In 2014, Accelerated Payment Notices (“APNs”) were introduced by the Government under the Finance Act 2014, allowing HMRC to request upfront payments on account of disputed tax and/or National Insurance contributions relating to certain tax avoidance schemes. Upon certain conditions (as set out in Section 219 of the Finance Act 2014) being met, HMRC can issue APNs in cases that are subject to appeals or open enquires – a mechanism designed to reduce the attractiveness of taxpayers entering into tax avoidance schemes or encourage/promote early settlement of disputed tax avoidance schemes.

Contrary to the usual appeal process of tax assessments, APNs are not open to appeal, although the taxpayer can object to an ­­­APN by making representations (Section 222 of the Finance Act 2014). If HMRC confirms an APN (with or without amendments) upon its consideration of representations, the taxpayer has no right of appeal and needs to pursue a judicial review to have the APN set aside. Taxpayers are, however, entitled to appeal the penalty notices related to the APNs.

Accelerated payments, whilst being only payments on account, can be recovered by HMRC in the same manner as it may recover the underlying tax as referred to in an APN such as via county court proceedings, taking control of goods, or commencing insolvency proceedings etc. However, in the event a taxpayer succeeds in appealing the underlying disputed tax, HMRC must repay the accelerated payment to the taxpayer, with interest. It is perhaps for this reason that there have been very few winding up/bankruptcy orders (if any) based on APN liabilities, until recently.

On 15 October 2020, Deputy Insolvency and Companies Court Judge Schaffer made a winding up order against a company (the “Company”), based on APN liabilities (His Majesty's Revenue and Customs v Ozcal Limited [2020] EWHC 3771 (Ch)).

In this case, the petition debt comprised liabilities arising from APNs issued for PAYE and National Insurance contributions, as well as penalties and interest related to the APNs (together, the “Petition Debt”).

The Company argued that HMRC failed to review the APNs issued despite the Company’s numerous requests. The Company also argued that HMRC acted in contravention of the Finance Act 2014, in that not all aspects had been fully investigated: the APNs were therefore invalid and the penalties/interest fell away as a result. In addition, the Company sought to argue that the petition was presented prematurely, as there had been a pending challenge to the scheme entered into, and the appeals to the First Tier Tribunal were stayed.

DICC Judge Schaffer started off by considering the well-established principle that tax debts are not normally open to dispute in the Insolvency Courts, as it is not the appropriate forum to challenge such debts. Assessments are final and binding if not appealed; if they are appealed, then the determination of such appeals are likewise final and binding. However, the Insolvency Courts might be able to go behind an assessment, if there had been evidence of “collusion, fraud or a glaring miscarriage of justice” in the making of such an assessment.

The Company, having failed through its representations, took no steps to challenge HMRC’s decision by judicial review. Further, the Company’s appeal of the penalty notices (issued in the absence of payment of the APNs) was refused by HMRC and no further appeal of the penalty notices to the FTT were made. In the absence of further challenges, statutory debts were created. It is also noteworthy that both the PAYE and NIC elements of the APNs were assessments to tax and were, therefore, not open for challenge in the Insolvency Courts.

Further, the Judge considered the effect of Section 55 (8D) of Taxes Management Act 1970 (as inserted by Section 224 of the Finance Act 2014): payments that have been postponed in appeals cease to be postponed upon on the issue of APNs. The PAYE referred to in the APNs therefore became due and payable in accordance with Section 55 (8D). In the case of National Insurance contributions, Paragraph 18 (2) of Schedule 2 of the National Insurance Contributions Act 2015 determined the payment terms where APNs have been issued.

As to the assertion that HMRC procedures were defective, it was concluded that having defect(s) in the procedure did not necessarily render the APNs unlawful.

Having found no grounds to override the statutory debts created, DICC Judge Schaffer considered that a winding up order was inevitable and accordingly, ordered the winding up of the Company.

This case will no doubt be used by HMRC as the basis for enforcing payment of APNs going forward, and we anticipate seeing an increasing number of winding up/bankruptcy orders being made based on APNs. It will also be interesting to see how matters will unfold, in circumstances where HMRC is the only or major creditor and that an officeholder later succeeds in the underlying tax appeal/enquiry.