© 2024 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
Procedure.Tax
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N4: Tribunal's role (general)
Evolution of tax appellate body
“The functions of the Commissioners as an appellate body and those of an inspector of taxes as the officer responsible for making assessments were separated in 1964. Further changes occurred in 1994 when procedural rules were introduced by the Special Commissioners (Jurisdiction and Procedure) Regulations 1994 and General Commissioners (Jurisdiction and Procedure) Regulations 1994, although neither had provision for the withdrawal of a case. The Commissioners were abolished in April 2009 as a result of the reforms implemented by the Tribunals Courts and Enforcement Act 2007 and their functions transferred to the Tax Chamber of the First-tier Tribunal under the Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009.” (CM Utilities Ltd v. HMRC [2016] UKFTT 358 (TC), §22).
Whether deciding a case inter partes
FTT is
“The current position in relation to appeal proceedings is therefore quite different from that at the time of Elmhirst and, in contrast to a Special Commissioner then, a Tribunal Judge in a tax appeal is clearly “in the position of a judge deciding an issue between two particular parties”, a taxpayer and HMRC, in an adversarial process with its practice and procedure governed by the Procedure Rules which, unlike the procedural rules of the Special and General Commissioners, does have a specific provision, in rule 17, relating to withdrawal…Given these significant changes I do not accept Mr Vallat’s submission that Tower MCashback, itself an appeal from the Special Commissioner, can be regarded as authority for the proposition that the principle in Elmhirst has survived and that the appeal process once commenced “cannot be stopped by the whim of an appellant”. Rule 17 of the Procedure Rules clearly envisages that an appellant, as a party, may unilaterally withdraw its case without any provision for the other party to apply for that appeal to be reinstated. This may be contrasted with Part 38.4 of the Civil Procedure Rules which does allow a party to apply for reinstatement of a claim that has been discontinued by the other party.” (CM Utilities Ltd v. HMRC [2016] UKFTT 358 (TC), §§23…24)
Special commissioners were not
“In the exercise of their statutory functions the Commissioners are not deciding a case inter partes; they are determining the amount on which, in the interests of the public, the taxpayer ought to be taxed…That public interest has in no way been altered by the introduction of self-assessment.” (HMRC v. Tower MCashback LLP 1 [2010] EWCA Civ 32, §28).
“In making the assessment and in dealing with the appeals the Commissioners are exercising their statutory authority and their statutory duty which they are bound to carry out, not as judges deciding an issue between two particular parties their obligation is wider than that. It is to exercise their judgment of such material as comes before them, and, as we shall see later, to obtain any material which they think is necessary and which they think they ought to have, and on that to make the assessment or the estimate which the law requires them to make. They are not deciding the case inter partes; they are assessing or estimating the amount which in the interests of the country at large the taxpayer ought to have to deal with as the basis on which he is to be taxed.” (R v. Special Commissioners of Income tax, ex parte Elmhirst 20 TC 381 at 387).
“The duty of the Commissioners…is to form an estimate in each year of assessment of the amount of the income of the taxpayer on which the surtax imposed for that year is to be charged. For this purpose the taxpayer is required to make a return of his income from all sources…With this to guide them, the Special Commissioners have then to form their own estimate of the total income and to make an assessment accordingly. If the taxpayer is not content with such assessment he can bring the matter before the Special Commissioners by way of appeal. But the proceedings on the appeal are still merely directed towards ascertaining the income upon which the taxpayer is to be charged with surtax for the particular year of assessment, and the Special Commissioners may, if they think fit, increase the assessment made by them in the first instance. The appeal is merely another step taken by the Commissioners, at the instance of the taxpayer, in the course of the discharge by them of their administrative duty of collecting the surtax.” (CIR v. Sneath [1932] 2 KB 372 at 390 – 391).
Not usually to decide academic issues
“I am firmly of the view that the court should not continue to hear this appeal. HMRC's first point that the appeal has wide ramifications is simply not a sufficient ground for the court continuing to hear an appeal where there is no longer any issue of substance between the parties as to their private law rights. Subject to very limited exceptions indeed, issues of this nature are much better decided on the basis of adversarial argument where the parties have real opposing commercial interests in the outcome.” (Portland Gas Storage Limited v. HMRC [2015] EWCA Civ 559, §12 – HMRC rejected T’s application to amend its SDLT return as out of time, FTT held it had no jurisdiction over the question, UT held that it did, T withdrew application to amend before CA heard jurisdiction appeal).
“The Tribunal ought not to adopt jurisdiction to decide a point of law when that point, whichever way it is decided, will not affect the outcome of the case.” (Spring Salmon & Seafood Ltd v. HMRC [2014] UKUT 488 (TCC), §48).
Important public law questions unlikely to be otherwise decided
“The factor, however, which appears to have influenced the Court of Appeal in [Don Pasquale] was not so much the analogy with public law but the fact that it would, for technical reasons, be extremely difficult for another appeal to be brought before the court. In such circumstances the court thought it was a sufficiently extreme case for the court to go ahead with the appeal.” (Portland Gas Storage Limited v. HMRC [2015] EWCA Civ 559, §8).
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[6] The relevant legal principles are clear. In R. v Secretary of State for the Home Department, ex parte Salem [1999] 1 AC 450, Lord Slynn said (at p.457A-B) that "… appeals which are academic … should not be heard unless there is a good reason in the public interest for doing so …". In Hutcheson v Popdog Ltd. (News Group Newspapers Ltd., third party) (Practice Note) [2012] 1 WLR 782, Lord Neuberger of Abbotsbury M.R. (at paragraph 15) identified "three requirements" that "have to be satisfied before an appeal, which is academic between the parties, may … be allowed to proceed: (i) the court is satisfied that the appeal would raise a point of some general importance; (ii) the respondent to the appeal agrees to it proceeding, or is at least completely indemnified on costs and is not otherwise inappropriately prejudiced; (iii) the court is satisfied that both sides of the argument will be fully and properly ventilated". And in Hamnett v Essex County Council [2017] 1 WLR 1155, Gross L.J. (at paragraph 37) noted that the authorities did not suggest any "inflexible rule", but "point to the court having a narrow discretion to proceed, to be exercised with caution – even when a point of public law of some general importance is involved". (R. (on the application of Liverpool Open and Green Spaces Community Interest Company) v. Liverpool City Council [2020] EWCA Civ 861)
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Direct tax: Tribunal to determine the matter in question
"If the appellant notifies the appeal to the tribunal, the tribunal is to determine the matter in question." (TMA 1970, ss.49D(3), 49G(4) and 49H(4))
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"(1) In sections 49A to 49H—
(a) “matter in question” means the matter to which an appeal relates;" (TMA 1970, s.49I(1)(a))
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“The notice of appeal has to state the grounds of the appeal and the taxpayer is not entitled, as of right, to rely on any grounds not so stated. So the function of the commissioners is, in my judgment, to determine the issues raised on the appeal…Once the actual issues have become defined and the parties have had a full opportunity to argue all the points open to them on the notice of appeal, the commissioners give their decision on the issues actually raised. Having done so, in my opinion they have in any ordinary sense of the words 'determined the appeal'. It is not open to a taxpayer to come back as of right and say: 'There is another point which I have thought of on which there is an issue: please decide it.' “(Hallamshire Industrial Finance Ltd v. IRC [1979] STC 237 at 242).
All issues raised, in the absence of an application for a consent order or a notice of withdrawal
“In the absence of an application for a consent order or a notice of withdrawal, the Tribunal is bound to come to a decision and to send it to the parties.” (Couldwell Concrete Flooring Ltd v. HMRC [2017] UKFTT 85 (TC), §92).
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Direct tax assessment appeal: decide if assessment is too high or too low
"(6) If, on an appeal notified to the tribunal, the tribunal decides—
(a) that, the appellant is overcharged by a self-assessment;
(b) that, any amounts contained in a partnership statement are excessive; or
(c) that the appellant is overcharged by an assessment other than a self-assessment,
the assessment or amounts shall be reduced accordingly, but otherwise the assessment or statement shall stand good."
"(7) If, on an appeal notified to the tribunal, the tribunal decides
(a) that the appellant is undercharged to tax by a self-assessment
(b) that any amounts contained in a partnership statement are insufficient; or
(c) that the appellant is undercharged by an assessment other than a self-assessment,
the assessment or amounts shall be increased accordingly." (TMA 1970, s.50(6) - (7))
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Direct tax claim or election appeal: decide if it should be allowed
"(7A) If, on an appeal notified to the tribunal, the tribunal decides that a claim or election which was the subject of a decision contained in a closure notice under section 28A of this Act should have been allowed or disallowed to an extent different from that specified in the notice, the claim or election shall be allowed or disallowed accordingly to the extent that the tribunal decides is appropriate, but otherwise the decision in the notice shall stand good." (TMA 1970, s.50(7A))
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VAT assessments: power to increase
"(5) Where, on an appeal against a decision with respect to any of the matters mentioned in section 83(1)(p) or (rb)—
(a) it is found that the amount specified in the assessment is less than it ought to have been, and
(b) the tribunal gives a direction specifying the correct amount,
the assessment shall have effect as an assessment of the amount specified in the direction, and that amount shall be deemed to have been notified to the appellant." (VATA 1994, s.84(5))
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No limitation on the discretion of the Tribunal
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[64]...the language of s 84(5) does not impose any limitations on the discretion of the tribunal (see Elias Gale Racing v Customs and Excise Commissioners [1999] STC 66). Moreover, as Chadwick LJ (with whom Brooke LJ and Bodey J agreed) said in Rahman with respect to s 84(5) and other provisions of VATA:
"[t]he underlying purpose of the legislative provisions is to ensure that the taxable person accounts for the correct amount of tax."
Accordingly, on the conclusions that I have reached on the first issue, I consider that the power of the tribunal under s 84(5) must extend to increasing the amount of an assessment in this type of case, namely where the Commissioners, having reviewed the input tax and output tax elements of an assessment previously made by them, come to the conclusion that further VAT is due (without themselves being in a position to increase the amount of VAT due).
[65] [The taxpayer] submits that this interpretation exposes the taxpayer to a potentially unlimited liability for a potentially unlimited time. There is no limit on the time within which the tribunal can exercise its power. I am not persuaded by [the taxpayer's] submission on this point. The taxpayer cannot be rendered liable to pay, by a direction by the tribunal to pay a further amount in respect of VAT due, more than he ought to have paid in the first place. In addition, the process before the tribunal limits the time within which he is exposed to an order under s 84(5)." (HMRC v. BUPA Purchasing Ltd [2007] EWCA Civ 542, Arden LJ)
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VAT penalties: determine appropriate statutory amount
"(6) Without prejudice to section 70, or (as the case requires) paragraph 26 of Schedule 3BA or paragraph 16F of Schedule 3B nothing in section83(1)(q) shall be taken to confer on a tribunal any power to vary an amount assessed by way of penalty, interest or surcharge except in so far as it is necessary to reduce it to the amount which is appropriate under sections 59 to 70; and in this subsection “penalty” includes an amount assessed by virtue of section 61(3) or (4)(a).
(6A) Without prejudice to section 70, nothing in section 83(1)(zb) shall be taken to confer on a tribunal any power to vary an amount assessed by way of penalty except in so far as it is necessary to reduce it to the amount which is appropriate under paragraph 11 of Schedule 11A.
(6B) Nothing in section 83(1)(zc) shall be taken to confer on a tribunal any power to vary an amount assessed by way of penalty except in so far as it is necessary to reduce it to the amount which is appropriate under regulations made under section 135 of the Finance Act 2002." (VATA 1994, s.84(6) - (6B))
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Required to apply the burden of proof unless clear concession
“In this case, therefore, HMRC had the duty of establishing their case on both the competence and time limit issues. The burden of proof lay on them in each of those respects. There was no obligation on the part of Mr Burgess or Brimheath to raise those issues…The error of law is not that the FTT failed to 40 address a relevant issue. It is that in the absence of a positive case put by HMRC in relation to the competence and time limit issues, the FTT erred in law in not finding that HMRC had failed to discharge the burden of proof in those respects such that the assessments could not be regarded as having been validly made and the appeals must accordingly be allowed.” (Burgess v. HMRC [2015] UKUT 578 (TCC), §§43…53, Judges Berner and Tom Scott assessments reduced to nil).
“In different circumstances we might have been prepared to accede to Mr Mandalia’s submission that the FTT was entitled to note that Miss Field had not attempted to challenge HMRC’s case that there had been a loss of tax in all the relevant chains, including in the related chains in the contra-trading cases. But, in these circumstances, we do not consider that a failure on the part of a self-represented party, such as Miss Field and Eyedial, to challenge the witnesses on evidence that, on her own case, Miss Field could not be expected to have any knowledge, can amount to an absence of challenge to HMRC’s case in this respect... It follows from our discussion above that, as a general rule, where evidence is unchallenged, it remains necessary for the First-tier Tribunal to make clear reasoned findings as to whether or not the evidence is sufficient to lead to the conclusion for which it has been adduced.” (Eyedial Limited v. HMRC [2013] UKUT 432 (TCC), §§82…85, Judges Berner and Hellier).
“HMRC did not put forward any evidence or argument on the point. Indeed, they did not even address the issue in their statement of case or at the hearing. HMRC cannot be said to have discharged the burden of proof that the section 29 assessment was properly made.” (Bailey v. HMRC [2017] UKFTT 658 (TC), §63, Judge McKeever).
“In this case neither the appellant nor Mr Patta has, as far we can tell, disputed HMRC’s suggestion that the appellant’s (and his) actions in filing nil returns was deliberate and did bring about a loss of tax. But he has certainly not clearly waived or conceded the point. Whether or not it was unlikely that the appellant would challenge HMRC on the competence issue, we are we think bound to hold that the burden of proof remains on HMRC. We consider whether they have discharged that burden later.” (Anik v. HMRC [2016] UKFTT 395 (TC), §47)
“It is clear from the decision of the Tax and Chancery Chamber of the Upper Tribunal in Burgess & Brimheath Developments Ltd v HMRC [2015] UKUT 578 (TCC) that it is for HMRC to establish that the relevant conditions for the issue of a discovery assessment have been met. However, as in Burgess & Brimheath, HMRC failed to advance a positive, or indeed any, case in relation to the discovery assessment. It must therefore follow, as Mr Simon Foxwell (who appeared for HMRC) recognised, that the appeal against the discovery assessment succeeds.” (Bell v. HMRC [2016] UKFTT 183 (TCC), §3 – appears HMRC turned up to the FTT with no positive case on why the discovery assessment was valid).
To determine the correct amount of tax on the materials before it
“In Customs and Excise Commissioners v Pegasus Birds Ltd [2004] EWCA Civ 1015, [2004] STC 1509, Carnwath LJ said at [38], giving guidance to the tribunal when facing a challenge to “best of judgment” assessments to VAT: “The tribunal should remember that its primary task is to find the correct amount of tax, so far as possible on the material properly available to it, the burden resting on the taxpayer.” To similar effect, Chadwick LJ referred at [92] to: “the underlying purpose of the legislative provisions – to ensure that the taxable person accounts for the correct amount of tax.” We agree with Mr Cordara that Carnwath LJ’s formulation of the primary task of the tribunal is not confined to “best of judgment” cases, but is of general application.” (HMRC v. General Motors (UK) Limited [2015] UKUT 605 (TCC), §69, Henderson J and Judge Sinfield).
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- Limited by parties’ positions
“In my view, this issue does not require examination of general questions about the tribunal’s role. One of the strengths of the new tribunal system is the flexibility of its procedures, which need to be and can be adapted to a wide range of types of case and of litigant. In some areas, particularly those involving litigants in person, a more inquisitorial role may be appropriate. However, when the tribunal as here is dealing with substantial litigants, represented by experienced counsel, it is entitled to assume that the parties will have identified with some care what they regard as relevant issues for decision. My comments in Pegasus Birds should not be taken as indicating anything different. They were not of general application, but intended (as the following words made clear) to discourage undue attention to the Commissioner’s original exercise of “best judgment”, as opposed to the correctness of the result.” (Volkswagen Financial Services (UK) Ltd v HMRC [2017] UKSC 26, §7).
“In my view the judge was not entitled to find for the claimant on the basis of the third man theory. It is fundamental to our adversarial system of justice that the parties should clearly identify the issues that arise in the litigation, so that each has the opportunity of responding to the points made by the other. The function of the judge is to adjudicate on those issues alone. The parties may have their own reasons for limiting the issues or presenting them in a certain way. The judge can invite, and even encourage, the parties to recast or modify the issues. But if they refuse to do so, the judge must respect that decision. One consequence of this may be that the judge is compelled to reject a claim on the basis on which it is advanced, although he or she is of the opinion that it would have succeeded if it had been advanced on a different basis. Such an outcome may be unattractive, but any other approach leads to uncertainty and potentially real unfairness.” (Al-Medenni v. Mars UK Ltd [2005] EWCA Civ 1041, §21, Dyson LJ).
“But that decision does not support the proposition that the FTT was under a duty (even though not asked by HMRC) to consider whether there was a case for increasing the assessment and (in the light of its provisional view that the supply was standard rated) to call for evidence and argument to support an increase, adjourning the appeal against the assessment for those steps to be taken. We are persuaded of the correctness of the view of Carnwath J in Elias Gale (at p.76d) where he observed that the rules that govern appeals envisage an adversarial procedure, with the running made by the two parties (a view that he has maintained in the Supreme Court – see Volkswagen Financial Services (UK) Ltd v HMRC [2017] UKSC 26 at [7]). They do not provide for the tribunal to raise or investigate issues of its own motion, a feature that argues “strongly against the tribunal having a free-standing power to increase the assessment entirely of its own initiative”.” (HMRC v. C Jenkin & Son Limited [2017] UKUT 239 (TCC), §36, Norris J and Judge Sinfield)
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- No inquisitorial evaluation
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"[52] Therefore, in Rouf v HMRC, the Court of Session was not being invited to determine that the General Commissioners (or the FTT) had the kind of broad inquisitorial jurisdiction for which Mr Chacko appears to be arguing. Rather, the point at issue was much more limited: if the taxpayer could succeed in demonstrating that he was overcharged by HMRC’s assessments, was his appeal nevertheless bound to fail if he did not provide a specific alternative to those assessments? In the passage we have quoted, the Court of Session resolved that issue by determining that in such a case it would still be open to the General Commissioners to reduce the assessment if there was evidence before them supporting that reduction. It was implicit in the Court of Session’s conclusion that, provided it was supported by evidence, this course would be open to the FTT even if the taxpayer made no submissions suggesting a specific reduction. However, that is very different from a conclusion that the FTT must perform its own inquisitorial evaluation of the taxpayer’s profits.
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"[57] ... It follows that, while the FTT was not under any obligationto “sense-check” its own determinations, since it was not performing an inquisitorial exercise, its overall determination of the level of Stirling’s profits had to take account of the material factors to which the parties drew its attention and be “rational” having regard to those factors. If it can be shown that the FTT’s determination did not meet those requirements, we are entitled to interfere with it." (Stirling Jewellers (Dudley) Limited v. HMRC [2020] UKUT 245 (TCC), Judges Herrington and Richards)
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- Not required to raise points which neither party raises
"[28] We reject the submission that the FTT erred in law in failing to consider the application of clause 3.3 when construing the terms of the SPA. It is clear on the face of the FTT's decision at paragraph [28] that the tribunal was aware of the provisions of clause 3.3 and the potential for there to be a working capital adjustment. Other findings made by the FTT are consistent with it having considered the provisions of the SPA relating to the working capital adjustment. As neither party argued that clause 3.3 did or should adjust the consideration, we find that it was reasonable for the FTT not to have given further consideration to this point.
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[30] In relation to the arguments that the FTT erred in failing to consider of its own motion whether an adjustment to the consideration was required under clause 3.3 we conclude that there was no such obligation on the FTT on the facts of this case. In our view there was nothing obvious in the task set out by Mr Whiscombe (discussed below), which would have involved assumptions having to be made by the FTT and requires an involved analysis and extrapolation from evidence." (McEnroe v. HMRC [2023] UKUT 255 (TCC), Judge Aleksander and Judge Ramshaw)
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Must consider timing and competence of assessments whether or not raised
"[89] Paragraph 39 of Burgess reads:
"37. In relation to the legislative framework, it is the case that... objections to the making of an assessment may only be made on an appeal against the assessment.... We do not construe those provisions, however, as mandating that, for competence or time limits to be in issue, an appellant is required to make an express objection or challenge to the validity of the making of an assessment. We agree with Mr McDonnell that those provisions are properly to be understood as confining the forum for such disputes to an appeal before the tribunal. They do not prescribe the manner in which such issues may be brought before the tribunal."
Accordingly, Burgess makes it clear that the Tribunal must consider the timing (and competency) of the assessments whether or not the parties raise those points but there must be an appeal." (Monmore Properties Ltd v. HMRC [2024] UKFTT 137 (TC), Judge Anne Scott)
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