Exclusive Promotions Limited v HMRC: APN Penalties and Reasonable Excuse Testing

Citation: [2023] UKUT 269 (TCC)
Judgment on

Introduction

The case of Exclusive Promotions Limited v The Commissioner for HMRC (2023) addresses the legal issues surrounding Accelerated Payment Notices (APNs) and the imposition of penalties for non-payment. This article analyses the key topics, legal principles, and outcomes as set out in the summary of the decision made by the Upper Tribunal (Tax and Chancery Chamber).

Key Facts

Exclusive Promotions Limited (EPL) participated in a tax avoidance scheme and subsequently received APNs from HMRC, which EPL challenged through judicial review. EPL failed to pay the disputed tax and NICs by the due date, resulting in penalties imposed by HMRC. EPL appealed these penalties on three grounds, each of which was dismissed by the First-tier Tribunal (FTT). EPL subsequently appealed to the Upper Tribunal (UT).

APN and Penalties

The crux of the case revolves around the interpretation of the Finance Act 2014 and related legislation governing the issuance and enforcement of APNs. Key legal principles concern whether HMRC’s actions amount to a ‘determination’ as required by s. 222 of the FA 2014 and whether there was a ‘reasonable excuse’ for non-payment within the meaning of paragraph 16 of Schedule 56 to the Finance Act 2009.

Judicial Review Confinement

The UT’s decision underscores the principle of confinement of judicial review in APN penalty appeals. Drawing on the Court of Appeal’s judgment in Beadle v HMRC, the UT acknowledges that the FTT does not possess jurisdiction to entertain public law challenges on the validity of APNs or s. 222 determinations within APN penalty appeals. This resonates with the legislative intent to preclude taxpayers from deriving cash flow advantages from disputed tax avoidance schemes while the schemes are being contested.

Objective Reasonableness

In interrogating ‘reasonable excuse’, the case examines ‘objective reasonableness’. The UT refers to established case law that distinguishes between subjective beliefs of the taxpayer and the objective standard expected of a reasonable taxpayer in similar circumstances. According to Perrin v HMRC, a reasonable excuse must transcend personal beliefs and be supported by objectively justifiable reasons. The UT underlines the necessity of an objective inquiry that takes into account the taxpayer’s experience and attributes.

Outcomes

The UT dismissed EPL’s appeal on two principal issues:

  1. Determination: It was held that HMRC’s letter was indeed a ‘determination’ under s. 222(4), which triggered the payment period for the APNs in compliance with statutory provisions. The UT concurred with the FTT that it lacked jurisdiction to assess the public law validity of that determination within the APN penalty appeal framework.

  2. Reasonable Excuse: The argument advanced by EPL that its failure to pay was predicated on a genuine belief in the success of a judicial review or an interim relief agreement fell short of establishing a ‘reasonable excuse’. The UT upheld the FTT’s decision that Mr. Jones’s reliance on his advisors, as well as any belief about the implications of interim relief, did not fulfill the objective standard of a reasonable excuse as prescribed by law.

Conclusion

This case illustrates the rigour with which tribunals are expected to ascertain what constitutes a determination under s. 222(4) and the extent to which ‘reasonable excuse’ is interpreted in the context of penalties associated with APNs. The judgement serves as a precedent for the principles concerning the jurisdictional limitations of tax tribunals and reiterates the need for objective assessment in determining reasonable excuses in tax compliance and enforcement matters. Legal professionals in the UK should heed this case as a benchmark for future dealings with APNs and challenges thereto.