The Limitation Act 1980 sets out specific time limits for certain actions to be brought.
A Claimant’s failure to do so is an absolute bar to bringing the Claim, but the defence of limitation must be pleaded in any Defence.
Note, the court will not simply strike out a claim of its own motion.
Recently, Elysium Law has been approached by a number of clients who, either as individuals or via their Company entered Tax Avoidance Schemes all of which were registered under DoTAS.
Not surprisingly, HMRC has issued determinations under Regulation 80 of the Income Tax Pay As You Earn and Regulation 2003 and Section 8 of the Social Security (Transfer of Contributions) regulations 2001.
Again, not surprisingly, given the planning arrangements and various challenges most of these assessments have been the subject of an appeal with the tax held over pending the outcome.
As far as the collection of National Insurance Contributions are concerned, this is a contractual debt. HMRC is therefore bound by the provisions of Section 5 of the act in that any claims for a debt must be issued within the 6-years period, failing which the Taxpayer can raise limitation as an absolute bar to the claim.
For the avoidance of doubt, the NIC is due from the year in which it should have been paid and not of course from the date of the assessment.
The Letter of Claim and the Pre-Action Protocol for debt Claims
HMRC is not bound by the pre-action protocol on debts.
Their position is covered by Practice Direction 7 D Section 1.1 (e).
Generally, if a defence is filed, the court will fix a date for a hearing and the only evidence that is needed from HMRC is a certificate – the PD goes on to state;
3.1 On the hearing date the court may dispose of the claim.
(Section 25A(1) and (2) of the Commissioners for Revenue and Customs Act 2005 (‘the 2005 Act’) provides that a certificate of an officer of Revenue and Customs that, to the best of that officer’s knowledge and belief, a sum payable to the Commissioners under or by virtue of an enactment or by virtue of a contract settlement (within the meaning of section25(6) of the 2005 Act) has not been paid, is sufficient evidence that the sum mentioned in the certificate is unpaid.)
The ’PD’ goes on to state:
3.2 But exceptionally, if the court does not dispose of the claim on the hearing date it may give case management directions, which may if the defendant has filed a defence, include allocating the case.
Protective proceedings and the issue of a Claim
In their Particulars of Claim HMRC say:
“The Claim is issued to protect the Claimant’s right to NICs that it considers to be correctly due…once the Claim is issued, it is the Claimants intention to make application to the court for a general adjournment pending the outcome of the Defendant’s appeal.”
As far as the issue fee is concerned, most if not all of these cases fall into the County Court and the issue fee is payable in the sum of 5% of the amount alleged to be owed. In the event that the Claimant loses the claim, the disbursement as well as any cost will automatically follow the event as will interest on the debt, which must be pleaded in the Claim.
In the majority of cases, HMRC has written to the various Defendants and has threatened proceedings.
Prior to issuing proceedings, it is prudent that HMRC is offered a standstill agreement in order to stop time running during the limitation period. We believe that this will protect the Taxpayer on the question of costs should the challenge to the planning fail and the NICs become due and payable, as at that stage, there can be no defence to the Claim.
In our view and in order to protect your client or yourself on costs, we suggest that you offer HMRC a standstill agreement under which the Claimant agrees not to rely on the expiry of a limitation period as a defence and which runs from a given date (usually the date of the agreement) until notice is given to restart the claim.
This will, in effect, freeze the running of time at the date of the agreement, while giving the Defendant the option to start the clock running again by giving notice to the claimant. Of course, if the Defendant taxpayer wanted to restart the claim before the planning issues had been decided by for example the FTT, then HMRC would be within its rights to issue and stay the claim. This would result in no costs protection for the Defendant, on the contrary.
How is time stood still?
There is a difference between extending time and suspending time for limitation purposes.
An agreement to suspend time (Standstill Agreement) is set out in the following way.
The suspension of time under this agreement shall continue in force until the earlier of:
(a) 30 days after the service by any party of a notice stating that the running of time is to recommence; or
(b) the service of proceedings by any party in connection with the Dispute; or
(c) [add in a long stop date] or an event such as determination of the issues taken by HMRC (mention the planning).
In this case, upon the conclusion of the trigger event, the remainder of the limitation period would run.
If however, the Parties decide to contract to extend the limitation this will expire on the date set out in the agreement.
The author’s view is that the suspension of time is by far the safest way of proceeding.
If you want to know more about standstill agreements or want advice upon litigation against HMRC, or any other party, then contact us www.elysium-law.com