© 2024 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
Procedure.Tax
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L6: Alternatives to FTT appeal
Judicial review in the High Court
Normally the tax tribunals have exclusive jurisdiction
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“Their Lordships consider that, where a statute lays down a comprehensive system of appeals procedure against administrative decisions, it will only be in exceptional circumstances, typically an abuse of power, that the courts will entertain an application for judicial review of a decision which has not been appealed.” (Harley Development Inc v. CIR [1996] 1 WLR 727 at 737, Lord Jauncey)
"[17] It is well established that if Parliament has laid down a statutory appeal process against a decision of HMRC, a person aggrieved by the decision and wishing to challenge it must use the statutory process. It is an abuse of the court's process to seek to do so through proceedings in the High Court or the County Court." (Knibbs v. HMRC [2019] EWCA Civ 1719, David Richards LJ)
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“…since Parliament has prescribed the procedure of assessment and appeal for determining liabilities to income tax and corporation tax, that procedure is to be followed to the exclusion of other possible means of determination. I will call this the ‘exclusive jurisdiction principle’...[T]he exclusive jurisdiction principle cannot be circumvented simply by dressing up proceedings in the High Court as an application for a declaration, if the substantial effect of a declaration would be to determine a liability which ought to be determined by the commissioners.” (Glaxo Group Ltd v. IRC [1995] STC 1075 at 1081…1083, Robert Walker J).
But only where the relief sought is co-extensive with adjudicating on an existing open assessment
“Possibly the correct view is that there is an absolute exclusion of the High Court’s jurisdiction only when the proceedings seek relief which is more or less co-extensive with adjudicating on an existing open assessment’ but that the more closely the High Court proceedings approximate to that in their substantial effect, the more ready the High Court will be, as a matter of discretion, to decline jurisdiction.” (Glaxo Group Ltd v. IRC [1995] STC 1075 at 1084, Robert Walker J).
“It must, in principle, be possible for the trustees to obtain the declaratory relief which they seek in a way which is binding on all those who could, at any time, make a claim against them under s.339…Further, I would see ne reason why, as a matter of discretion, the trustees’ claim should be stayed…[T]he potential claims by both Zoe and HMRC are not hypothetical ones either but are ones either but are ones which may well be made…The second beneficial ownership issue goes not only to the trustees’ liabilities to inheritance tax but also to whether HMRC can obtain effective enforcement for a completely different liability – the liability of Edward and his estate for income tax – which has nothing at all to do with the possible inheritance tax liability of the trustees.” (Stow v. Stow [2008] STC 2298, §§32,33, 56, Warren J).
High court proceedings possible where it is arguable that decision was unlawful on a more fundamental basis
“The correct principle seems to me to be this. If a "relevant decision" is challenged only on the basis that it is one to which HMRC could not reasonably have come the case falls squarely within section 16 of the Act, and the Court should not intervene. However, where the challenge to the decision is not simply that it is unreasonable but that it is unlawful on some other ground, then the case falls outside the statutory regime and there is nothing objectionable in the Court entertaining a claim for judicial review or, where appropriate, granting interim relief in connection with that claim. A precise definition of that additional element may be elusive and is unnecessary for present purposes. The authorities cited inHarley Development refer to "abuse of power", "impropriety" and "unfairness". Mr Brennan referred to cases where HMRC had behaved "capriciously" or "outrageously" or in bad faith. Those terms sufficiently indicate the territory that we are in…” (CC&C Ltd v. HMRC [2014] EWCA Civ 1653, §43).
But not required to use judicial review if FTT has jurisdiction
“This led [HMRC] to suggest that only ordinary unreasonableness could be alleged in this Tribunal; any allegation of really serious misconduct by HMRC would have to be retained for a judicial review action. We indicated at the time that HMRC would have an uphill battle to persuade us that this Tribunal, under s 16 FA, did not have the power to set aside a decision of HMRC on an ancillary matter that was so unreasonable it was susceptible to judicial review. We remain of this view: while Underhill LJ was stating that only the more serious kinds of unreasonableness could be judicially reviewed when the s 16 FA route for appealing existed, he was not suggesting that this Tribunal could only consider the less serious kinds of unreasonable behaviour. In any event, [HMRC] withdrew the submission.” (Pierhead Drinks Ltd v. HMRC [2016] UKFTT 286 (TC), §129).
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Same rule for Part 8 proceedings
"[56] In the circumstances, it seems to me that the present proceedings were an abuse of process. Parliament has laid down a statutory appeal process by which PRT assessments can be challenged. The question whether HMRC's refunds were due by way of discharge of PRT payments could have been determined using that procedure and, that being so, MCX should not have resorted to ordinary civil proceedings." (HMRC v. MCX Dunlin (UK) Limited [2021] EWCA Civ 186, Newey LJ)
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Reasons that do no justify High Court proceedings
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FTT appeal is out of time (unless vindicating EU law rights)
"[20] First, Mr Ewart points out that in some cases the claimants are now out of time to appeal the conclusions stated in or amendments made by closure notices issued by HMRC. We cannot see that this can justify a challenge by civil proceedings. Parliament has laid down an exclusive appeal process and time limits for invoking it. If those time limits have expired, and are not or cannot be extended, the clear legislative intention is that it is too late to make any challenge. There is no sensible basis for reading the statutory provisions as permitting an alternative route of challenge once the time limits for an appeal to the FTT have expired. In Autologic, the House of Lords were prepared to countenance the possibility of civil proceedings once a statutory appeal was no longer possible only because it was a means of vindicating the taxpayer's EU law rights. There is no parallel with the present case." (Knibbs v. HMRC [2019] EWCA Civ 1719, David Richards LJ)
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Argument that closure notice is nullity
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"[21] Second, Mr Ewart submitted that, if HMRC are not entitled to open an enquiry under sections 9A and 12AC, a closure notice is a nullity and its conclusions or amendments cannot be the subject of an appeal to the FTT. It seems to us that the FTT is competent on an appeal to decide whether HMRC had the statutory power to invoke the procedure which led to the closure notice under appeal. A lack of power to issue a closure notice is as much a ground of appeal against its conclusions or amendments as any other ground of challenge. Even if that were wrong, civil proceedings issued to determine this issue would remain an abuse, because for the same reasons as given below as regards a notice under section 28B, the appropriate mode of challenge would be by way of judicial review." (Knibbs v. HMRC [2019] EWCA Civ 1719, David Richards LJ)
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Risk that HMRC might not pay a claim if taxpayer succeeds in tax appeal
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"[22] Third, Mr Ewart submitted that it was necessary for those claimants seeking repayments of tax to issue proceedings so as to prevent their claims becoming time-barred under the Limitation Acts. Mr Ewart was suggesting that if a claimant successfully appealed against the conclusions in or amendments made by a closure notice, HMRC might refuse to make any repayment on account of a potential limitation defence. We found startling the idea that, having lost on an appeal against the effects of a closure notice, HMRC would decline to give effect to the FTT's decision and refuse to repay the tax that HMRC had no right to retain. If, contrary to all principles of public administration, HMRC did seek to adopt this position, we do not consider that their stance would be well-founded in law. Paragraph 4 of schedule 1A to TMA requires HMRC to give effect to a claim "as soon as practicable after a claim…is made". Time for limitation purposes would not start to run until it became practicable to give effect to the claim. While an appeal to the FTT is pending, and the entitlement of the taxpayer to the claim has yet to be determined, it cannot be said to be "practicable" to give effect to the claim." (Knibbs v. HMRC [2019] EWCA Civ 1719, David Richards LJ)
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Decisions only open to judicial review
See K1: Appealable decisions (general)
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Examples
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HMRC refusal of relief in respect of EFRBS benefits (ITTOIA s.392)
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“A consideration of section 392 as a whole and in its context leads in my view to the conclusion that there was no legislative intention that there should be an appeal to the Tribunal from a refusal of an application for relief.” (HMRC v. Dhanak [2014] UKUT 0068 (TCC), §49, David Richards J)
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Revocation of a income tax dispensation (ITEPA s.65(6))
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“The Income Tax (Earnings and Pensions Act) 2003, s 65(6) says that “in their opinion there is reason to do so, an officer of Revenue and Customs may revoke a dispensation.” The HMRC officer is making a discretionary decision against which the statute provides no appeal rights; a taxpayer can only challenge such a decision by judicial review.” (Currie v. HMRC [2014] UKFTT 882 (TC), §23(3)).
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Challenges in collection proceedings
Questions going directly to collection of tax may be determined in the country court/high court
“In this case, the county court was not asked to rule on the validity of the claim for loss relief. Nor was it concerned with any appeal against the assessment to tax. It was asked to determine in collection proceedings whether the taxpayer's claim for relief for losses incurred in 2008/09, which he had made in his tax return form for 2007/08, constituted a defence to the Revenue's claim for immediate payment of the tax which it had calculated as payable in respect of 2007/08. In my view, the county court and the High Court had jurisdiction to determine that issue which did not trench upon the tribunal's exclusive jurisdiction.” (HMRC v. Cotter [2013] UKSC 69, §32).
Professional negligence
“These proceedings relate to the amount of tax said to be payable. The Inland Revenue is not a party to them. It has indicated in correspondence that provided the court's attention is drawn to the potential tax liabilities that will be affected by its decision, and provided that full argument has been deployed on both sides on the relevant trust law provisions, then it could not envisage any circumstances in which it would not implement, for income tax and capital gains tax purposes, the effect of this court's decision on the trust law provisions. It has been made aware of the preliminary questions that I have been asked to determine.” (Jasmine Trustees Ltd v. Wells & Hind (a firm) [2007] EWHC 38 (Ch), §9).
Chancery division claim
Proceedings directly asserting tax position likely to be abusive
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"[25] We are satisfied that, in the present case, the correct procedure for individual partners to challenge the amendments made to their returns was by judicial review, and not by ordinary civil proceedings. There are a number of reasons for this. First, there are no private law rights involved. This is not, for example, a case where a claimant is seeking to enforce a contractual right. Second, the time limits are a strong factor in favour of judicial review being the correct procedure. Both appeals to the FTT and applications for permission to pursue judicial review are subject to short time limits. It makes no sense at all that an individual taxpayer or a partnership has a period of 30 days in which to appeal to the FTT against a closure notice, but an individual partner should have six years in which to make what is, in effect, the same challenge to a notice given under section 28B(4). Third, the challenges in these cases affect a large number of people and raise no issues of fact that might be unsuitable for determination in judicial review proceedings. Fourth, the requirement for permission to pursue judicial review does not make it an unsuitable procedure in the circumstances of this case, any more than in the many other cases (tax and non-tax) to which it applies. It is no more than a filter to weed out groundless cases." (Knibbs v. HMRC [2019] EWCA Civ 1719, David Richards LJ)
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Declaratory proceedings
Kennedy v. Kennedy [2014] EWHC 4129 (Ch)