In Biffin Limited and Others v HMRC [2016] EWHC 2926 (Admin), the High Court has granted the taxpayers an injunction prohibiting HMRC from commencing enforcement action in respect of alleged tax liabilities.

Background

Mr Taylor and Mr McFarane are the directors and ultimate owners of Biffin Limited (the Claimants).

The underlying dispute concerned the tax consequences of certain property transactions, with the sum in dispute being in excess of £10m. HMRC issued discovery assessments, which were appealed and an application for postponement of the disputed tax was made by the Claimants.

The Claimants brought proceedings by way of judicial review of a number of HMRC's decisions, including amendments to their tax returns and the refusal to agree the postponement of the tax demanded.

The Claimants applied to the High Court for an interim injunction preventing HMRC from commencing enforcement action against them in respect of the alleged tax liabilities that were the subject of the appeal and postponement applications which were before the First-tier Tribunal.

Decision

In assessing whether HMRC should be prevented from taking enforcement action in relation to the disputed amounts, the Court considered the well-established principles laid down by Lord Diplock in American Cyanamid Co v Ethicon Ltd [1975] AC 396, namely:

  1. Is there a serious case to be tried?
  2. Are damages an adequate remedy for the claimant?
  3. Where does the 'balance of convenience' lie?

In relation to (1), HMRC submitted that the claim for judicial review was 'misconceived' because there were alternative remedies available to the Claimants and, in any event, their claim was without merit.

In disagreeing with HMRC, the Court said:

"… there are mechanisms within the tax legislation for individuals (the Taxes Management Act 1970) and companies (the Finance Act 1998) to challenge the decisions that have been made by the Defendant. However, those mechanisms do not enable the Defendant [sic] to challenge the decision-making process on the grounds of rationality, reasonableness or unlawfulness as the Tax Tribunal does not have the jurisdiction to deal with such challenges."

The Court also noted and emphasised that: "it would be an abuse of process to proceed to petition to wind up a company … where there is a genuine dispute over the debt." (Mann v Goldstein [1968] 1 WLR 1091 applied).

The Court was of the view that there was a 'serious issue to be tried' and the Claimants' claim was not without merit.

In relation to (2), the Court was of the view that damages would not be an adequate remedy in the event that HMRC took steps to enforce the alleged tax, because of the adverse effect enforcement would have on the company's business. The judge said that enforcement of the disputed tax would cause such hardship to the Claimants that damages would not be an adequate remedy. His view was reinforced by the fact that the only prejudice to HMRC in granting an injunction would be a delay in collecting the amounts in issue (should it ultimately be successful in relation to the underlying dispute) and any such delay could be adequately compensated by the payment of interest and penalties.

In addressing principle (3), the Court said:

"The disadvantage for the Defendant is that, in the event that they successfully rebut this application for judicial review, there will have been a delay in recovering tax. As I have indicated above, this can be remedied by interest and any penalties. However, the disadvantage for the Claimants is in my view far more significant, as I have indicated already. There are consequences that cannot be put right after the event and in my view, when all the circumstances of the case are considered, the balance of convenience is in favour of granting the injunction and maintaining the status quo."

The Court therefore concluded that the 'balance of convenience' lay in favour of the Claimants and granted an injunction prohibiting HMRC from commencing enforcement action.

Comment

HMRC have a tendency of seeking payment of disputed amounts and resisting interim relief where its decisions are under challenge by way of judicial review.

The Court's view in this, and other recent cases, is that the only prejudice that HMRC will suffer as a result of granting an injunction will be a delay in the collection of monies should it ultimately be successful. However, any such delay can be adequately compensated for by the payment of interest and, where appropriate, penalties. This is in contrast to many taxpayers who would suffer extreme hardship beyond the scope of pecuniary compensation should HMRC take enforcement action in respect of sums in dispute.

It is not therefore surprising that the Court concluded as it did. It is to be hoped that HMRC will consider this judgment carefully and act appropriately in other cases in which its actions are being challenged by way of judicial review proceedings.

A copy of the decision can be found here.