Dire straitsRORY MULLAN discusses whether there is a hardship defence to an accelerated payment notice.

Recent newspaper articles have highlighted celebrities and footballers who, by reason of their widespread participation in various tax schemes, are now facing large

bills and even bankruptcy.Th ose bills are the result of the issue of accelerated payment

notices (APNs) which require sett lement of disputed tax pending the outcome of an appeal to the First-tier Tribunal. However, potential bankruptcy where the tax due has not even been determined seems somewhat harsh. It raises a question as to whether there is any defence to an APN on the ground that meeting the liability pending the outcome of any appeal would cause hardship to the taxpayer.

Although there is no express provision for this in the legislation, possible bankruptcy is something that HMRC are bound to take into account.

Legislative schemeTh e legislation providing for the issue of an APN is in FA 2014, Part 4 chapter 3. It makes no provision for hardship. A taxpayer is entitled to make representations (s 222), but those would seem to be limited to objections on the grounds that conditions for the issue of a notice are not satisfi ed or that the amount specifi ed is wrong.

In this respect, the APN legislation diff ers from VAT law where the default position has long been that tax should be paid pending outcome of the appeal and, indeed, that an appeal would not be entertained if the tax was not paid. It expressly includes provision that there should be an exception from the general rule if there is hardship (VATA 1994, s 84(3) to s 84(3C)).

An interesting and important issue is whether such an exception should be read into the APN legislation.

Human rightsIn the decision in Totel Ltd v CRC [2014] UKUT 0485 (TCC), Mr Justice Nugee in the Upper Tribunal considered the application of the VAT provisions requiring payment of tax unless hardship could be shown.

Among the points taken into account was whether there was an interference with the taxpayer’s rights under Article 1 of the First Protocol to the European Convention on Human Rights (ECHR).

Th is provides for a right to peaceful enjoyment of possessions, albeit subject to qualifi cations not least of which is the right of the state to secure payment of taxes. Th at right of interference, however, must strike a “fair balance” between the demands of the general interest of the community and the protection of the individual’s fundamental rights (Bulves v Bulgaria (A/3991/03) [2009] ECHR 143). Although Nugee J accepted that the article was in point, he held:

“Th e hardship provisions, which require the appellant either to deposit tax or demonstrate hardship, cannot be said to devoid of any reasonable foundation.”

KEY POINTS

Recipients of accelerated payment notices may face bankruptcy. Payment of tax and the European Convention on Human

Rights. An APN that requires tax payment may interfere with a

taxpayer’s rights. Make representations to HMRC requiring them to

consider hardship.

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An APN that required immediate payment and would lead to penalties would seem equally to involve an interference with the taxpayer’s rights. Although this point is not unarguable (see R (on the application of St Matt hews (West) Ltd) v HM Treasury [2014] STC 2350) it would seem particularly compelling in circumstances where, at the time of the APN, there was a pre-existing appeal with postponement of tax agreed.

In O’Brien v CRC [2008] STC 487 Mann J had held that VATA 1994, s 84(3) was compliant with the ECHR and the Human Rights Act 1998, not least because the hardship exception ensured proportionality:

“Section 84(3) is a provision which has been held and which I would, if necessary, fi nd to be compliant with the 1998 Act. It does not unfairly and improperly exclude access to justice because if there is no hardship in paying the tax up front it will be paid and access to justice can be had. If there is hardship in paying, then the money does not have to be paid so there is no impeding of access to justice.”

Although an APN does not restrict access to justice in the same way as a failure to pay VAT, similar points on proportionality arise. A provision for hardship ensures that a fair balance is struck between the rights of the individual taxpayer and those of the community. It must, however, be questionable whether a series of provisions that does not make allowance for the extreme consequences could be said to strike a fair balance and be compliant with the requirements of the ECHR.

RepresentationsHMRC are obliged to give eff ect to the provisions of the ECHR (Human Rights Act 1998, s 6). As such there seems to be a good argument that it would be unlawful to issue or maintain an APN where to do so was contrary to Article 1 of the First Protocol because, in the circumstances of a particular taxpayer, that notice would cause undue hardship. Indeed, even if the article is not engaged, the prospect of a taxpayer’s bankruptcy is surely a relevant consideration when determining whether a disputed tax charge should be paid up front.

Although there is no express procedure to consider hardship under the APN code, where necessary a fair procedure will normally be implied (Wiseman v Borneman [1971] AC 297). In that context, it is suggested that the representations to be considered by HMRC under FA 2014, s 222 cannot be limited to the conditions for the issue of the notice, but require consideration of matt ers relevant to hardship and the question of whether the APN is in all the circumstances a proportionate interference with the taxpayer’s human rights.

If a taxpayer does face hardship as a result of an APN, the only sensible course would be to make representations to HMRC requiring them to give consideration to such hardship or, at the very least, explain why it would be irrelevant. Unfortunately judicial review may be necessary to ensure compliance, but that may be an acceptable alternative to bankruptcy. ■

Rory Mullan is a barrister practising at Tax Chambers, 15 Old Square, Lincoln’s Inn, tel: 020 7242 2744.

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