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Crowd-funding a novel group action

As part of an aggressive crackdown on tax avoidance, the UK government granted new powers to Her Majesty's Revenue and Customs (HMRC) known as Accelerated Payment Notices (APNs). These flagship anti-avoidance powers, described by some commentators as 'pay now, dispute later' tax bills, were intended to fast track a backlog of 65,000 unresolved tax disputes. However, experts also observed that they also went against the principle that a party is 'innocent until proven guilty'. The powers affected large numbers of individuals, some of whom did not have the means to challenge the powers independently. Novel thinking was needed to challenge this new policy weapon.

The challenge

APNs required taxpayers to pay an amount deemed by HMRC to be the correct liability, before any agreement or trial of the issues. The taxpayer has 90 days to pay, even in cases which had been disputed for over 10 years.

In many cases taxpayers large and small were receiving potentially ruinous tax bills with little or no notice or process.

Pinsent Masons identified members of a film scheme we believed would be most likely to be targeted first by HMRC. The task was to develop a solution to effectively and efficiently:

  • Challenge the powers
  • Buy investors time to get their affairs in order should a payment be necessary.
Collins Jason

Jason Collins

Partner, Head of Litigation, Regulatory & Tax

HMRC may now think twice before seeking powers that challenge the concept of ‘innocent until proven guilty’

The solution

We successfully established the first collective action of its type to bring a judicial review and won an interim injunction preventing HMRC from enforcing the notices in the meantime.

Our approach was developed with the express intention of ensuring that the affected taxpayers were not over-burdened with a further layer of legal fees.

The legal challenge had five innovative characteristics:

  • Identifying the scheme most likely to be targeted. This required true, specialised and in-depth understanding of the tax landscape.
  • A proactive approach to engaging with the problem and developing a solution. This required a significant up-front investment of time and effort before a penny had been paid by any client.
  • Identifying members of the scheme through Companies House records and writing to them directly with a proposed solution.
  • Structuring and funding of the action. Few taxpayers have the means to take on the might of HMRC as individuals. However, by sharing the risk and also obtaining litigation funding, the burden on individuals was significantly reduced.
  • Framing the actual litigation strategy. Judicial review funded through a collective of this type was unprecedented in this arena.

The strategy was very much to challenge the notion that government has the power to overturn natural justice.

The result

As a result of this challenge there was a full and proper examination of issues linked to the reach of the powers of the Exchequer.

Scheme members presented with hefty bills won the time and space to organise their affairs. APNs against them can no longer be enforced until legal proceedings are completed.

Subsequently, a number of promoters and investors approached the firm to launch judicial reviews in their cases. We are not aware of any judicial review actions being brought in this way prior to this case. There are, however, many which have a similar format to them since.

This case has arguably provided the inspiration and confidence to others seeking to bring crowdfunded judicial reviews.