A public health consultant, Dr Walapu, has lost his judicial review over a challenge to HMRC’s imposition of an accelerated payments notice (APN) relating to his use of a notified tax avoidance scheme, with the judge saying there was no evidence HMRC’s actions were ‘unlawfully retrospective’ and nor were they ‘an abuse of power or otherwise unfair’
The case concerned Dr Walapu, who in 2008 participated in the Liberty Syndicate 21 scheme promoted by the Mercury Tax Group which was notifiable to HMRC under the disclosure of tax avoidance schemes (DOTAS) rules [Dr Walapu and Her Majesty’s Revenue and Customs, [2016] EWHC 658 Case No: CO/1948/2015].
Under the scheme, Walapu claimed to have made a net business loss for tax purposes of £370,688 between 1 February and 20 March 2008. He submitted a tax return on 5 September 2008 claiming entitlement to a repayment of £106,016.74.
While this sum was repaid by HMRC, Walapu’s record was then marked in 23 September 2009 with a note saying: ‘Do not repay any losses arising from scheme 55413422, trading in financial instruments.’
In February 2009 HMRC opened an inquiry into Walapu’s 2008 tax return, and in January 2015 he was issued with an APN relating to the disputed repayment. In a witness statement, the retired doctor said he was not in a position to pay the amount demand, together with interest, due to altered personal and financial circumstances, and sought a judicial review on technical and human rights grounds.
At the judicial review, the judge pointed out that Walapu’s situation was different from earlier cases involving challenges to APNs, because in these other cases HMRC had formally assessed the claimant's tax liability and what was in dispute was a crystallised tax liability.
In Walapu’s case, he had claimed relief in his tax return against past income tax assessments but has not yet had the present claim formally assessed. Walapu’s lawyer argued that to require him to pay HMRC a sum which was not a sum assessed for tax ‘constituted a profound violation of the citizen's private rights’ and that APNs ‘conferred a draconian power upon the HMRC which they now deployed in relation to a targeted segment of society (tax avoiders) in an unfair and unjust way'.
However, the judge was not in agreement with these arguments, which he said were not sustainable, while he said the conclusion he reached was ‘stark’.
In his finding, he said: ‘Both the statutory framework and the internal procedures introduced by HMRC provide ample opportunity for addressees of APNs to make their views known comprehensively to the Revenue. There is nothing deficient or unfair in these arrangements which could, remotely, amount to a denial of a right of representation.’
The judge also threw out the technical argument put forward, which he summed up as questioning whether the particular tax avoidance scheme that Walapu participated in is substantially the same as an earlier scheme that was notified to the HMRC and, for that reason, is now exempt from being notifiable.
The judge pointed out that if this argument was correct it would prevent HMRC from issuing APNs in respect of over 1000 individuals estimated to have understated tax to the extent of about £220m.
However, the judge said it was ‘clear that the syndicate schemes were not substantially similar to the partnership schemes’, so this argument did not hold water.
He also said the issuance of an APN ‘is not a bolt from the blue’. Instead, the judge described the case as a ‘classic tax dispute’. He said there was no sense in which APNs imposed a ‘deprivation’ on taxpayers, but only ‘a requirement that pro tem the claimant pay the money to the Revenue. If he wins it is returned with interest and if he loses it is rightly retained by the state.’
The review heard that HMRC has found that payments were made in a number of cases additional to that of Dr Walapu, which may also be subject to challenge. Payments were issued in ten cases (including that of Dr Walapu) with the sum of these repayments totalling £529,309.64 which includes the payment of £106,016.74 to Dr Walapu.
All but two of the other nine repayments in Liberty Syndicate 21 were made automatically within a few days of the receipt of the individual's tax return before a signal had been set to prevent repayment. The total number of payments represents 9.43 % of all Liberty Syndicate 21 users and the actual amount paid represents 3.5 % of the tax at stake in relation to this syndicate.
The Dr Walapu and Her Majesty’s Revenue and Customs, [2016] EWHC 658 Case No: CO/1948/2015 ruling is here
