Challenging HMRC's Debt Management Actions - Lessons Learned from Local Fuel Ltd

In this blog, which is based on an article published in Tax Journal on 23 April 2025, we consider the appropriate mechanism to challenge decisions taken by HMRC's debt management team.

Introduction

In Local Fuel Ltd v HMRC [2025] EWHC 390 (Ch), the High Court considered an application by HMRC to strike out Local Fuel Ltd's (LFL) Part 8, Civil Procedure Rules (CPR) claim, as an abuse of process, on the basis that HMRC's decision to enforce a debt constituted a public law decision which could only be challenged by way of judicial review proceedings, with the restrictive time limits and permission requirements that apply in such proceedings. The High Court dismissed HMRC's application and confirmed that a decision taken by a public body is only amenable to judicial review if it creates a liability, or alters a pre-existing liability. In the circumstances, there was no decision which LFL could have challenged by way of judicial review proceedings, and it was therefore entitled to bring a claim under Part 8, CPR, for a declaration that the debt claimed by HMRC was unenforceable. 

The exclusivity principle

In determining HMRC's application, the High Court considered the "exclusivity principle", which was established by Lord Diplock in O'Reilly v Mackman [1983] 2 AC 237. At paragraph 285 of that judgment, Lord Diplock said: "it would in my view as a general rule be contrary to public policy, and as such an abuse of the process of the court, to permit a person seeking to establish that a decision of a public authority infringed rights to which he was entitled to protection under public law to proceed by way of an ordinary action".

The exclusivity principle is justified because of the need to protect hard-pressed public authorities and to resolve questions regarding the legal validity of public law acts quickly. A claim for judicial review must be made within three months, as opposed to six years for most civil claims, and a judicial review claim must first pass a permission stage which acts as a filter to prevent frivolous claims.

In the LFL case, HMRC relied on three decisions which applied the exclusivity principle in a tax context: Knibbs v HMRC [2019] EWCA Civ 1719; Barklem v HMRC [2024] EWHC 651 (Ch); and Austick v HMRC [2024] EWHC 2175 (Ch).

In Knibbs, the taxpayers brought proceedings under Part 7, CPR, to challenge the lawfulness of a notice served by HMRC on the partners of a partnership, pursuant to section 28B(4), Taxes Management Act 1970 (TMA). HMRC had reduced the allowable losses of the partnership and so served a notice on the partners reducing the amounts of allowable losses that they could carry back to previous years in their individual tax returns. The central issue in the case was the lawfulness of enquiries that HMRC had commenced. The Court of Appeal affirmed the High Court's decision to strike out the claimant's claim as an abuse of process, on the basis that it should have been brought by way of judicial review.

In Barklem, the taxpayer had been a member of a partnership which claimed to have realised substantial losses, some of which were attributable to the claimant. HMRC issued closure notices disallowing the losses and the dispute was settled by agreement after the partnership appealed to the First-tier Tribunal. HMRC then issued a notice under 28B(4), TMA, amending the claimant's return. The claimant brought proceedings under Part 7, CPR, challenging the notice, but again the claim was struck out by the High Court as an abuse of process, on the basis that it should have been brought by way of judicial review.

Finally, in Austick, the taxpayer issued a Part 8 claim seeking declarations that he had no tax liabilities for certain tax years beyond what was shown in his own self-assessment tax returns. HMRC claimed to have given Mr Austick a notice under section 28B(4), TMA, on 4 November 2011, amending his tax returns, but it could not provide a copy or prove service of that notice. The central issue in the case was whether the section 28B(4) notice was effective to create an enforceable tax liability. Once again, the High Court agreed with HMRC that the claim should be struck out as an abuse of process, on the basis that it should have been brought by way of judicial review.

What made LFL's case different?

Considering the recent case law outlined above, what was it about LFL and its dispute with HMRC that led the High Court to conclude that a claim under Part 8, CPR, was the correct forum?

Background

LFL imported heating fuels which it stored in warehouses before onward distribution. These fuels were subject to excise duty and LFL paid this duty monthly by first submitting Form HO10, as prescribed by HMRC, setting out the quantity of oil removed from the warehouse and the total duty due or claimed in respect of that oil. In the ordinary course, HMRC would collect the total amount of duty by direct debit on the last business day of the month in which the Form HO10 was filed.

On 26 July 2021, LFL submitted a Form HO10 and the total duty shown for the previous month was £1,912,079.19 (the Road Fuel Duty). For reasons still unknown to the parties, despite a direct debit being in place, the Road Fuel Duty was not collected. 

HMRC did not take any steps to recover the Road Fuel Duty until 14 August 2023, over two years later. At that point, HMRC began sending letters notifying LFL of an overdue payment and threatening legal action. 

LFL challenged HMRC's attempts to collect the Road Fuel Duty, arguing that filing Form HO10 does not, of itself, give rise to an enforceable debt owed to HMRC. In circumstances where the duty identified in Form HO10 is not paid, HMRC must raise an assessment of liability in order to enforce payment.

HMRC did not accept this position and, on 21 March 2024, presented a winding-up petition to recover the debt. LFL wrote to HMRC to explain that, even if HMRC did not accept LFL's position, the debt was disputed on substantive grounds and it was therefore inappropriate to commence winding up proceedings (in accordance with the well-established principle in Re a Company [1991] BCLC 737). On 10 April 2024, HMRC agreed to withdraw its petition on condition that LFL issued proceedings to challenge the debt within a certain time period. 

On 31 May 2024, LFL issued its Part 8 claim seeking a declaration from the High Court that it did not owe an enforceable debt to HMRC. On 9 July 2024, HMRC applied to strike-out the claim as an abuse of process.

Distinguishing LFL from Knibbs, Barklem and Austick

The key difference between LFL's position and the position of the taxpayers in Knibbs, Barklem and Austick, is that in LFL's case there was no public law decision capable of being challenged by way of judicial review. 

Judicial review is a procedure for 'reviewing' decisions/actions. CPR Part 54.1 explains what it applies to:

"(2) In this Section – 
(a) a 'claim for judicial review' means a claim to review the lawfulness of – 
(i) an enactment; or
(ii) a decision, action or failure to act in relation to the exercise of a public function."

LFL's claim was not a claim to review the lawfulness of an HMRC decision, action or failure to act. On the contrary, LFL's claim sought a declaration as to the consequences of LFL's own action in filing a Form HO10. Other than acknowledging receipt of the form, HMRC took no steps in relation to the Road Fuel Duty other than enforcement action in respect of the debt it claimed was due from LFL.

HMRC contended that its decision to enforce the claimed debt was a public law decision and therefore the first demand letter, which explicitly identified the Road Fuel Duty on 29 November 2023, started time running for the purposes of bringing a judicial review claim.

The High Court's decision

Mr Justice Fancourt rejected HMRC's argument. At paragraphs 28-30 of his judgment, the judge explains that HMRC's decision to enforce the claimed debt by sending demand letters was not a relevant decision that could be impugned on public law grounds because it did not alter, or infringe, LFL's rights or affect its legitimate interest. The letters simply informed LFL of what HMRC considered the position to be. He noted that, if the law were otherwise, the Administrative Court would be at risk of being inundated with applicants believing they need to challenge promptly letters from HMRC claiming that they were liable to tax. By contrast, the actions taken by HMRC in, for example, Knibbs, materially altered the taxpayers' rights – HMRC issued a notice which reduced the allowable losses the taxpayers were able to carry back.

HMRC's decision to issue a winding-up petition could be seen in a different light as it threatened LFL's reputation and the viability of its business. However, in the view of the judge, judicial review would also have been inappropriate to challenge that decision because an alternative remedy existed. Somewhat ironically, it was open to LFL, at that time, to apply to strike out HMRC's petition as an abuse of process as the debt was known to be disputed on substantive grounds. In any event, the winding-up petition had been withdrawn by the time LFL issued its Part 8 claim. 

It is important to note that Mr Justice Fancourt saw no inconsistency between his decision and the approach taken in Knibbs, Barklem and Austick. In those cases, it was the step taken by HMRC that created a liability, or loss of tax relief, that was under attack and in such circumstances the exclusivity principle applied.

Significantly, Mr Justice Fancourt ordered HMRC to pay over 90% of LFL's costs incurred as a result of HMRC's strike-out application.

Why this case matters 

The key takeaway from this decision is that choosing the correct forum is an essential procedural step that should be carefully considered by taxpayers at the outset of proceedings.  HMRC has demonstrated that it is not averse to taking procedural challenges which, in the case of Knibbs, Barklem and Austick, proved fatal to the taxpayers' claims. It should not be assumed  that disputes involving HMRC are limited to statutory appeals and/or judicial review claims. Where there is no statutory right of appeal and no public law decision which alters or infringes on a person's rights, alternative forums should be considered. 

Finally, it will come as no surprise to many readers to learn that HMRC's Debt Management team adopted an overly aggressive approach during the course of this dispute.   At the outset, despite there being no contact for over two years, HMRC's Debt Management team sought to enforce a significant debt without providing sufficient detail regarding what the debt related to. Once the debt was disputed on substantive grounds, HMRC continued to refuse to engage with LFL and presented a winding-up petition in the High Court. Even though HMRC agreed to withdraw the petition on the condition that LFL issued a Part 7 or Part 8 claim, HMRC then proceeded to apply to strike out LFL's Part 8 claim.  Given government pressure on HMRC's Debt Management team to increase the amount it collects, particularly in relation to older debts, this type of overly exuberant approach is likely to continue.

In respect of LFL's Part 8 claim, a substantive hearing to determine whether an enforceable debt exists is listed for hearing in the High Court later this year.

The authors were instructed by LFL in its Part 8 claim.