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L4: HMRC's discretions and opinion

Difference between discretion and judgment/opinion

 

“The Commissioners have an exercise of judgment to carry out but not an exercise of discretion. They have to exercise their judgment as to whether the taxpayer's grounds or arguments are reasonable. If they consider that they are, they must direct a postponement, and they do not have a discretion to grant one or not.” (Williams v. Pumahaven Ltd 75 TC 300 at 324, §12).

Discretion contingent upon a judgment

“In our view, the question as to whether a person is making taxable supplies or is carrying on a business with the intention of making taxable supplies (and is therefore entitled to be registered for VAT) is exactly the sort of question that parliament would have intended the Tribunal to decide on an appeal rather than its jurisdiction being implicitly limited to deciding whether HMRC’s decision on this question was a reasonable one…Once it is demonstrated that a person has ceased to be registrable, HMRC then has a discretion to cancel that person’s registration.  Assuming HMRC decide to cancel the registration with effect from the correct date (the date on which the person ceased to be registrable), the decision could then only be challenged on the basis that it was unreasonable.  We would accept that the principles explained in Best Buys and G B Housley would apply in those circumstances.” (David Love Marketing Ltd v. HMRC [2015] UKFTT 506 (TC), §§64…71)
 

Difference between discretion and judgment/opinion

Tribunal may not exercise HMRC’s discretions

 

“We think it is clear from the decisions in John Dee, Best Buys and G B Housley that, where the appeal relates to the exercise of a discretion conferred on HMRC, the Tribunal does not have such a power unless it is expressly given it by statute (as, for example, is the case in relation to penalties under paragraph 22(2)(b) of schedule 55 to Finance Act 2009).  The House of Lords in J H Corbitt was also clear that, on an appeal against an exercise of HMRC’s discretion, the Tribunal did not have power to substitute its own decision for that of HMRC.” (David Love Marketing Ltd v. HMRC [2015] UKFTT 506 (TC), §73)
 

Tribunal may not exercise HMRC’s discretions

Appeals against discretionary decisions may be supervisory or full appellate

“The tribunal appears to have concluded, on the basis of John Dee Ltd…that, since reg 102 confers a discretion on the Commissioners whether to approve or direct a special method [for VAT partial exemption purposes] and to approve or direct the termination of its use, the jurisdiction of the tribunal was a limited one. In my judgment, there is nothing in John Dee Ltd which leads to that conclusion… The critical feature of John Dee Ltd was that the statutory pre-condition for the imposition by the Commissioners of security was that 'it appears to the Commissioners requisite to do so for the protection of the revenue'. In other words, the legislature had expressly conferred on the Commissioners alone, and not on the tribunal or the court, the assessment of whether security was necessary for the protection of the revenue. The discretion conferred by reg 102(3) is, however, of a different kind. It must, as I have said, be exercised, and only be exercised, to achieve the statutory purpose in s 26(3) of the 1994 Act. I can discern nothing in the Regulations or in s 26 or in any other part of the relevant legislative framework that confers on the Commissioners alone the right to decide whether a particular method would in fact achieve the s 26(3) objective, to the exclusion of the tribunal on an appeal.” (Banbury Visionplus Ltd v. HMRC [2006] EWHC 1024 (Ch) §§46…48).

“The matters which are subject to an appeal to the Tribunal under s 83 VATA 1994 are many and varied and it is clear that it is not correct just to categorise each one into those appeals which are against an exercise by HMRC of its discretion and those which are not.  Banbury Visionplus shows that it is possible for the First Tier Tribunal to have a full appellate function even in relation to an appeal against an exercise by HMRC of its discretion.” (David Love Marketing Ltd v. HMRC [2015] UKFTT 506 (TC), §60).
 

Specific grounds of appeal may negative judicial review grounds 

“If it had been intended to give a supervisory jurisdiction of that nature [Wednesbury unreasonableness] to the tribunal one would have expected clear words to that effect in the 1972 Act. But there are no such words to be found. Section 40(1) sets out nine specific headings under which an appeal may be brought and seems by inference to negative the existence of any general supervisory jurisdiction.” (CEC v. Corbitt [1980] STC 231 at 239 - 240, Lord Lane).
 

Appeals against discretionary decisions may be supervisory or full appellate

Examples of full appellate jurisdiction over HMRC discretions

 

Directing use of a VAT partial exemption special method

 

“I can see no practical or jurisprudential difficulty in conferring on the tribunal a full appellate jurisdiction to determine, on the basis of all the facts and matters found by it at the time of its decision, whether a decision of the Commissioners under reg 102 substitutes, in place of an existing method, a method which secures, or at least better secures, a fair and reasonable attribution of input tax to taxable supplies for the purposes of s 26(3) of the 1994 Act. That would be consistent with the unqualified wording of the appeal provisions in s 83(e) of the 1994 Act. It imposes an objective test which, as [Counsel for the taxpayer] observed, is consistent with the provisions of arts 17 and 19 of the Sixth Directive, and which the tribunal, as a body with the requisite specialist expertise, is well qualified to conduct.” (Banbury Visionplus Ltd v. HMRC [2006] EWHC 1024 (Ch) §52).

Examples of full appellate jurisdiction over HMRC discretions

Examples of supervisory jurisdiction over HMRC discretions

 

Permitting alternative evidence of VAT input tax

 

"[122] It is common ground that the proviso gives discretion to HMRC. Where HMRC exercise a discretion entrusted to them, the role of the FTT is supervisory only: Customs and Excise Commissioners v Peachtree Enterprises Ltd [1994] STC 747." (Tower Bridge GP Limited v. HMRC [2022] EWCA Civ 998)

"[69] It was also common ground that, based on decisions such as Customs and Excise Commissioners v JH Corbitt (Numismatists) Ltd [1981] 1 AC 22 at 60B-61B; Customs and Excise Commissioners v Peachtree Enterprises Ltd supra at 751b-h; Kohanzad supra at page 969; and John Dee supra at 952a – j, that, in relation to the issue as to whether HMRC had exercised its discretion under regulation 29(2) either properly, or at all, the function of the tribunal was supervisory; that is to say, that the tribunal could not (subject to the points made in paragraph 69 below) substitute its own views, in place of HMRC, as to the merits as to whether the discretion under regulation 29(2) should (or should not) be exercised in favour of the taxpayer." (GB Housley Limited v. HMRC [2016] EWCA Civ 1299, Gloster LJ)

“In relation to the statutory appeal against the assessment, the F-tT has a truly appellate function.  It (and, on appeal, the Upper Tribunal) will either uphold the assessment or discharge it.  But in relation to the decision in relation to the proviso [i.e. HMRC’s refusal to exercise its discretion to allow a deduction for the input tax], the F-tT’s function and jurisdiction are purely supervisory.  In other words, the F-tT is to examine whether the discretion has been properly exercised…If, as in the present case, it decides that it has not been, then it will identify why that is so; but it is not for the F-tT to substitute its own view for that of HMRC.” (HMRC v. GB Housley Ltd [2015] UKUT 71 (TCC), §11).

 

“…it was common ground that the jurisdiction in respect of the decision of the Commissioners under regulation 29(2) not to allow the input tax which was not covered by valid invoices was supervisory in that the FTT could not substitute its own decision but could only decide whether the discretion had been exercised reasonably. The burden of proof was on the Appellant to satisfy the FTT that the decision was incorrect, see Kohanzad [1994] STC 967 at 969. The FTT had no power to substitute its own decision as to the exercise of the discretion, nor did it have power, as in section 16(4)(b) of the Finance Act 1994, to direct the Commissioners to review the original decision.” (Best Buys Supplies Ltd v. HMRC [2011] UKUT 497 (TCC), §11).

 

Decision to require security for VAT

 

This involves both a discretion and a reference to HMRC’s opinion as the pre-condition for the existence of the discretion. See below XX.

 

Decision to deregister a person who has ceased to be registrable

 

See above XX.

 

Decision to back date change of flat rate scheme categorisation

 

See, for example, JJK Engineering Ltd v. HMRC [2016] UKFTT 615 (TC).

 

Decision to withdraw construction industry scheme gross payment status (FA 2004, s.66)

 

“Judge Hellier and Mr Corke [in Cardiff Lift Company v. HMRC [2011] UKFTT 628 (TC)] considered the answer to the second question to be less clear. They concluded that the tribunal had a purely supervisory function limited to upholding or striking down the decision. Their reasons, with which we agree and on which we cannot improve, were, to quote [48] of their decision in Cardiff Lift, as follows…” (HMRC v. JP Whitter (Water Well Engineers) Ltd [2015] UKUT 392 (TCC), §82, Warren J and Judge Bishopp)

 

Finance Act 1994, s.16(4)

 

“It was agreed at the hearing before me that the reference in section 16(4) of the 1994 Act to a decision which a person “could not reasonably have arrived at” is to a decision which is open to challenge on the usual judicial review grounds.” (HMRC v. European Brand Trading Ltd [2014] UKUT 226 (TCC), §17, Morgan J)
 

Examples of supervisory jurisdiction over HMRC discretions

Opinions on fact normally subject to full appellate approach

"[52] In the Court of Appeal and in the argument before us, reference was made to the rule that where the exercise of executive power depends upon the precedent establishment of an objective fact, the courts will, if called upon to do so in a case of dispute, decide whether the requirement has been satisfied: R v Secretary of State for the Home Department, Ex p Khawaja [1984] AC 74, 110, per Lord Scarman. On the other hand, as Sir Thomas Bingham MR observed in R v Secretary of State for the Home Department, ex p Onibiyo [1996] QB 768, 785, where the question is one that is to be determined by the executive itself, its determinations will be susceptible to challenge only on Wednesbury principles: R v Secretary of State for the Home Department, Ex p Bugdaycay [1987] AC 514. In order to decide into which class of judgment the case falls one must, of course, first construe the statutory language used and the scheme of the legislation.

[53] If, as the respondents contend, and Ward LJ in the Court of Appeal, para 25, accepted, the phrase "child in need" which sets the threshold for the provision of accommodation under section 20 must be taken as a whole, the judgment that must be made will fall into the latter category. But the definition of "child" in section 105(1) applies to the Act as a whole, without qualification or exception. The question whether the child is "in need" is for the social worker to determine. But the question whether the person is or is not a child depends entirely upon the person's age, which is an objective fact. The scheme of the Act shows that it was not Parliament's intention to leave this matter to the judgment of the local authority." (R (A) v. LB Croydon [2009] UKSC 8, Lord Hope)

Whether a person is carrying on business with the intention of making taxable supplies

“…the objective and factual analysis as to whether the appellant had ceased to carry on business is a very different question to the rather more vague and subjective assessment as to whether a person should be required to give security for the payment of VAT in order to protect the Revenue.  In our view, the question as to whether a person is making taxable supplies or is carrying on a business with the intention of making taxable supplies (and is therefore entitled to be registered for VAT) is exactly the sort of question that parliament would have intended the Tribunal to decide on an appeal rather than its jurisdiction being implicitly limited to deciding whether HMRC’s decision on this question was a reasonable one.” (David Love Marketing Ltd v. HMRC [2015] UKFTT 506 (TC), §64).
 

Decision to make a discovery assessment

 

“TMA s 29(1) says that where “an officer of the Board or the Board” makes a discovery, “the officer or, as the case may be, the Board may…make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged” and TMA s 31 gives the taxpayer a right of appeal against the assessment.  However, this differs from the special relief provisions, because it is not the officer’s opinion as such which is under appeal, but the liability shown on the assessment.” (Currie v. HMRC [2014] UKFTT 882 (TC), §23(1)).

Decision to withdraw EIS relief

“The Income Tax Act, s 234(3)(b) states that Enterprise Investment Scheme (“EIS”) relief is withdrawn “if an officer of Revenue and Customs has given notice to that company stating the officer's opinion that, because of the ground in question, the whole or any part of the EIS relief…was not due.”  ITA s 236 says “for the purposes of the provisions of TMA 1970 relating to appeals, the giving of notice by an officer of Revenue and Customs under section 234(3)(b) is taken to be a decision disallowing a claim by the issuing company.”  This at first appears similar to the special relief provisions, in that the officer’s opinion that relief is not due is treated as the refusal of a claim.  But the officer’s opinion turns on whether or not “the ground in question” has been satisfied.  That is not a matter of discretion or judgement, but of substantive law.  In our case, the underlying law itself includes the phrase “in the opinion of the Commissioners”.” (Currie v. HMRC [2014] UKFTT 882 (TC), §23(4) – whilst the Tribunal only refers to the question being one of substantive law it will also, necessarily, involve questions of fact).
 

Conditions for imposing a penalty

"[460] I should add that my analysis (later in this decision) of the effect of Article 6 of the Convention, when read with section 16(5) Finance Act 1994 construed to give effect to BAT's Convention rights, has the result that this Tribunal has full jurisdiction to undertake a merits review of HMRC's decision under section 7B to impose a penalty and is not confined to a Wednesbury jurisdiction. In my view, this removes many of the concerns expressed by BAT in relation to the existence of precedent or jurisdictional facts. If, for example, I disagreed with HMRC's opinion that BAT had been in breach of its section 7A(1) duty, I would simply quash HMRC's decision and substitute my own view." (British American Tobacco (Holdings) Ltd v. HMRC [2017] UKFTT 190 (TC))

Amount of penalty

“TMA s 100 says that “an officer of the Board” may impose a penalty “setting it at such amount as, in his opinion, is correct or appropriate.” The jurisdiction of the tribunal is at TMA s 100B: if the penalty “appears” to the tribunal to be correct/appropriate, the Tribunal confirms it; if it “appears” to be incorrect, the Tribunal can increase or reduce it to the correct amount.  This also differs from the special relief provisions, because the Tribunal has full jurisdiction to replace the officer’s opinion with its own.” (Currie v. HMRC [2014] UKFTT 882 (TC), §23(2)).
 

Opinions on fact normally subject to full appellate approach

Opinions on value judgments normally subject to supervisory jurisdiction

Decision to require security for VAT

 

“It seems to me that the 'statutory condition' (as Mr Richards termed it) which the tribunal has to examine in an appeal under s 40(1)(n) is whether it appeared to the commissioners requisite to require security. In examining whether that statutory condition is satisfied the tribunal will, to adopt the language of Lord Lane, consider whether the commissioners had acted in a way in which no reasonable panel of commissioners could have acted or whether they had taken into account some irrelevant matter or had disregarded something to which they should have given weight. The tribunal may also have to consider whether the commissioners have erred on a point of law. I am quite satisfied, however, that the tribunal cannot exercise a fresh discretion on the lines indicated by Lord Diplock in Hadmor. The protection of the revenue is not a responsibility of the tribunal or of a court.” (John Dee Ltd v. CEC [1995] STC 941 at 952).
 

Opinions on value judgments normally subject to supervisory jurisdiction
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