The Commissioners for HMRC v Purity Limited

Section 85 of the Finance Act 2022 does not require HMRC to prove that a promoted tax avoidance arrangement is ineffective or that the promoter has incurred a tax liability. The jurisdiction extends to a range of circumstances showing that winding up is expedient in the public interest for protecting the public revenue.

On the petition, the court must decide whether winding up is just and equitable. It must consider the totality of the evidence, balance competing considerations, and identify the public interests promoted by the order. A compulsory winding-up order may be made despite an existing creditors’ voluntary liquidation, particularly where independent investigation, compulsory liquidator powers, public censure and director-disqualification provisions are relevant.

HMRC presented the first public-interest winding-up petition under section 85 of the Finance Act 2022 against Purity Limited, a company operating an umbrella employment business and promoting arrangements under which employees received part of their remuneration as purported loans.

Purity had been served with a POTAS stop notice and had incurred substantial PAYE and NIC liabilities. It was placed into creditors’ voluntary liquidation before trial, and its liquidators did not oppose the petition. Earlier applications for judicial review and a stay had been dismissed. The issues were whether Purity was a relevant body, whether section 85 required proof that the arrangements failed or generated a tax liability, whether winding up was just and equitable in the public interest, and whether compulsory winding up remained appropriate despite the voluntary liquidation.

1. Order. Purity was wound up compulsorily under section 85 of the Finance Act 2022. The court was satisfied that Purity was a relevant body and that winding up was just and equitable.
2. Scope of section 85. The power to present a petition arises where the statutory conditions are met and it appears to an HMRC officer that winding up is expedient in the public interest for protecting the public revenue. The existence of a tax liability is not a statutory precondition to presentation of the petition or to the court’s jurisdiction to make an order. The court must assess the totality of the evidence, balance competing reasons, and identify the public interests promoted by winding up. The approach applicable to public-interest petitions under the Insolvency Act 1986 was applied.
3. Application. The petition grounds were established: the arrangements caused substantial detriment to the public revenue; Purity lacked transparency and had sought to obstruct HMRC’s investigations; and Purity continued the business previously operated by Alpha Republic. These grounds independently and cumulatively justified winding up.
4. The PAYE and NIC liabilities were conclusively established through the statutory deeming consequences of withdrawal of Purity’s appeals under section 54 of the Taxes Management Act 1970. Alternatively, the remuneration received as salary and purported loans constituted earnings from employment on which income tax and NICs were chargeable.
5. Existing voluntary liquidation. Compulsory winding up remained appropriate despite the creditors’ voluntary liquidation. The need for independent investigation, the public importance of censure, the wider powers of a compulsory liquidator, and the availability of director-disqualification proceedings supported the order.

First-instance decision. The petition was presented on 22 March 2024. Purity’s applications for judicial review and for a stay were dismissed before the petition proceeded to trial.