Sheiling - Belief in procedural invalidity of APN can constitute reasonable excuse

22 July 2020

In Sheiling Properties Ltd v HMRC [2020] UKUT 175 (TCC), the Upper Tribunal (UT), in dismissing an appeal against penalties for non-payment of accelerated payment notices (APNs), confirmed that a reasonable belief that the APNs were invalid could constitute a reasonable excuse for non-payment.


Sheiling Properties Ltd (the taxpayer) made various payments to its directors in return for share subscriptions under an arrangement which had been notified to HMRC under the Disclosure of Tax Avoidance Scheme regime. HMRC issued a determination under Regulation 80 of the Income Tax (Pay As You Earn) Regulations 2003, claiming that the taxpayer owed tax in respect of those payments (the Regulation 80 determination). The taxpayer appealed against the Regulation 80 determination and HMRC agreed to postpone payment of the tax due. 

HMRC subsequently issued APNs to the taxpayer, under section 219, Finance Act 2014, requiring advance payment of income tax assessed under the Regulation 80 determination, by a specified date. The taxpayer issued judicial review proceedings challenging the validity of the APNs on the basis that the statutory conditions for their issue had not been satisfied. 

The sums demanded in the APNs were not paid and HMRC issued penalty notices, under section 226, Finance Act 2014, to the taxpayer for non-payment of the APNs (the penalty notices).

The taxpayer appealed the penalty notices to the First-tier Tribunal (FTT), which held, as a preliminary issue, that the taxpayer was liable for the penalties unless the APNs were determined to be unlawful in the judicial review proceedings. It rejected the taxpayer's claim that, for the purposes of paragraph 16, Schedule 56, Finance Act 2009, it had a "reasonable excuse" for the non-payment, based on its belief that the APNs were invalid.

The taxpayer appealed to the UT. It submitted that: (1) tax arising from a determination under Regulation 80 could not be "disputed tax", for the purposes of section 221, Finance Act 2014; and (2) the FTT had erred in its interpretation of the "reasonable excuse" defence.

UT decision 

The appeal was dismissed.

In respect of issue 1, the UT said that PAYE was not a tax, but a collection mechanism for income tax from an employer. Income tax was a relevant tax for the purposes of the APN code, pursuant to sections 200 and 219(2), Finance Act 2014. Tax sought under a Regulation 80 determination was therefore "tax", within the meaning of section 221(3) and an employer's appeal against a Regulation 80 determination was a "tax appeal". It followed that the amount appealed against was "tax appealed against", within the meaning of section 221(3). Regulation 80(5), treated the determination as an assessment for the purposes of section 221(3), so that the tax charged under it was deemed to be arising "in consequence of ... [an] assessment to tax appealed against". The UT concluded that there was nothing to suggest that a PAYE determination should fall outside the APN regime. The UT stated that, in policy terms, it would be surprising if tax charged through a PAYE determination could not be the subject of an APN. 

In respect of the second issue, the UT noted that there is no statutory definition of what constitutes a "reasonable excuse", for the purposes of paragraph 56. According to the guidance provided in Perrin v HMRC [2018] UKUT 156 (TCC), the FTT should establish the facts on which the taxpayer was relying to found a reasonable excuse, decide which of those facts were proven and then decide whether, objectively, those proven facts amounted to a reasonable excuse for the default, and the time when that excuse ceased. 

The UT noted that following the recent Court of Appeal decision in Beadle v HMRC [2020] EWCA Civ 562, a taxpayer's belief that an APN was substantively invalid because the payment it accelerated was not owed, could not form the basis of a reasonable excuse for non-payment of that APN. However, it would be unduly restrictive to determine that a belief as to procedural invalidity of an APN, on the ground that it had not been issued in compliance with the statutory conditions, could never be a reasonable excuse in respect of a penalty for non-payment of an APN. The UT confirmed that the policy considerations in Beadle did not apply in undiluted form in relation to procedural invalidity.  Accordingly, if a taxpayer reasonably believes that the APN it has received is invalid due to a procedural defect, then it may rely on the "reasonable excuse" defence for non-payment of the APN. The UT went on, however, to discourage any 'mini trial' of the taxpayer's judicial review arguments. On the facts of this case, the UT concluded that the taxpayer had no reasonable excuse for non-payment of the APNs. 


This decision will be of relevance to any taxpayer who has received an APN and not paid it in the belief that the APN was not issued in accordance with the legislation and was therefore issued invalidly. HMRC's position, to date, has been that a taxpayer's belief that an APN was issued invalidly can never amount to a reasonable excuse for non-payment of an APN. In other cases, such as Beadle, the taxpayer sought to argue that the APN was invalid 'through the back door' of a statutory appeal against a penalty for non-payment. In the instant case, the taxpayer argued that even if the APNs were valid, the fact it believed that they were not valid at the time the sums demanded by the APNs became due and payable, could constitute a reasonable excuse for non-payment. The UT accepted that this was correct in principle, but that on the specific facts of the instant case, the taxpayer did not have a reasonable excuse for non-payment.  

The decision can be viewed here.

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