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Pitcher - Tribunal finds in favour of taxpayer in APN penalty appeal

19 June 2017. Published by Robert Waterson, Partner

In Graham Pitcher v HMRC [2017] UKFTT 0406 (TC), the First-tier Tribunal (FTT) allowed the taxpayer's appeal against a penalty for non-payment of an Accelerated Payment Notice (APN) due to defects in the APN.


The taxpayer had participated in two tax planning arrangements registered under the disclosure of tax avoidance schemes (DOTAS) regime. The first was a loss generation scheme called Liberty 2 (Syndicate) and the second was Icebreaker. An enquiry was opened by HMRC in December 2009 in relation to the 2007/8 tax year and his participation in Liberty 2. 

The taxpayer found himself in Highpoint Prison having been convicted of conspiracy to defraud in relation to a separate and unconnected matter. Whilst the taxpayer was in prison, HMRC opened an enquiry in relation to the 2006/7 tax year and his participation in Icebreaker. 

On 23 July 2015, HMRC issued an APN to the taxpayer in respect of the 2007/8 tax year which it sent to Highpoint Prison (believing the taxpayer to still be in prison). However, by that time the taxpayer had been released from prison and was residing elsewhere. As a consequence, he did not receive the APN.

The APN contained a number of errors. First, it made reference to the wrong statutory provisions. It incorrectly stated that the amount demanded in the notice was set by reference to section 219(4)(b), Finance Act 2014. That section has nothing to do with the amount demanded in an APN (it should have referred to section 220(4)(b)). 

Secondly, the APN provided an imprecise definition of “understated tax” and failed to make reference to the relevant statutory provisions. 

Thirdly, the APN stipulated two different payable amounts. The first, under the heading “Amount due in respect of this notice”, indicated that £56,905.20 was payable, however, in the “How to pay” section the “Amount due” was stated to be £53,063.70. 

Having not received the original APN, the first the taxpayer knew of the APN was when a reminder communication was sent to his home address on 9 September 2015. His evidence before the FTT was that he did not act when he received this reminder because he thought the letter related to the ongoing enquiries into the Icebreaker arrangements and did not realise it related to an APN which he had not received. 

HMRC, having received no payment, issued a penalty to the taxpayer of 5% of the larger sum demanded in the APN. It was at this point that the taxpayer realised what had happened and wrote to HMRC to explain that he had not received the APN and to ask for a calculation of how HMRC had arrived at the sum it was demanding.

HMRC responded by saying the 90 day period for representations under section 222, Finance Act 2014, had expired and it could not review the matter. It did, however, include a copy of the APN with its reply and a one page summary of its calculation.

The calculation contained further errors. First, it revealed that HMRC had intended to demand the sum of £53,065.46 (£1.76 more than the lesser sum demanded in the APN) and second that HMRC had included £39,641 of losses which had been withheld by HMRC under section 59B(4A), TMA 1970, and consequently had never been in the possession of the taxpayer. 

When informed of this, HMRC accepted that the APN ought to have demanded the sum of £13,422.55. However, rather than withdrawing the original APN and issuing a new one, the officer modified the existing APN. This meant that HMRC could then withdraw its penalty notice but replace it immediately with a new one for 5% of £13,422.55, on the basis that the taxpayer was still out of time for paying the sum demanded by the APN.

The taxpayer appealed to HMRC but his appeal was rejected and the subsequent review upheld that decision.  The taxpayer then appealed to the FTT.  

FTT's decision

The taxpayer's appeal was allowed.

The FTT was of the view that although the APN had been sent to the prison in which the taxpayer was no longer incarcerated, HMRC had nevertheless issued the notice to the last known address and had therefore satisfied the requirements of section 7, Interpretation Act 1978, and section 115, TMA 1970. 

HMRC argued that the taxpayer could not challenge the sum(s) demanded by the APN because the only mechanism he had to do so was by way of representations to HMRC made under section 222, Finance Act 2014, and he was out of time to do so, or by way of judicial review, which he had not done. The FTT agreed and citing the recent decision in Nijjar v HMRC [2017] UKFTT 0175 (TC), confirmed that the FTT has no authority under statute to consider whether the circumstances for the valid issue of an APN have been satisfied (such a challenge must be brought by way of judicial review proceedings). 

HMRC maintained that the difference in the sums demanded in the APN itself and the subsequently amended sums were a minor error and as such could be saved by section 114, TMA 1970 (want of form or errors not to invalidate assessments etc) and that accordingly the APN was valid.

HMRC also argued that although the APN contained two figures, one of them was correct, based on their understanding at the time. The fact that the notice contained another, incorrect, figure was irrelevant and could not prevent it from issuing penalties.

In the FTT's view, the legislation specifies, in the singular, that the APN should explain “the payment” the taxpayer is to make. Faced with two figures the taxpayer was put in the impossible position of having to guess which of the two amounts was correct and run the risk of selecting the wrong one. The APN could not therefore be said to be in “substance and effect in conformity with or according to the intent and meaning of the Taxes Acts” and accordingly section 114 did not assist HMRC and the penalty was quashed.


There is a concern that in its haste to issue APNs on an industrial scale HMRC will inevitably make mistakes. This case demonstrates  what can go wrong when proper care and attention is not applied by HMRC in the issuing process.  

HMRC’s position in this case appears to have been that the taxpayer is bound by an APN which he did not receive, which included incorrect figures and in respect of which he was out of time to make representations. 

It is disappointing that HMRC forced the taxpayer to take his case all the way to the FTT. This appeal could have been avoided if it had adopted a sensible and pragmatic approach once the facts became known and worked with the taxpayer to remedy the situation. 

A copy of the decision can be found here.