FOI release

Section 5 - Challenges to the loan charge

Published 23 April 2020

Judicial reviews

There are 4 Judicial Reviews connected to DR and the loan charge. Two of these concern the compatibility of the loan charge with the European Convention on Human Rights (‘the Convention’). Two others concern the technical issue of HMRC’s ability to disapply the PAYE Regulations in certain circumstances, so that the liability is transferred from the employer to the individual.

One of the latter cases is public as there is a decision and transcript from the Administrative Court.

The remaining 3 have either not had hearings yet, or the claimants have advanced their case in a manner which means that no single document which can be accessed by the public discloses the basis of the claim in a coherent way. We have written to the claimants to seek their permission to disclose the material to you. In the meantime, we have set out more information on the challenges below.

Judicial Review 1

There are 2 claims that, respectively, challenge the self-employed and employed aspects of the loan charge. The claims are brought by 2 individuals as test cases on behalf of the loan charge Action Group.

In summary, it is alleged that the claimants’ rights to peaceful enjoyment of their possessions as guaranteed by the Convention have been breached because the loan charge is ‘in substance’ retrospective, disproportionate to any legitimate objective, irrational and or generally unlawful at public law.

The remedies sought are: * A declaration under the Human Rights Act that the loan charge is incompatible with the Convention; specifically that it infringes rights under Article 1 Protocol 1 (‘A1P1’) of the Convention to peaceful enjoyment of possessions; and * An injunction preventing HMRC from enforcing the loan charge in a manner incompatible with Convention Rights.

Limited permission was granted in February to allow the claimants to proceed to a full judicial review hearing on the ground that the legislation is incompatible with A1P1 of the Convention because it is “in substance” retrospective. The claimants appealed to the Court of Appeal against the refusal of permission on their other grounds, and in September were given permission on grounds relating to proportionality and irrationality, but not in respect of the arguments relating to an injunction preventing HMRC from enforcing the loan charge. No hearing date has been set.

Judicial Review 2

This is a claim brought by a corporate entity, a partnership and 2 individuals connected to those entities. In summary, it is alleged that the claimants’ rights to peaceful enjoyment of their possessions as guaranteed by Convention have been breached because the loan charge is retrospective, disproportionate to the general interest and imposed a disproportionate burden on the claimants.

It is also alleged that the combined effect of the Accelerated Payments regime and the loan charge deprives taxpayers of access to justice by pre-empting judicial determination of their tax liabilities and by imposing penalties that are alleged to be criminal in nature.

The remedies sought are:

• A temporary injunction preventing enforcement of APNs
• An Order quashing any APNs
• A declaration under the Human Rights Act that the loan charge and any Partnership Follower Notices is incompatible with the Convention; specifically that it infringes rights under “A1P1” of the Convention to peaceful enjoyment of possessions and Article 6(1) of the Convention that provides for a person to have a fair trial before an independent tribunal.

A Judge has determined that the issues raised are wide ranging and as a result it would be disproportionate to have a separate permission stage. In consequence, it has been directed that a ‘rolled up’ hearing should occur which will consider both whether permission should be granted and the substantive claims at the same time. The matter has been listed for 3-day hearing commencing on 29 October 2019.

Judicial Review 3

This is a claim brought by individuals to challenge HMRC’s decision to disapply the PAYE Regulations with the effect of transferring the liability from the employer to the individual. The grounds advanced by the Claimants include those advanced in Addo v HMRC, but also include wider grounds relating directly to the interaction between the use of that discretion and the loan charge. No hearing date has been set.

APPG submissions analysis

We thought it would be helpful to provide our analysis of the 70 personal submissions shared with us at the beginning of 2019 by the loan charge All-Party Parliamentary Group.

None of the submissions were provided on that basis the individuals had given their consent for HMRC to respond transparently to the many particular tax issues they raised. Therefore, we are not able to provide detailed corroboration of the accounts. Where it has been possible to check the submissions against our records, we do not accept the claims that are made in a number of the cases.

We can provide some high level analysis of the submissions. They are broadly representative of the professions that we have seen use DR schemes. They include a wide range of liabilities; £30,000 to £650,000 with a mean of £157,952 and a median of £100,000.

The majority (84%) stated they entered DR arrangements because they were told by the promoter was it was legal, and or approved by HMRC or a QC. At the same time, only 19% say they fully disclosed the use of their scheme to HMRC. Of those that did disclose their use of their scheme, HMRC opened enquiries into the vast majority (91%) of those schemes.

Go to section 6: Interaction with other taxes.