Revenue and Customs Commissioners v Purity Ltd [2025] EWHC 3401 (Ch)

The High Court made the first compulsory winding up order under section 85 of the Finance Act 2022, which enables a promoter of a tax avoidance scheme to be wound up where it is expedient in the public interest, for the protection of the public revenue, for a promoter to be wound up.

Purity operated a scheme where it acted as an employer for employees, whose work was arranged by employment agencies. Employees were paid a minimum wage with the full entitlement provided as an ‘advance’ which Purity alleged was in relation to long-term loans, which employees were charged substantial fees in order to receive. Although HMRC was unaware of the full extent of its operations, loans of £45m were made in a single calendar year.

A Stop Notice was issued under the Promoters of Tax Avoidance Schemes regime (“POTAS”) in late 2023, and Purity ceased operations in 2024. Purity was found to have provided employees with “stock letters to stonewall HMRC and hamper its investigations, and the company suggested to one employee that it would cease being able to “help” him “now or in the future” if he gave information to HMRC without consulting Purity.” [33.2]. HMRC presented a petition, and Purity unsuccessfully sought permission to judicially review the decision to present and sought a stay of the petition.

The trial of the petition was listed for 6 days, however, Purity entered creditors’ voluntary liquidation before the trial, and the liquidators did not oppose the winding up of the company.

Section 85 of the Finance Act 2022 provides that:

“(1) Subsection (2) applies where it appears to an officer of Revenue and Customs that it is expedient in the public interest, for the purposes of protecting the public revenue, that a relevant body should be wound up.

(2) The officer may present a petition to the court for the winding up of the body.

(3) On such a petition, the court may wind up the body if the court is of the opinion that it is just and equitable that it should be wound up.

(4)… “relevant body” means a body, including a partnership, that— (a) carries on a business as a promoter within the meaning of Part 5 of FA 2014 (promoters of tax avoidance schemes) as if, in sections 234 and 235 of that Part, references to— (i) “tax” included value added tax and other indirect taxes, and (ii) “tax advantage” included a tax advantage as defined for value-added tax in paragraph 6, and for other indirect taxes in paragraph 7, of Schedule 17 to F(No.2)A 2017;”

The power to present a petition is, therefore, engaged where i) a designation against the subject of the petition under the is made under the promoters of tax avoidance schemes regime, and ii) it appears to an officer of HMRC that it is expedient in the public interest, for the purposes of protecting the public revenue, that the relevant body should be wound up.

The Court may make a winding up order “if the court is of the opinion that it is just and equitable that it should be wound up” with section 85(3) replicating the identical and well-known provision in section 122(1)(g) of the Insolvency Act 1986. Andrew de Mestre KC, sitting as a Deputy High Court Judge, held that there was “no reason why the authorities which explain the approach to such petitions…should not also be applied to petitions under s.85 of FA22.” [7].

In making an assessment, the Court would “need to consider the totality of the evidence before it and balance any competing reasons why the company should or should not be wound up. It is also necessary for the Court to be able to identify for itself the aspects of the public interest which would be promoted by the making of a winding up order” [8]

Although Purity had incurred substantial PAYE and NIC liabilities having actually operated, in addition to promoting, the tax avoidance schemes, due to the novelty of section 85, the Court considered whether HMRC was required to demonstrate that the tax avoidance scheme promoted did not work and, therefore, whether there was definitively a loss to the public revenue.

Obiter, the Judge remarked that he agreed with HRMC that section 85 did not require the revenue to establish that the tax avoidance scheme did not work or that the promoter itself had a liability to tax as a result of the scheme. There was no precondition within section 85 for either requirement to be met to entitle HMRC to present a petition or for the court to make a winding up order and the judge held that:

“..it is left to the Court to determine, on the evidence before it, whether it is just and equitable to wind up the subject of the petition. Of course, it will often be the case that HMRC does allege in the petition that the tax arrangements are ineffective or even that the relevant body has itself incurred a tax liability (as here), but it is not, it seems to me, a requirement.” [10]

Regard was had to the promoters of tax avoidance scheme regime and the statutory consultation, which the Judge held “…make it clear, in my view, that s.85 is directed at a range of potential circumstances and not just a case in which HMRC can assert and prove that the relevant arrangements were not effective” [14].

The lack of transparency and attempts to stonewall HMRC, were “targets” of s.85 and the Judge held that on this ground alone, it was “in the public interest for Purity to be wound up to provide a clear censure of this type of conduct.”

The Judge held that Purity was the continuation of a scheme which was previously operated by Alpha Republic, which, after being publicly identified as a promoter of a tax avoidance scheme, it ceased operations, entered CVL, and abandoned appeals against a £26 tax determination. The Judge found that the two companies shared common directors, back-office service providers, and a number of employees participated in both schemes, and that the same tax KC had been used “with it likely that essentially the same advice was given to each” [35]. Holding that where a latter entity sought to continue a tax avoidance scheme, “particularly where that latter entity had been closed down to avoid payment of a tax liability”, it was in the public interest to make a winding up order [37].

Notwithstanding that Purity had already entered CVL, applying the factors in Re Alpha Club Ltd [2002] EWHC 884, the Judge held it was appropriate to make a winding up order to enable a full investigation by an independence office holder with a wider range of powers in the case of a compulsory liquidator, were wrongdoing was suspected and that it was “particularly” needed in the case of tax avoidance schemes and to send a message that a compulsory liquidator’s powers “powers cannot be avoided by the simple expedient of stopping the company’s business, appointing a voluntary liquidator.” [40]. The Court also noted as relevant, the compulsory directors’ disqualification proceedings, provided an application was made by HMRC, where a winding up order under s.85 was made, and it was “plainly desirable that this provision is available” and “it would be wrong for the effect of this statutory provision to be avoided by a voluntary liquidation.” [41].

By Jaysen Sharpe