Speed read: In The Queen on the application of PML Accounting Limited v The Commissioners for HM Revenue and Customs [2018] EWCA Civ 2231, the Court of Appeal held that the taxpayer was not able to argue the invalidity of a taxpayer notice as part of its penalties appeal under schedule 36 Finance Act 2008. The decision catalogues the dangers involved in cooperating with, settling and challenging a taxpayer notice. It also highlights the long-term consequences of handing materials over to the revenue, particularly in circumstances where a criminal investigation is in contemplation.


In 2012 HMRC served PML Accounting Ltd ("PML") with what the revenue considered to be a valid taxpayer notice (the “Notice”) under paragraph 1 of schedule 36 Finance Act 2008 (“schedule 36”). PML appealed the deadline in the Notice, but not the Notice itself. The parties agreed to an extension, settling the appeal.

When subsequently issued with penalties for non-compliance with the Notice, PML appealed to the First-tier Tribunal ("FTT"). The FTT held that the Notice was invalid (a third party notice should have been issued instead) and told HMRC to return the documents (although the FTT had no power to require this). The revenue duly did so, but it refused to go one step further and delete all information, analysis and work product derived from the materials (it was in the process of conducting a substantial criminal investigation into PML). PML brought judicial review proceedings, but the High Court dismissed the claim.

The Court of Appeal’s decision

The Court of Appeal dismissed PML’s appeal, upholding the High Court’s decision. By majority judgment (Henderson LJ dissenting on several of the grounds), the Court held that:

  • Paragraph 29 of schedule 36 provides for only one appeal against a taxpayer notice and its terms. It is important to construe the legislation this way, as penalties can only be assessed (let alone appealed) once any such appeal has been determined or withdrawn.
  • When the parties settled PML’s appeal against the deadline (by agreement under section 54 Taxes Management Act 1970 (“TMA 1970”), the validity issue was also concluded.
  • The FTT did not, therefore, have jurisdiction to consider the validity issue.
  • HMRC was not stopped from arguing that PML could not argue the Notice was invalid; the earlier FTT proceedings were of a different nature and between different parties (they were brought by the Crown, not by PML) and the FTT was not competent to have found as it did in the first place.
  • When holding that he would not, in any event, have ordered HMRC to delete its work product, the High Court judge was entitled to have regard to the conduct of PML (including that it acquiesced to the processing of its material), the risk of satellite litigation and the difficulty of dealing with revenue work product derived from a combination of sources.


Given Henderson LJ’s powerful dissent, the current position is unlikely to be left unchallenged. The present regime is, as his Lordship noted, “extremely harsh.”

When first issued with a taxpayer notice, the taxpayer is stuck between a rock and a hard place. PML makes it clear that any future Tribunal may have regard to a taxpayer’s cooperation when denying relief later. However, failure to co-operate will inevitably attract heightened scrutiny by the revenue. Careful thought should be given to all correspondence.

Next, any settlement agreement with HMRC must be treated with extreme caution. Longmore LJ noted that it is possible that in another case “HMRC might “bounce” a taxpayer into agreeing that a notice was valid when he has sought to appeal some minor point”. As his Lordship noted, there is a 30 day cooling off period under section 54 TMA 1970, but this is likely to be of minimal comfort given the short window provided.

Finally, when drafting a notice of appeal under schedule 36, the taxpayer must consolidate all potential challenges. Per PML, additional grounds can only be added within the original 30-day limit, no second appeal against the validity or terms of the notice is possible, and a late appeal under section 49 TMA 1970 is only available when no notice of appeal has been filed before the relevant time limit. This feels unjust because, as Henderson LJ noted, the taxpayer’s position at the initial appeal stage is fundamentally different from that during proceedings of a penal character. Moreover, it has only had 30 days to consider its legal position and to calculate the logistical and cost implications of compliance.

Final thoughts

PML is clearly a win for HMRC and addresses some of the revenue’s concerns regarding deferred compliance with taxpayer notices (whether due to successive appeals or satellite litigation).

However, it goes a step further. In the context of a regime that is appropriately deployed against suspected “ghosts” (economically active persons who have not made themselves known to HMRC) and “moonlighters” (those who hide sources of income from the revenue), compliance with a taxpayer notice can have serious long-term consequences. PML reveals the harsh reality that, even when a taxpayer notice can be challenged, it may already be too late – HMRC’s inability to unwind analysis and work product from a combination of sources means that the taxpayer may already have inadvertently and irreversibly exposed itself to a criminal investigation into its own affairs.

Of course, compliance with a valid taxpayer notice is not optional. The message to take from PML is that any appeal must be run as early as possible, and ideally before materials have already been handed over to the revenue.