Rowe & Ors v Revenue & Customs

Partner payment notices under the Finance Act 2014 may lawfully require disputed tax to be paid on account before the underlying tax appeal is resolved. The statutory representations procedure is sufficient to satisfy fairness. It permits challenges to the statutory conditions and the amount demanded, but not a rehearing of the underlying tax dispute.

Condition B is satisfied where the asserted tax advantage results economically from the chosen arrangements, whether obtained by repayment or set-off. The legislation applies to existing arrangements and appeals. A general policy of issuing notices where the statutory conditions are met is lawful, provided exceptional cases can be considered. The regime did not unlawfully breach legitimate expectation, A1P1 or article 6.

One hundred and fifty-four members of Ingenious Media LLP schemes sought judicial review of partner payment notices issued by HMRC under Part 4 of the Finance Act 2014. The notices required repayment of tax advantages obtained through partnership loss claims while related appeals concerning the effectiveness of the schemes remained pending before the First-tier Tribunal.

The claimants alleged breaches of natural justice, failure to satisfy Condition B, breach of legitimate expectation, irrationality, and incompatibility with article 6 and A1P1. The court was required to determine whether the statutory scheme permitted the notices and whether HMRC had lawfully exercised its discretion.

1. Natural justice. The statutory scheme was fair in context. The notices did not determine final liability; they altered where disputed money was held pending resolution. The recipient could make representations within 90 days concerning Conditions A to C and the amount, with payment suspended until HMRC responded. The underlying tax dispute remained subject to appeal to the First-tier Tribunal. Additional pre-notice representations on the merits were not required and would frustrate the statutory scheme.
2. Condition B. The requirement that the asserted tax advantage resulted from the chosen arrangements was not confined to a direct mechanical result in the partnership return. Parliament defined tax advantage broadly to include relief and repayment. Losses used to obtain either a carry-back repayment or a current-year set-off produced the same economic advantage. Condition B was therefore satisfied.
3. Carry-back claims. Following De Silva and Dokelman v HMRC, an enquiry into the partnership return, deemed to include an enquiry into each partner’s return, was sufficient to challenge both sideways and carry-back loss relief. The court was not convinced that this coordinate decision was wrong and followed it.
4. Legitimate expectation and discretion. No sufficiently clear and established HMRC practice created the alleged expectation. In any event, primary legislation could remove previous postponement rights. HMRC lawfully adopted a general policy of issuing notices where the statutory conditions were met, while considering whether exceptional circumstances justified departure. The age of the schemes, earlier repayments and imminent appeals were not irrationally treated as insufficient reasons to withhold notices. Hardship was relevant to time-to-pay arrangements, not to the validity of the notices.
5. Convention rights. The claimants had no established possession or sufficiently founded proprietary claim to the disputed tax. In any event, the regime was prescribed by law, pursued the legitimate aim of removing the cash-flow advantage of avoidance schemes, and struck a proportionate balance within the legislature’s wide margin of appreciation. Article 6 did not apply to the tax payment obligation; any penalty was appealable to the tribunal, and judicial review in any event supplied an adequate safeguard.
6. Disposition. The judicial review claims were dismissed. The PPNs were lawfully issued; Condition B was satisfied; there was no breach of legitimate expectation, irrationality, A1P1 or article 6.

First-instance judicial review decision. The judgment states that the underlying tax appeals were continuing before the First-tier Tribunal, but gives no prior decision citation.