CASE No: CO/2855/2016
IN THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISON
ADMINISTRATIVE COURT

Thursday, 10 November 2016 

Before 
Mr Justice Dove
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BETWEEN:
MS MICHELLE COCKAYNE
Claimant
and
COMMISSIONERS FOR
HM REVENUE & CUSTOMS
Defendants

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JUDGMENT
Draft Ruling
MR JUSTICE DOVE:  
1.	This is an application for permission to apply for judicial review.  
2.	On 16 August 2016, Mrs Justice May made an order directing that the question of permission incorporating the issues raised by the defendant in relation to delay should be listed for an oral hearing and gave procedural directions in order to give that effect.  
3.	The facts pertaining to this case are, in brief, as follows.  The claimant was appointed a member of the Ingenious Film Partners LLP on 4 February 2005.  Ingenious Film Partners LLP was set up with a view to mitigating the tax liabilities of those who were partners.  It appears, although the papers do not contain full information, that at some point after 5 April 2005 the claimant was notified by Ingenious Film Partners Limited that she had a partnership share of losses generated by the partnership in the sum of £470,442.  She then corresponded with the defendant and elected to carry back those losses to her tax year 2001/2.  The effect of doing so gave rise to a tax benefit to her of £188,176.80.  She sought a repayment in that sum and was indeed repaid by the defendant at some point around that time in the sum which I have just set out.
4.	At some later point in time, it appears that the defendant became interested in the affairs of the partnership and embarked on an enquiry into the partnership's affairs.  Again, the papers do not disclose any details of that enquiry, but I am asked to assume, and I do assume for the purposes of reaching my decision, that that enquiry led to the decision that the losses generated in the scheme had not been properly and appropriately made out so as to justify the tax adjustments which had been made by partners as a consequence of Ingenious Film Partners' affairs.  
5.	It appears, although again there is nothing in the paperwork to substantiate this in detail, that the partnership has appealed to the First‑Tier Tribunal and that there is currently an outstanding appeal in relation to the decisions which the defendant reached.  
6.	Following on from the defendant's decision in relation to Ingenious Film Partners LLP's tax arrangements, and after apparently the appeal was launched, a Partnership Payment Notice (or PPN) was issued to the claimant under the Accelerated Payment Notice scheme (or APN scheme) claiming the sum of £188,716.80 on 17 November 2014.  The effect of that payment is to require the claimant to forward that money to the defendant for them to hold it pending the outcome of the appeal.  If the appeal is successful, then those monies will be refunded.  If the appeal is unsuccessful, that or any alternative figure consequent on the decision of the First‑Tier Tribunal would be retained by the defendant and any balancing sum refunded.  
7.	Following receipt of the PPN, on 11 February 2015 the claimant sent lengthy written representations to the defendants explaining, in terms which it is unnecessary for me to rehearse, the reasons why she believed that the PPN was invalid and should be cancelled.  Then, on 25 June 2015 the defendant responded, providing detailed representations in response to the claimant's contentions and upholding the issuing of the PPN.  This exchange of correspondence followed the scheme as set out in the Finance Act 2014 and, in particular, the provisions at section 220 of that Act and also section 227.  
8.	Section 227 of the 2014 Act provides as follows:
	"(1) in this condition, a condition C requirement means one of the requirements set out in condition C, section 219.  
	"(2) where an Accelerated Payment Notice has been given, HMRC may at any time, by notice given to P, withdraw the notice; (b) where the notice is given by virtue of more than one condition C requirement being met, withdraw it to the extent it is given by virtue of one of those requirements (leaving the notice effective to the extent that it was also given by virtue of any other condition C requirement that has not been withdrawn) or (c) reduce the amount specified in the Accelerated Payment Notice under section 220(2)(b) or 221(2)(b)."
9.	After the defendants had upheld the notice, on 6 July 2015 a pre‑action protocol letter was sent by the claimant to the defendant.  A full response to that letter before claim followed on 10 August 2015 from the defendants.  Further written representations were made.  In short, there were then two further pre‑action protocol letters.  The first of those further letters was sent by the claimant on 8 February 2015 and the second on 5 April 2016.  That second letter relied upon the failure of the defendant to withdraw, cancel or otherwise amend the PPN which had been served on 17 November 2015.  Subsequent to that, on 10 May 2016 an application for judicial review was filed, leading to these proceedings.
10.	The issue of permission is contested by the defendants on two bases.  First of all, they say that these proceedings have been brought following inexcusable and unexplained delay and therefore the application should in principle be dismissed on the basis of a want of promptness.  Secondly, they submit that the substantive arguments which are raised by the claimant in respect of the illegality of the PPN are unarguable and that, thus, permission should be refused.  
11.	I propose to deal with the issue of delay in this case first.  It is contended by Mr Gordon, on behalf of the claimant, that delay which may have occurred and which is not accepted is, firstly, explicable and, secondly, should not stand in the way of the claim proceeding in the light of what he submits is its clear merit and the inability of the claimant to challenge the PPN by any other means.  
12.	The reason why Mr Gordon contends that this application has not been the subject of any delay is as follows.  Firstly, he submits that, pursuant to section 227, which I have set out above, the defendant is under a duty to consider and reconsider their position and cancel or otherwise amend any PPN, and that that continuing duty gave rise to a decision which is susceptible of challenge by way of judicial review when they failed in March of this year to exercise their section 227 discretion in order to cancel the PPN.  
13.	He goes on to submit that in any event the delay in this case is entirely explicable.  He submits that in truth the grounds on which this case is brought were crystallised or clarified by the decision in De Silva v The Commissioners for Her Majesty's Revenue and Customs, [2016] EWCA CIV40, in which judgment was handed down on 2 February 2016.  Thus, it was not until that judgment came to light that it was possible to properly formulate the case which is now advanced.  He submits that, given that there is no other alternative avenue for the claim to be brought, the three‑month cut‑off period which might otherwise apply in any event should be set aside in circumstances where the taxpayers only have a right to bring a judicial review and there is no other mechanism to challenge a notice of this kind which calls for the provision to the defendants of a substantial sum of money.
14.	Having considered those submissions, I am entirely satisfied that delay in this case is a fundamental block to the grant of permission to the claimant.  The starting point for the consideration of any delay in an application for judicial review must be the provisions of CPR Part 54.  Those provide that claims of this sort should be brought within three months or as soon as possible.  True it is that in certain cases it may be possible to relax those provisions, but nevertheless those circumstances will of necessity prove to be exceptional.  It needs to be borne in mind that we are dealing with a public law remedy and that there is an importance in the certainty of administrative decisions which cannot be left in a perpetual or potentially perpetual state of flux as a result of possible legal assaults being placed upon them by judicial review applications.  
15.	I am not satisfied that the decision which is said to be the basis of these judicial review proceedings is in truth the decision under challenge.  It is the case that public bodies, whether by statute or by other means, have at their disposal the opportunity to reconsider at any point in time decisions which they have reached.  That does not mean that if they are asked to and fail to exercise that discretion that amounts in and of itself to a decision which is susceptible to judicial review.  No authority has been produced before me to suggest that such is the case.  
16.	The reality here is that the decision which is under challenge is the one which was reached on 17 November 2014 to issue the PPN in this case.  It follows therefore that the application here has been brought many months after that decision was reached.  Even if one were to take a more pragmatic approach and to say that in truth that decision was not crystallised until the provision inviting representations under section 222 of the 2014 Act had been exhausted, as it was in this case by the early exchange of correspondence, it still remains the position that many months have passed since this decision was reached and the challenge has been brought very substantially out of time.  
17.	Whether or not there has been prejudice to third parties, or indeed for that matter prejudice to the defendant, could not be dispositive of the matter.  The application of Part 54 has other important administrative and legal imperatives in terms of providing certainty in making public law decisions.
18.	In any event, I am not satisfied that the emergence of the Court of Appeal's decision in De Silva provides any explanation which is legitimate for the bringing of this claim at such a late point in time.  For reasons which will emerge when I turn to the substantive merits of the claim, the reality here is that the claimant's case depends upon detailed points of statutory construction which could have been raised at or around the time when the PPN was issued and the statutory representations procedure had been completed.  The emergence of authority will not in my judgment, generally speaking, provide the opportunity to set aside the time limits provided for in Part 54 and lead to the emergence of an opportunity to challenge earlier decisions long out of time.
19.	For all of those reasons, I have formed the view, before turning to the substantive merits of the claim in any event, that delay is an insuperable obstacle to the claimant bringing this challenge.  
20.	I do not propose, although what I am about to say is obviously not determinative of the decision in this case, to close the judgment at this point.  I propose to continue to consider the issues which have been raised as points of statutory construction in this case and to form a view about them.  
21.	The background to the claimant's submissions are formed by important provisions of the Taxes Management Act 1970.  In particular, under section 8 provision is made in the following terms for the establishment of personal tax returns for individuals:
	"(1) for the purpose of establishing the amount which a person is chargeable to income tax and capital gains tax for a year of assessment and the amount payable by him by way of income tax for that year, he may be required by a notice given to him by an officer of the board (a) to make and deliver to the officer on or before the day mentioned in (1)(a) below a return containing such information as may reasonably be required in pursuance of the notice; and (b) to deliver with the return such accounts, statements and documents related to information contained in the return as may reasonably be so required."
	"1AA, for the purposes of (1) above, (a) the amounts in which a person is chargeable to income tax and capital gains tax are net amounts; that is to say amounts which take into account any relief or allowance, a claim for which is included in the return.  
	"1B, in the case of a person who carries on a trade or professional business in partnership with one or more other persons, a return under this section shall include each amount which, in any relevant statement, is stated to be equal to his share of any income, loss, tax credit or charge for the period in respect of which the statement is made."
22.	Section 8, which sets out the requirement to make a return for both individuals and partnerships and the effect on partners of the provision of a return, is complemented by section 9 which requires returns to include self‑assessment.  
23.	Section 9 provides as follows:
	"(1) subject to sections 1(a) and (2), every return under section A or 8A of this Act shall include a self assessment; that is to say (a) an assessment of the amounts in which, on the basis of the information contained in the return, and taking into account any relief or allowance, a charge for which is included in the return, the person making the return is chargeable to income tax and capital gains tax for the year of assessment; and (b) an assessment of the amount payable by him by way of income tax, that is to say the difference between the amount in which he is assessed to income tax under paragraph (a) above and the aggregate amount of any income tax deducted at source and any tax credits to which section 231 of the principal Act applies."
24.	Then at (3):
	"Where, in making and delivering a return, a person does not comply with (1) above, an officer of the board shall if (2) above applies, and may in any other case, (a) make the assessment on his behalf on the basis of the information contained in the return and (b) send him a copy of the assessment so made.  
	"3A, an assessment under (3) above is treated for the purposes of this Act as a self assessment and as included in the return."
25.	Section 9A of the 1970 Act makes provision for enquiry into the return of an individual who has provided a return under section 8 or 8A.  Similar, if not parallel, provisions in relation to partnerships are provided under section 12AA in respect of the provision of a partnership return, and under section 12AC an officer of the defendant is empowered to enquire into a partnership return in order no doubt to establish whether or not it reliably provides information upon which an accurate assessment of tax liability can be made. The notice of the enquiry provided for under section 12AC(1), by virtue of 12AC(6), is deemed to include giving notice of the enquiry to any partner who has provided a return under section 8, 8A or 9A. Separate provisions are made in relation to making claims of the kind which were made by the claimant in this case.  Section 42 of the 1970 Act makes provision in relation to such claims.  The particular provisions which are in point in the present case are provided for under section 42(11)(a) and schedule 1b. Before turning to the detail of those provisions, it is necessary to note that under section 42(11) schedule 19a) of the 1970 Act is provided so as to apply to any claim or election made otherwise than included in a return made under sections 8, 8A or 12AA.  Turning then to schedule 1(b), that applies in certain defined circumstances.  In particular, it applies in circumstances where a claim is made to loss relief and loss relief which is to be carried back from one year to another.  The relevant provisions of schedule 1b which are in point in this case are set out in paragraph 2 as follows: 
	"(1) this paragraph applies where a person makes a claim requiring relief for a loss incurred or treated as incurred or a payment made in one year of assessment ('the later year') to be given in an earlier year of assessment ('the earlier year').   
	"(3) the claim shall relate to the later year.  
	"(4) subject to (5) below, the claim shall be for an amount equal to the difference between (a) the amount in which the person is chargeable to tax for the earlier year ('amount A') and (b) the amount in which he would be so chargeable on the assumption that effect could be and were given to the claim in relation to that year ('amount B').
	"(6) effect shall be given to the claim in relation to the later year, whether by repayment or set‑off or by an increase in the aggregate amount given by section 59B(1)(b) of this Act or otherwise."
26.	The submission which is made by Mr Gordon, on behalf of the claimant, is that schedule 1(b), paragraph 2(6) gives rise to what has been characterised in earlier cases as a "freestanding credit".  That language was deployed by Lord Justice Carnwath, as he then was, in the case of Blackburn v Keeling, [2003] EWCA CIV1221.  Having cited the provision, he provided at paragraph 16 as follows:
	"This elaborate deeming provision has the effect (so far as it applies) that, where under section 380(1(b) loss relief is claimed on income in the preceding year, the claim nonetheless 'relates' to the later year (paragraph 2(3)).  The amount of the claim is computed using the formula in paragraph 2(4) based on the income in the previous year, but it does not affect the tax position in the earlier year (paragraph 2(3)).  It gives rise to a 'freestanding credit' (in the Revenue's language) which can be used in any of the ways set out in paragraph 2(6)."
27.	Mr Gordon submits that, given the imperative terms of paragraph 2(6) of schedule 1(b) as to how a loss relief claim is to be given effect, it is not possible for that to be incorporated within the return or, in particular, the self‑assessment which is required by section 8 and section 9.  He submits that none of those ways in which effect can be given, leaving aside "otherwise", which is a word which has little clarity in this context, amounts to bases upon which either the return or the self‑assessment could be affected.  It follows, he submits, that, on the basis of this construction of the statute, legally there is no basis for there being any liability to tax payable which could found the PPN; that there is no tax payable on the basis that the operation of schedule 1b, 2(6)) does not permit that to be brought into consideration as part of the return or self‑assessment process.  
28.	He further submits that even were he wrong about that, then the reality is that the amount of tax for which self‑assessment occurred and was endorsed by the defendant in respect of the year 2004/2005 will not and could not be changed.  The repayment of the figure of £188,176.80 would not affect in any way the amount of self‑assessed tax comprised in the return provided by the claimant as that figure could not be altered by the defendant.  On the basis of those submissions, he contends therefore that there is no tax which is due and payable which could found the raising of the PPN.
29.	In response to these submissions, Ms Nathan makes the following points.  Firstly, she submits that the provisions of sections 8, 8A and 9 can be read alongside schedule 1(b), 2(6) without any difficulty.  What in truth is happening, she submits, in schedule 1(b), paragraph 2, is that provision is being made for procedural requirements, and also what were described in the course of arguments as mechanical requirements, as to how the claim or carried back loss relief is to be treated in the context of the return, which in this case is 2004/2005 or, in the language of paragraph 2, "the later year".  She submits that the matters that are set out in paragraph 2 are simply present so as to enable the loss relief to be put into the requirements which are made by sections 8, 8A and 9.
30.	She further submits, in relation to the suggestion that the return and self‑assessment could not be affected in any event by the cancellation of the tax benefit of £188,176.80, in the following way.  Firstly, she submits that the procedure which follows here has not reached the point at which any adjustment of the claimant's tax return would arise.  As set out above, there is the opportunity under section 12AC which has been taken by the defendant in this case to conduct an enquiry into the partnership return which was raised in this case.  That enquiry has been closed and an appeal has occurred.  
31.	The provisions of the 1970 Act which bear upon what should happen on completion of an enquiry into a partnership return are set out in section 28B in the following terms: 
“Section 28B(1):
	An enquiry under section 12AC one of this Act is completed when an officer of the board by notice ('a closure notice') informs the taxpayer that he has completed his inquiries and states his conclusions.  In this section, 'the taxpayer' means the person to whom the notice of enquiry was given or his successor.  
	(2) a closure notice was either (a) a statement in the officer's opinion that no amendment of the return is required or (b) make the amendments of the return required to give effect to his conclusions.  
	(3) a closure notice takes effect when it is issued.  
	(4) when a partnership return is amended under (2) above, the officer shall, by notice to each of the partners, amend (a) the partner's return under section 8 or 8A of this Act or (b) the partner's company tax return so as to give effect to the amendments of the partnership return."
32.	There is further provision which is made under section 59B in respect of payment of tax.  In particular, Ms Nathan relies upon section 59B(5) which provides as follows:
	"An amount of tax which is payable or repayable as a result of the amendment or correction of a self‑assessment order under ... (b) section 12ABA(3)(a), 12ABB(6)(a), 28B(4)(a), 30B(2(a), 33A(4)(a) or 59A of this Act (amendment of partner's return to give effect to amendment or correction of partnership return) is payable (or repayable) on or before the day specified by the relevant provision of schedule 3ZA to this Act."
33.	For completeness, schedule 3ZA of the 1970 Act, in particular at paragraph 8, provides as follows:
	"(1) this paragraph applies where an amount of tax is payable or repayable as a result of the amendment of the self‑assessment under section 284B(4)(a) of this Act (consequential amendment to a partner's personal or trustee return where a partnership return is amended by a closure notice).
	"(2) the amount is payable (or repayable) on or before the day following the end of the period of 30 days beginning with the day on which the notice under section 28B(4(a) of this Act was given."
34.	She submits that these provisions make clear, firstly, that there is power, once the closure notice has been given, to alter the partnership return and consequentially to alter the partner's return under section 8 or 8A.  As a matter of administrative process, where there has been an appeal she advises that the defendant's practice is not to proceed to the stage under 28B(4) and issue all of the partners who might be affected with an amendment to their return; that is because there may be, as it was thought before the court in this case, a number of partners extending into thousands whose returns may be affected.  That stage under section 28B(4) is undertaken if the appeal is dismissed.  
35.	In any event, she submits that this provision under section 28B(4), coupled with the provision under section 59B(5), make plain, firstly, as already stated, that the return of the individual partners are amended and, moreover, that that amendment amounts to an amendment or correction of the self‑assessment which has been provided.  It is followed by the provisions under schedule 3ZA as to when the payments are then due.
36.	In response to these submissions, I should point out that Mr Gordon contends that they carry the case no further forward because each of those provisions under section 28B, but in particular section 59B(5) and schedule 3ZA, are contingent upon there being an amount payable or repayable, which then begs the question as to whether or not there is any such amount based on his submissions.
37.	It is also submitted in this connection by Ms Nathan that it is important to have regard to the observations of Mrs Justice Simler in the recent case of Rowe v The Commissioners for Her Majesty's Revenue and Customs in which she observed at paragraph 48 as follows:
	"Accordingly, the understated tax is the additional amount that would be due and payable on the basis that the tax advantage is being denied.  This is determined by the designated officer.  The denied advantage is so much of the amount which the taxpayer has asserted as a tax advantage but which HMRC considers will not ultimately be a tax advantage once the tax dispute is finally resolved.  What the taxpayer is expected to pay under the PPN is, accordingly, the disputed tax resulting from the chosen arrangements.  The legislation requires this to be determined by a designated officer to the best of his information and belief."
38.	She submits therefore that far from there being no alteration to the return, which would be consequent upon the appeal being dismissed and the stage being reached under section 28B(4) where an amendment needed to be made to the claimant's return, by contrast to Mr Gordon's submissions and in response to his question as to what it is said would be altered, she submits that the return for 2004/2005 would have to be altered so as to bring into the information provided by the claimant the tax benefit of £188,176.80 and that that would need to be reflected in the return as a consequence of the dismissal of the appeal.  Thus, this is not a case, she submits, where there would be, in effect, no difference as a consequence of the appeal being dismissed and there is, in the light of the observations made by Mrs Justice Simler, tax which is due and payable if the appeal is dismissed on the basis that the tax advantage which was claimed has been denied.
39.	I am satisfied that the submissions which have been made by Ms Nathan in this connection are undoubtedly correct.  In my view, there is no necessary tension or contradiction between the provisions of schedule 1b, paragraph 2(6) and sections 8, 8A and 9.  They can be read together entirely satisfactorily.  
40.	The administrative convenience of using the phrase "freestanding credit" in relation to paragraph 2(6) does not create any such contradiction or anomaly.  I accept the submission which she makes that what in truth paragraph 2 provides for are the details, both in terms of the mechanics as to how the loss relief is to be brought into the return and self‑assessment process and also the means whereby effect may be given to that claim, as paragraph 2(6) provides, either by repayment, as here, or set‑off against existing liabilities or an increase in the aggregate amount in respect of monies already paid on account, which is the reference to section 59B(1)(b) of the 1970 Act.  But perhaps the key to this understanding is the provisions of paragraph 2(3).  Those indicate that the claim shall relate to the later year; that is the year in which the loss has been claimed.  That to my mind, when read alongside the other legislation, makes other aspects of the legislation, and section 8 in particular, clear that the relationship to the later year must of necessity be a provision which bears upon the obligation to provide a return.  There appears little purpose to that paragraph unless that is the case.  
41.	Mr Gordon suggested that this was a provision which was present in order to provide some timescale for the cut‑offs in relation to potential enquiries that might be made.  Any enquiry which can be raised is the subject of a time‑limited opportunity and he submits that that is why the claim for loss relief is required to relate to the later year.  I am bound to say that I did not find that explanation convincing.  To my mind, when the provisions of paragraph 2 are read together, they clearly read alongside and as part and parcel of the overall statutory regime alongside sections 8, 8A and 9, and there is, as I have indicated, to my mind, no arguable anomaly created by the mandatory terms of paragraph 2(6), which are simply providing for the ways in which any loss relief claimed may be treated or given effect to if it is accepted.
42.	I also accept the submissions made by Ms Nathan in respect of Mr Gordon's contention that, even if this were the correct position, there is no adjustment to the return or self‑assessment which could give rise to any liability.  The position in this respect, when one takes the statutory regime as a whole and, in particular, takes into account the provisions of section 28B(4) and 59B(5), are that there will be, and it is anticipated that that there will be, necessary amendments to a partner's return following the completion of enquiry and, it has to be interpolated, the adverse resolution of any appeal against that enquiry.  The language of the legislation makes clear that the effect of the closure notice gives rise, firstly, if it requires amendments to the partnership return, to the need for amendments to the partner's return and also, by virtue of section 59B(5), amendment or correction of self‑assessment.  Thus, the processes of both the obligation to provide the return and the obligation to provide self‑assessment are brought into the process of the closure of the partnership return enquiry, and I see no substance in the contention that this is, in effect, as described by Mr Gordon, some mathematical impossibility or exercise entirely without content.  
43.	Indeed, taking account of the observations of Mrs Justice Simler as to the effect of understated tax liability, it is plain to me that it is not an empty exercise but one that of necessity, given the statutory framework, must be engaged in and which will have some positive out turn, at least in terms of amendment of the claimant's return.
44.	Thus, for the reasons which I have given, even were I not concerned about the extent of the delay in this case, and even had I been persuaded that delay was not a fundamental obstacle in the path of permission being granted, I would nevertheless, for the reasons which I have given, have concluded that this claim is not arguable and would not have been prepared to grant it permission.  
45.	It follows from those conclusions that the application which is made for interim relief on behalf of the claimant must be dismissed alongside the dismissal of permission.