Can Bankruptcy Repel APNs?

Is the threat of insolvency a defence against accelerated payment notices?

In July of last year HMRC were empowered with the right to demand payment of tax from tax avoidance scheme users before the final tax arrears had been agreed or determined. These payments are known as accelerated payments.

There is no right of appeal against an accelerated payment notice (APN). However, it is possible for a person to make very limited representations to HMRC if they believe that one or both of the following applies:

• the conditions for issuing the notice have not been met
• the amount shown in the notice is not correct

Representations have to be made be in writing within 90 days from the date the notice is received by the taxpayer.

Legislation does not provide for any defence to an APN whereby paying the tax would cause hardship to an individual.  This is in contrast to VAT law as sections 84(3) & 84(3A)  of the Value Added Tax Act (VATA) 1994 which recognises hardship as a legitimate form of appeal. Whilst therefore there is no formal appeal system the 1971 House of Lords ruling in Wiseman v Borneman should allow for some fair procedure as their Lordships decreed that the requirement of fairness should not degenerate into hard and fast rules and any additional steps to the statutory procedure must not frustrate the apparent purpose of the legislation. Lord Guest said that the principles “should be reasonably clear and definite” and cases should not be “decided ex post facto on some uncertain basis.”

Lord Reid said: “Natural justice requires that the procedure before any tribunal which is acting judicially shall be fair in all the circumstances, and I would be sorry to see this fundamental general principle degenerate into a series of hard-and-fast rules. For a long time the courts have, without objection from Parliament, supplemented procedure laid down in legislation where they have found that to be necessary for this purpose. But before this unusual kind of power is exercised it must be clear that the statutory procedure is insufficient to achieve justice and that to require additional steps would not frustrate the apparent purpose of the legislation.”

Then there is also the Human Rights issue to consider. Article 1(protection of property) of the The First Protocol to the European Convention on Human Rights states, ‘Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.’

In O’Brien v CRC (2008), the judge concluded that s.84(3) VATA 1994 was compliant with Human Rights law because it strikes a fair balance, i.e. if there is no hardship created in paying the tax up front then it gets paid and access to justice is maintained. If, however, there is hardship then the tax does not have to be paid without the impeding of access to justice.

The requirement for an individual to pay tax before the final liability has been decided and which may cause that person to become bankrupt without having a right of appeal does appear to be an imbalance of justice and therefore in conflict with Human Rights legislation. One for the lawyers therefore but for those contractors who receive an APN this may give them some crumbs of comfort or a straw to clutch at least.