P14: (Re)payment of tax pending further appeal
Direct tax: tax payable/repayable in accordance with the decision
"(1) This section applies if a party to an appeal against an assessment (the “initial appeal”) makes a further appeal.
(2) Tax is payable or repayable in accordance with the determination of the court or tribunal on the initial appeal, despite the further appeal having been made.
(3) But in a case where the amount charged by the assessment is altered by the order or judgment of the Upper Tribunal or court—
(a) if too much tax has been paid, the amount overpaid shall be refunded with such interest, if any, as may be allowed by that order or judgment; and
(b) if too little tax has been charged, the amount undercharged shall be due and payable at the expiration of a period of thirty days beginning with the date on which HMRC issue to the other party a notice of the total amount payable in accordance with the order or judgment." (TMA 1970, s.56(1) - (3))
“…the short answer to Mr. Soul's point is that it is not now open to him in the present proceedings to raise any issue by way of challenge to the assessments raised against him by the Commissioners of Inland Revenue, in the first place, and confirmed by the General Commissioners on appeal. That is the clear result of the decision of this Court in the case of the Commissioners of Inland Revenue v Pearlberg 34 TC 57. The statutory machinery for an appeal from a notice of assessment is exclusive machinery, and when it has been exhausted to the point of appeal to the General Commissioners, and notwithstanding that there is a Case stated to the High Court pending it is not open to the taxpayer to dispute his liability in proceedings brought by the Commissioners to enforce the assessments against him.” (IRC v. Soul 51 TC 86, Bridge LJ).
Tax only due when appeal determined
“the whole of the tax chargeable in accordance with the determination of the Special Commissioners falls to be paid 'on the determination of the appeal'. I have to decide whether the appeals have been determined…” (Hallamshire Industrial Finance Trust Ltd v. IRC  STC 237 at 240).
Appeal determined when Tribunal decides all issues raised, not when the amount due is quantified
“The draftsman must in my judgment have considered that any alteration of the assessment consequent on an appeal fell to be made by the assessing body and not by the appellate body… I therefore can find no reason for departing from the ordinary meaning of the words 'determination of the appeal': the appeals were determined when the commissioners gave their decision on all outstanding issues…” (Hallamshire Industrial Finance Trust Ltd v. IRC  STC 237 at 243).
Accelerated payment notice: HMRC may apply to withhold repayment if necessary to protect the revenue
"(4) Subsection (5) applies where—
(a) an accelerated payment notice or partner payment notice has been given to a party to the appeal under Chapter 3 of Part 4 of the Finance Act 2014 (and not withdrawn), and
(b) the assessment has effect, or partly has effect, to counteract the whole or part of the asserted advantage (within the meaning of section 219(3) of that Act) by reason of which the notice was given.
(5) If, on the application of HMRC, the relevant court or tribunal considers it necessary for the protection of the revenue, it may direct that subsection (2) does not apply so far as the tax relates to the counteraction of the whole or part of the asserted advantage, and—
(a) give permission to withhold all or part of any repayment, or
(b) require the provision of adequate security before repayment is made.
(6) “Relevant court or tribunal” means the tribunal or court from which permission or leave to appeal is sought." (TMA 1970, s.56(4) - (6))
VAT: tax payable/repayable in accordance with decision
"(1) This section applies where the tribunal has determined an appeal under section 83.
(2) Where on the appeal the tribunal has determined that—
(a) the whole or part of any disputed amount paid or deposited is not due, or
(b) the whole or part of any VAT credit due to the appellant has not been paid,
so much of that amount, or of that credit, as the tribunal determines not to be due or not to have been paid shall be paid or repaid with interest at the rate applicable under section 197 of the Finance Act 1996." (VATA 1994, s.85A(1) - (2))
"(1) Where a party makes a further appeal, notwithstanding that the further appeal is pending, value added tax or VAT credits, or a credit of overstated or overpaid value added tax shall be payable or repayable in accordance with the determination of the tribunal or court against which the further appeal is made." (VATA 1994, s.85B(1))
Alter in accordance with decisions on further appeal
"(2) But if the amount payable or repayable is altered by the order or judgment of the tribunal or court on the further appeal—
(a) if too much value added tax has been paid or the whole or part of any VAT credit due to the appellant has not been paid the amount overpaid or not paid shall be refunded with such interest, if any, as the tribunal or court may allow; and
(b) if too little value added tax has been charged or the whole or part of any VAT credit paid was not payable so much of the amount as the tribunal or court determines to be due or not payable shall be due or repayable, as appropriate, at the expiration of a period of thirty days beginning with the date on which HMRC issue to the other party a notice of the total amount payable in accordance with the order or judgment of that tribunal or court." (VATA 1994, s.85B(2))
VAT: HMRC right to apply to withhold payment to protect revenue
"(3) If, on the application of HMRC, the relevant tribunal or court considers it necessary for the protection of the revenue, subsection (1) shall not apply and the relevant tribunal or court may—
(a) give permission to withhold any payment or repayment; or
(b) require the provision of adequate security before payment or repayment is made." (VATA 1994, s.85B(3))
VAT: taxpayer's right to apply for repayment/withhold payment if financial extremity would result
"(4) If, on the application of the original appellant, HMRC are satisfied that financial extremity might be reasonably expected to result if payment or repayment is required or withheld as appropriate, HMRC may do one or more of the things listed in subsection (6).
(5) If on the application of the original appellant, the relevant tribunal or court decides that—
(a) the original appellant has applied to HMRC under subsection (4),
(b) HMRC have decided that application,
(c) financial extremity might be reasonably expected to result from that decision by HMRC,
the relevant tribunal or court may replace, vary or supplement the decision by HMRC by doing one or more of the things listed in subsection (6).
(6) These are the things which HMRC or the relevant tribunal or court may do under subsection (4) or (5)—
(a) decide how much, if any, of the amount under appeal should be paid or repaid as appropriate,
(b) require the provision of adequate security from the original appellant,
(c) stay the requirement to pay or repay under subsection (1)." (VATA 1994, s.85B(4) - (6))
" “original appellant” means the person who made the appeal to the tribunal under section 83;" (VATA 1994, s.85B(8))
" “adequate security” means security that is of such amount and given in such manner—
(a) as the tribunal or court may determine (in a case falling within subsection (3) or (5)), or
(b) as HMRC consider adequate to protect the revenue (in a case falling within subsection (4))" (VATA 1994, s.85B(8))
Relevant tribunal court
" “relevant tribunal or court” means the tribunal or court from which permission or leave to appeal is sought." (VATA 1994, s.85B(8))
Analogy with CPR
“The appellant also drew my attention to CPR Part 52, Rule 7 which provides that in the courts an appeal from a lower court should not operate as a stay of any order of that lower court. In other words, in most cases effect should be given to the decision of the lower court. This appears consistent with the policy behind s 85B(1) VATA.” (DPAS Ltd (No.2) v. HMRC  UKFTT 0071 (TC), §15).
General policy in favour of effect being given to first instance decisions
“I agree with the appellant that there is a general policy in favour of effect being given to first instance decisions, even where there is an appeal which could reverse that decision…[A]nd that is the case even if the giving effect to them involves the parties in some expense” (DPAS Ltd (No.2) v. HMRC  UKFTT 0071 (TC), §24…26).
Separate appeal relating to claim for repayment does not change general policy
“I do not see why that policy would not apply in a situation such as that in this present case where the manner in which the dispute with HMRC arose led to two separate appeals (one against a decision in principle and one against a decision refusing repayment).” (DPAS Ltd (No.2) v. HMRC  UKFTT 0071 (TC), §24).
Length of delay before appeal determined not particularly relevant
“HMRC press the case that the stay is only for a short time but for reasons already given I do not consider that particularly relevant; in any event if in principle the stay should be granted, that would suggest (although HMRC do not ask for this) that the stay should be until ultimate resolution of the appeal, which potentially could be years away.” (DPAS Ltd (No.2) v. HMRC  UKFTT 0071 (TC), §27).
Ceases to apply when further appeal determined
"(7) Subsections (3) to (6) cease to have effect when the further appeal has been determined." (VATA 1994, s.85B(4) - (7))
Tribunal power to suspend effect of decision
Suspension is the exception, requiring material prejudice
“I do not think it necessary to conduct an analysis of the authorities to which I was referred. They describe well-known, and well-established, principles and show that HMRC are broadly right that suspension of the effect of a decision pending appeal is the exception rather than the rule, and that the person seeking suspension must ordinarily demonstrate some kind of material prejudice which would be occasioned to him if he is compelled to pay, sufficient to outweigh the prejudice caused to his opponent if the effect of the judgment or decision is suspended. Reluctance rather than inability to pay cannot be enough since otherwise any monetary judgment would automatically be suspended. Here, there is nothing before me to indicate what, if any, prejudice Mr Tager might suffer if compelled to pay; it is true that the penalties are large but it has been part of Mr Tager’s own case that he has ample means and I have been given no reason to think that he will not be able to find the money with reasonable ease.” (HMRC v. Tager  UKUT 161 (TCC), §7, Judge Bishopp).
Appeal subject to condition of payment
"An order giving permission may –
(a) limit the issues to be heard; and
(b) be made subject to conditions.” (CPR 52.3(7)).
(1) The appeal court may –
(a) strike out the whole or part of an appeal notice;
(b) set aside permission to appeal in whole or in part;
(c) impose or vary conditions upon which an appeal may be brought.
(2) The court will only exercise its power under paragraph (1) where there is a compelling reason for doing so.” (CPR 52.9)
Compelling reason necessary but not sufficient
“…the existence of a compelling reason is only a necessary rather than sufficient factor. Even where a compelling reason is shown, the question remains a matter for the court's discretion…” (Sunico A/S v. HMRC  EWCA Civ 1108, §23).
Non-payment is not sufficient
“Nor is the fact that an unsuccessful defendant wishes to appeal to be taken as a routine shortcut to the need to enforce a judgment, by the obtaining of the requisite condition for payment. Something more than mere non-payment of the judgment debt needs to be shown although, as both cases show, a deliberate failure to pay by a judgment debtor with the resources to do so may be a factor supportive of the imposition of a condition.” (Sunico A/S v. HMRC  EWCA Civ 1108, §22).
“Nonetheless the following emerged from those cases as factors which, depending on the overall circumstances, may point towards the imposition of a condition:
(1) Difficulties of enforcement of the court's judgment in a foreign jurisdiction;
(2) An apparent sufficiency of resources to enable the judgment debtor to continue to fund litigation;
(3) The absence of convincing evidence that the appellant lacks the resources, or access to the resources, which would enable it to pay the judgment debt;
(4) Inadequate disclosure by the appellant of its financial affairs, or a lack of confidence on the part of the court that it has been shown the truth;
(5) The combination of
i) A deliberate breach of an order to pay the judgment debt
ii) The refusal of a stay, and
iii) Ability to pay, but a failure to do so cynically based upon the difficulties for the respondent in enforcing the judgment in a foreign jurisdiction.” (Sunico A/S v. HMRC  EWCA Civ 1108, §25).
Stifling appeal is main factor against imposition of condition
“Plainly, the main factor which, if it is sufficiently demonstrated, is likely to tell against the imposition of a condition is where to do so would stifle the appeal.” (Sunico A/S v. HMRC  EWCA Civ 1108, §26).
“We would also add that the position would be very different if the appellant were able to produce convincing evidence that the appeal would be stifled if it were required to take these steps. If it were able to produce evidence of the kind identified by Peter Gibson LJ in the passage from Keary quoted above, the position might well be different because it may well be that in that event justice would require that the appeal be allowed to continue. We should add in this regard that we are very conscious of the danger that orders such as those which we propose to make in this case could have the effect of deterring genuine appellants from prosecuting an appeal. Nothing we have said in this judgment is intended to have that effect. The key point here is that the evidence put before the court does not show that these orders will stifle the appeal.” (Hammonds Suddard Solicitors v. Agrichem International Holdings Ltd  EWCA Civ 2065, §45).
“The concept of stifling an appeal (or claim) is well-known in the context of applications for security for costs. It needs no elucidation here, beyond the following two observations. The first is that a corporate appellant is unlikely to persuade the court that an appeal will be stifled by an order for payment or security merely by reference to its own assets. The court will wish to consider whether the company's backers or supporters have the resources and motivation with which to assist: see Calltel Telecom Limited v Revenue and Customs Commissioners  STC3246, at paragraph 13. The second is that proof that the imposition of a condition for payment or security will probably stifle an appeal is only a factor against the imposition of the condition, rather than an absolute bar to it. Thus for example, where an appellant's conduct amounts to a continuing abuse of process, this may be sufficient to justify the imposition of a condition, even if that would stifle an appeal. This is because the losing party has no absolute right of appeal, but only a right to the discretionary grant of permission to appeal: see the Hammond Suddard case at paragraph 38. In the context of this case, where a present inability to comply with the condition can be shown to have been caused by an appellant deliberately putting out of its reach assets with which it might have done so, at a time when an application for the imposition of the condition was pending, then an assertion that, thereafter, the imposition of the condition would stifle the appeal may fall on stony ground, because the appellant's predicament will have been self-induced.” (Sunico A/S v. HMRC  EWCA Civ 1108, §26).
No right to shelter funds to pay for litigation
“But a judgment debtor has no right to ring-fence money otherwise available to pay the judgment debt for the purpose of deployment to meet future litigation needs, even in this jurisdiction.” (Sunico A/S v. HMRC  EWCA Civ 1108, §34).
Merit or significance of appeal not usually a weighty factor
“It is in my judgment inappropriate to address the merits or significance of a pending appeal as a weighty factor in the balancing exercise relevant to the imposition of a payment condition or the grant or refusal of a stay. Generally, the court's approach is to avoid such assessments because of their propensity to generate satellite litigation. I am not persuaded that this case justifies any exception to that healthy self-denying ordinance.” (Sunico A/S v. HMRC  EWCA Civ 1108, §44).
Sunico A/S v. HMRC  EWCA Civ 1108 – condition of payment of judgment sum imposed. The compelling reason was that the appellants had deliberately failed to pay the sum when due despite having the resources and took steps to put money outside HMRC’s reach (§39). The Court was not satisfied that payment would stifle the appeal (§41), but even if it would, that was due to the appellants’ actions in putting cash beyond their reach (§42).
Hammonds Suddard Solicitors v. Agrichem International Holdings Ltd  EWCA Civ 2065 – condition of payment of judgment sum and security for costs imposed where appellant was outside jurisdiction, had assets to fund the appeal and had not supplied any evidence it could not afford to pay.
Payment into court rather than to HMRC to allow for possible need to release part of the payment to pay legal expenses
“In my view, the appropriate order is for payment into court rather than to HMRC. My reason for that is that I can envisage as at least a possibility that an otherwise stifled appeal might be saved by an application that a modest proportion of the amount in court should be released to fund the appellants' legal costs of the appeal itself, but not of the other pending litigation. Indeed, modest sums have already been released from the attached assets by a process to which HMRC consented. Payment of the Judgment Sum into court would create a convenient fund for that purpose by comparison with an order that it be paid outright to HMRC…I do not mean thereby positively to encourage applications by the appellants for payment out to meet the legal expenses of this appeal. As far as I can see at present (and the appellants have adduced no evidence to the contrary) their legal team is already fully funded for the prosecution of the appeal itself.” (Sunico A/S v. HMRC  EWCA Civ 1108, §§45…46).