Successful challenge to Advance Payment Notices

HMRC has withdrawn certain Advance Payment Notices it issued when faced with a judicial review. The APNs were challenged by City law firm RPC and follows a similar case involving an EBT arrangement promoted by Montpellier in the Isle of Man in which HMRC acknowledged that the notices were unlawful and likewise withdrew them.

There are limited details of the latest case as it did not reach open court where the background and circumstances would be made public. It seems that HMRC were forced to acknowledge that the notices were invalid before withdrawing the notices.

One of the conditions required to be met for the APNs issued by HMRC in this case to be valid was that the tax planning arrangement was within the scope of the Disclosure of Tax Avoidance Scheme (DOTAS) rules. The scheme was presumably registered under DOTAS as a precaution despite there being grounds for concluding that the planning was not within the DOTAS rules. No doubt the decision to register was taken because the penalties for failing to notify under DOTAS are severe; amongst other sanctions an individual can be fined up to £1 million.

It appears that HMRC subsequently agreed that the planning was not within the scope of DOTAS and as such this specific condition had not been met. This meant the APNs were unlawful and so HMRC withdrew the notices before the judicial review took place. It follows that HMRC would have been required to repay the money paid against the notices.


What does this mean for you or your clients?

HMRC’s decision does not undermine the legality of APNs in general. HMRC’s decision was based on a specific issue relevant to the particular planning involved. HMRC has made it clear that it will continue to issue APNs and the disputed planning will be a matter for the Tribunal to resolve.

HMRC’s decision is likely, however, to encourage other tax planning promoters to review their products and to test whether they should have been registered under DOTAS. It could lead to APNs being withdrawn in other cases.

APNs have the potential to cause significant disruption and difficulty for the recipient with some individuals facing bankruptcy as a consequence. Any opportunity to limit the effect of an APN will need to be reviewed.




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