 3 and Schedule 32 of the Finance Act 2014 ("FA 2014").
2. On 9 November 2016 Cranston J ordered that the three sets of proceedings, including consideration of permission for judicial review, be stayed pending final determination of R (on the application of Rowe and others) v HMRC [2015] EWHC 2293 (Admin). The Claimants' grounds of claim are not materially different from those dismissed by Simler J in Rowe, which is presently on appeal to the Court of Appeal. The Claimants do not seek to vary that part of the order of Cranston J.
3. However they do apply to vary that part of the order of Cranston J by which he refused their application for interim relief in the form of an order preventing HMRC enforcing APNs pending final determination of their claim.
4. On 25 January 2017 I heard submissions from Ms Phillippa Kaufmann QC on behalf of the Claimants and Ms Gemma White QC on behalf of the Defendants. The hearing was adjourned. Pursuant to my directions I received a Reply in writing on 8 February from Ms Kaufmann and a Response to the Claimants' Reply from Ms White on 15 February.
5. At the conclusion of the hearing on 25 January I said that I would provide the parties with a summary of my conclusions in writing, which I now do, together with brief reasons.

Summary of conclusions

6. In my judgment:

i) the Claimants are not entitled to interim relief without conditions;

ii) interim relief is conditional on establishing hardship;

iii) the test for hardship is as set out by Sir Kenneth Parker in R (Vital Nut Co Ltd) v HMRC [2016] EWHC 1128 (Admin) at para 31.

iv) I am not satisfied on the evidence served by the Claimants to date that they would suffer hardship such as to justify the grant of interim relief in their favour.

v) The Claimants shall, if so advised, serve and file further evidence on which they wish to rely to establish hardship by 4pm on Friday 7 April 2017. They should then engage with the Defendants with a view to reaching agreement on interim relief. In the event that agreement cannot be reached these adjourned applications will be re-listed for a hearing at which the issue of interim relief will be determined.

Reasons

Issue [i]: whether the Claimants are entitled to interim relief without conditions

7. In support of her submission that interim relief should be granted without conditions Ms Kaufmann relied on the observations made by Charles J in Vital Nut [2016] EWHC 1797 (Admin) at paras 5-7. Charles J granted interim relief pending the appeal on the same terms as those in the order of Parker J. However he confessed to seeing "force" (para 8) in not imposing conditions, in particular because there is an additional factor which as far as he was aware did not exist in Rowe, namely that the Revenue failed to get on with having their point on statutory construction decided. Ms Kaufmann suggests that precisely the same circumstances that gave Charles J cause for concern arise in these claims. The Defendants should not be permitted to benefit from their own deleteriousness. Further, she submits, these cases differ from Vital Nut in an important respect, in that no interim relief has been granted to date so the court is free to determine the terms of an appropriate order untrammelled by any orders that previously have been made. Finally, Ms Kaufmann submits that the administrative burden that will flow from only allowing interim relief conditional on establishing hardship would be avoided by the grant of unconditional relief, with no resulting prejudice.
8. I reject these submissions. The central issue on this application is where the balance of convenience lies. As Simler J observed, when analysing the relevant provisions in FA 2014, in R (Rowe) v HMRC [2015] EWHC 2293 (Admin) at para 27:

"Anyone who enters into a tax avoidance scheme takes the risk that the scheme will fail and that ultimately the tax will be payable. The legislation accelerates the requirement to make the 'at risk' payment pending determination of the dispute but the risk was always there, and must have been anticipated."

9. Simler J continued at para 70:

"Parliament has enacted a statutory scheme intended to operate broadly across a wide range of tax avoidance schemes to remove the cash-flow advantage pending enquiry and appeal".

10. Information provided by the HMRC indicates that in the event that interim relief is granted without conditions they would be prevented from recovering a sum in excess of £11m in the three claims. In total there are 4,116 applicants or potential applicants seeking interim relief from APNs/PPNs which HMRC's records show amount to a total sum in excess of £756m (see paras 5-7 of HMRC's submissions in response). The concern of HMRC is that it is those companies which are now in fact (despite their assertions to the contrary) in a position to pay, who may not be in a position to pay at the conclusion of the litigation. I agree with Ms White that in these circumstances the public interest favours HMRC being permitted to enforce payment of the sums due under the APNs before further changes in the companies' fortunes mean that this is no longer possible.
11. Further, I accept Ms White's submission that even if delay by the parties were thought to be a relevant criterion, this court is in no position to reach any conclusions about what either the Claimants or the Defendants have done to progress the dispute.

Issue [ii]: interim relief is conditional on establishing hardship

12. It follows from what I have said in relation to issue [i] that in my view interim relief should only be granted on condition that the Claimants provide evidence of hardship.

Issue [iii]: the hardship threshold

13. Ms White informs me that HMRC's current approach is to agree to interim relief where claimants provide evidence of hardship as defined in the order made by Sir Kenneth Parker in Vital Nut . The order he made defined the threshold for a corporate claimant's evidence as follows:

"If the claimant had to pay the amount specified in the APNs, even by instalments over the next 12 months, it would be unable to trade/run its business in the manner in which it ordinarily operates, that is, it would be unable to meet its reasonable trading/business expenses."

14. In his judgment when clarifying the nature of the evidence which would generally be required in order to justify an order for interim relief Sir Kenneth Parker said at para 31:

"… It is necessary for those responsible to set out fully in a witness statement the current and future position of the corporate entity in question, supported by proper quantitative information, typically in the form of a source and application of funds or a cash-flow statement which can satisfy this court that if the claimant had to pay, then the ordinary operation of the business would be significantly undermined and perhaps, at the limit, put in real jeopardy."

15. Ms Kaufmann submits that this sets the bar too high and imposes unfair burdens on claimants to seek to realise assets or secure loans. Ms Kaufmann submits that the principles adopted in VAT appeals and summarised in the recent case of Elbrook Cash and Carry Ltd v Commissioners for HM Revenue and Customs [2016] UKFTT 0191 (TC) should be applied in the present context, as being readily identifiable, easily applicable principles which are proportionate in terms of the evidence required to meet the test of hardship. Ms Kaufmann submits that the Defendants' proforma "Assets and Liabilities Form" is both highly intrusive and disproportionate.
16. I consider, for the reasons given by Ms White, that only limited assistance is to be derived from the tribunal's approach in Elbrook to "hardship" applications under the VAT legislation. In the relevant provisions of FA 2014 Parliament, in contrast to the position under the VAT Act, has not made any provisions for claimants to be provided with relief in the case of hardship.
17. I reject the submission that the threshold set by Sir Kenneth Parker in Vital Nut is too onerous. If companies are not able to continue to trade/run their business in the usual manner where they have to pay the APN, interim relief will be granted.
18. Having regard to Parliament's intention in enacting this legislation I do not consider that the amount of work required for an individual claimant, or its accountant, to provide the information sought by HMRC in order to assess assertions that the hardship threshold is met is disproportionate to the interim relief each claimant is seeking. Whether it is appropriate for the Claimants to realise assets or secure loans in order to pay the APN/PPN will depend on the circumstances of the individual case. However I understand the position in the present case to be that the Claimants have not provided HMRC with the information on the basis of which it could conduct a proper assessment of the funds potentially available to them.

Issue [iv]: the evidence served by the Claimants to date

19. Ms Kaufmann explained the basis on which the Claimants approached the hearing as a result of which they did not serve any further evidence of hardship in preparation for the hearing.
20. It is not necessary for me to analyse the evidence of hardship presently before the court. It suffices for me to state that I am not satisfied from the evidence served by the Claimants to date that the Claimants would suffer hardship such as to justify the grant of the interim relief sought. The Claimants' evidence provides very limited information about the reasons why they say they cannot pay the APN. They do not address the question as to whether they could raise the money needed to pay the sums due under the APN. However, having regard to the reason that has been given by Ms Kaufmann for the absence of further evidence as to hardship, I consider that it would not be appropriate to dismiss the applications for interim relief on the basis of the evidence presently before the court.

Issue [v]: the way forward

21. The Claimants shall be permitted to provide further evidence of hardship. The Claimants shall, if so advised, serve and file further evidence on which they wish to rely to establish hardship by 4pm on 7 April 2017. They shall then engage with the Defendants with a view to reaching agreement on interim relief. In the event that agreement cannot be reached these adjourned applications will be re-listed for a hearing at which the issue of interim relief will be determined.
22. If there is to be an adjourned hearing (1) the parties shall provide the ACO with a time estimate for the hearing; and (2) at least 7 days in advance of the adjourned hearing file and serve properly paginated bundles of any additional documents, authorities and skeleton arguments. I would expect the parties to agree a sensible timetable in relation to these matters, failing which I will give further written directions.