10 January 2017

In the case Biffin Ltd (and others) v HMRC, the High Court considered an application for an interim injunction to delay HMRC taking enforcement action.

Background

In 2007, HMRC opened enquiries into the tax affairs of Biffin Ltd (“Biffin”) and its two directors and ultimate owners. The enquiries concerned approximately £10.9 million disputed tax in relation to land sold by Biffin. HMRC had issued assessments of this disputed tax and then began to take enforcement action to recover this sum.

Biffin and its directors were disputing whether the tax assessed by HMRC was properly due in a separate claim and were also pursuing a judicial review application to challenge HMRC’s enforcement action. However, HMRC had indicated that it intended to begin enforcement action, including commencing insolvency proceedings against Biffin, before the substantive issues were decided.

Jurisdiction

A preliminary issue was whether the English court had jurisdiction to hear the case, given that the claimants resided in Scotland and that the HMRC officer dealing with the case made decisions there. The claimants argued that the Scottish and English courts had concurrent jurisdiction and that HMRC was a body operating throughout the United Kingdom so it was appropriate to bring proceedings in England.

The court found that the location of the HMRC officer making the decisions in a case was not determinative, noting that, if it were, it could be necessary to consider such absurdities as in which country a train carrying a HMRC officer from London to Edinburgh was situated whilst he was working on the case. The court concluded that, even if the English court did not have authority to rule on substantive issues, it did have jurisdiction to deal with the interim injunction application.

Interim injunction

The High Court then turned to the established principles as to when an interim injunction can be granted, which are as follows:

  • there is a serious case to be tried and, if so, it is just or convenient to grant an injunction
  • damages would not be an adequate remedy for the claimant
  • if the points above apply, the "balance of convenience” is in favour of granting an injunction.

The High Court considered each of these points in turn.

HMRC argued that there was not a serious issue to be tried, largely on the basis that there were alternative remedies available to the claimant. Although the court accepted that there were other mechanisms for the taxpayer to challenge HMRC’s decisions (which the claimants were, in fact, pursuing) hearings on these were not scheduled to take place until after HMRC had begun enforcement action. In addition, the claimant's underlying claim for judicial review allowed it to challenge the rationality, reasonableness and unlawfulness of HMRC's decision making process, a possibility unique to judicial review. The High Court therefore concluded that there was a serious issue to be tried.

The court then concluded that damages would not be a sufficient remedy for the claimants because of the harm which would be done to their trade and reputation if HMRC were to issue insolvency proceedings.

Finally, the court considered the balance of convenience test by weighing up the advantages and disadvantages to each party of granting the injunction. Although HMRC would suffer a disadvantage as a result of the delay in receiving payment if the injunction were granted, this could be mitigated by charging penalties and interest on the amount ultimately found to be due. The consequences of refusing to grant the injunction would be much more serious and potentially irreversible for the claimant, particularly due to the threat of insolvency proceedings.

HMRC’s approach to enforcing payment in this case was heavy-handed considering that there was an ongoing dispute about whether tax was due. This case shows that the courts may not allow HMRC to proceed with enforcement action where there is a genuine dispute over the amount owed and the taxpayer could be severely prejudiced as a result.

Key contact

Paul Haggett

Paul Haggett Partner

  • General Counsel
  • COLP/MLRO
  • DPO

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