‘Shocking’ Judicial Review case spells bad news for taxpayers

Anton Lane of Edge Tax

The outcome of a recent Judicial Review case regarding a tax scheme put in place almost two decades ago was ‘unfair’ and ‘wrong’, according to Bristol tax expert Anton Lane.

Lane, a Chartered Tax Adviser who is managing director at Edge Tax, based in Hambrook, said the High Court case regarding the affairs of Geoffrey Howarth spelled bad news for taxpayers.

Howarth was the beneficiary of the disposal of assets of a trust settlement back in 2000-01. The UK tax authority HMRC later issued him with a Follower Notice and an Accelerated Payment Notice (APN), contending the gains had been made using a tax avoidance arrangement known as ‘round the world’, in this case using residencies in Mauritius and Jersey.

The two types of notice allow HMRC to demand upfront payment of taxes owed, if taxpayers have benefitted from affairs it believes are similar to others successfully contested in court.

HMRC began issuing APNs in 2014 and expects to issue some 80,000 in total around the UK, as it looks to recover tax which it believes has been avoided.

However, Lane believes the ruling in the recent Judicial Review case, which Howarth saw rejected by the High Court, contained multiple and fundamental flaws.

He said: “HMRC applied the principles and reasoning from another case, called Smallwood, but the Judicial Review confirmed there was no statutory requirement to set out the detailed facts HMRC relied upon for its conclusion.

“In other words, HMRC don’t have to provide an explanation for the conclusion they have reached, which hardly appears fair.

“There was also no record of the conclusion of the legally required review which decided to issue the Follower Notice on Mr Howarth, yet the case found it was impossible for him, as the claimant, to contend the review was incomplete.

“Obviously, there are stringent demands on professionals such as ourselves to maintain contemporaneous records when acting for clients. It would appear HMRC is excused from this obligation, which also seems wrong.

“We at Edge Tax find this ruling rather shocking and the outcome of this Judicial Review is likely to be surprisingly disappointing to all taxpayers facing Follower Notices or APNs.”

In late April it was revealed that HMRC had withdrawn 6,000 of its APNs, drawing allegations that it was issuing them without due care.

Mr Lane said that the sheer volume of APNs being issued demonstrated HMRC’s determination to recoup taxes it deemed had been avoided, and showed that legislation was becoming weighted against users of tax favoured products.

He said: “The whole issue seems to me to be grossly unfair. The affordability of APNs is the main issue: most people never expected the legislative change and considered the tax planning effective, especially where implemented a number of years ago. They would have spent or invested the tax that would have otherwise been due, paying substantial fees in the process.

“And how can it be fair in law that HMRC has taken one or nearly two decades to do something about planning they were fully aware of?

“I can wholly understand the upset and disappointment at the legislation and the way it is being implemented by the courts.

“Tax planning has never before been penalised in this way and for those who have used previously acceptable historic tax mitigation to be victimised, given the contribution that their business makes to our economy, is grossly depressing.”