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Procedure.Tax
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A7: HMRC's duty of care
No general duty of care in relation to conduct of investigations
"[72] In my view the judge would have been correct to hold that no common law duty of care was owed to the claimant company by either (i) the unidentified employee at the Furness office who inserted the incorrect UTR on the August CIS3 form on or about 11 August 1999 or (ii) the unidentified employee at the Netherton processing centre who posted the CIS6 certificate to the wrong address. As it seems to me, those were plainly administrative mistakes made in the ordinary course of processing the application under section 561(2) ICTA. In the circumstances that, as I have held, the legislature did not intend to impose a statutory duty, enforceable by an individual in a private law suit, to process such applications within a reasonable time, it would be wrong for the courts to recognise a common law duty owed by the Revenue's employees to take care to avoid delay. I respectfully share the concern, expressed by Lord Justice Mummery in Carty v Croydon London Borough Council [2005] EWCA Civ 19, [83]; [2005] 1 WLR 2312, 2337H, that to impose liability on the employee in such circumstances – a liability for which the employer would be vicariously liable - would be "to introduce by the back door an action for breach of statutory duty in a case where . . . no cause of action for breach of statutory duty was created by the relevant legislation". (Neil Martin v. HMRC [2007] EWCA Civ 1041, Chadwick LJ)
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Assumption of authority to act on behalf of taxpayer: duty of care
"[34] In the Neil Martin case, Chadwick LJ, with whom Smith and Wilson LJJ agreed, held that although a duty of care was not owed by unidentified employees of the Revenue and Customs Commissioners in relation to administrative mistakes, a duty could be owed, for which the Revenue would be vicariously liable, in relation to the act of making an application on behalf of a company which the company had chosen not to make, and which it had not made. The employee had assumed an authority to make the application on behalf of the company and in doing so had assumed a responsibility to the company. In such circumstances it was considered fair, just and reasonable that the common law should recognise the existence of a duty of care." (HMRC v. Charles [2019] EWCA Civ 2176, Asplin LJ)
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No duty to verify accuracy of administrative report subsequently used in litigation
"[38] In my judgment, there is no real prospect of establishing that a duty of care arose to verify the Visit Report and to rectify it if necessary, once Mr Charles' reliance upon it for the purposes of his appeal to the UT became clear and the judge was wrong to come to that conclusion at [36] of his judgment. It seems to me that the same would be true in relation to Mr Charles' reliance upon the Visit Report in the FTT. The point was made succinctly by Lord Bingham in the Barclays Bank case at [18]. As the judge quoted at [32] of his judgment: " . . . no duty is owed by a litigation party to its opponent: Digital Equipment Corpn v Darkcrest Ltd [1984] Ch 512; Business Computers International v Registrar of Companies [1988] Ch 229; Al-Kandari v J R Brown & Co [1988] QB 655." The same point was made by Lord Rodger at [47] and [60]. It seems to me that this must be the case even where the opponent relies upon a document which has been created by the other party to the litigation. It is all the more so where the document was produced for a different purpose in the course of fulfilling HMRC's public duties." (HMRC v. Charles [2019] EWCA Civ 2176, Asplin LJ)
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No duty to to notify taxpayer of taxpayer mistake spotted by HMRC
"[87] I would dismiss this ground of appeal. [HMRC] has convincingly demonstrated that none of the passages in Code of Practice 14 relied on by the appellants imposed an obligation on HMRC to disclose a matter which had been spotted prior to the enquiry but which was not present to the minds of the officials of HMRC handling the affairs of the taxpayer during the enquiry. To hold otherwise would indeed without justification shift the responsibility for those errors from those who had caused the error, namely the taxpayer and its advisers, to HMRC.
[88] The Charter refers to putting "mistakes right as soon as we can". [The taxpayer] accepts that the duty on HMRC could be no higher than a duty to inform, not to remedy the error. That reinforces my interpretation of this statement as one which refers to errors by HMRC, not those of the taxpayer. On that basis these words have no application. There is in my judgment no other statement in the Charter which could arguably give rise to a duty to notify.
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[94] As to the established duty of HMRC to act fairly, I conclude that on the facts of this case HMRC did not act unfairly towards Daejan in not informing it immediately the error was spotted or thereafter during the enquiry or in the closure notices, for the following reasons:
i) The primary responsibility for making a claim that took maximum advantage of the losses available to the group always lay with the group.
ii) At the time HMRC spotted Daejan's error regarding its 2005 return, there was sufficient time for the loss relief claim to be amended appropriately and for an enquiry to be opened, when the matter could be appropriately investigated. HMRC went on to open enquiries into the returns of both Daejan and the appellants, first into its 2005 returns in March 2007, and then into their 2006 returns in September 2007.
iii) By doing so HMRC in fact extended the time available to the Daejan group to correct the errors.
iv) Unfortunately from the Daejan group's point of view, the HMRC official having conduct of the enquiries was a different person from the official who spotted the mistake. He was aware of his predecessor's discovery but could not work out the precise nature of the error. However, he did what he could by directing Daejan's attention to the computation of its group relief claims.
v) If HMRC could not say what the error was, the existence of the error was really no more than a possibility. This is not altered by the fact that it later turned into an actuality.
vi) The decision to refuse an extension of time was taken when Mr King of HMRC was responsible for dealing with the Daejan group's affairs, and he had no knowledge of the error spotted by Mr Fletcher.
It follows that, on the particular facts of this case, the appellants have failed to establish that HMRC's failure to notify Daejan of the errors in its loss relief claims constituted a matter which HMRC ought to have taken into account when considering their claim for an extension of time. There can have been no such duty without non-compliance with the Charter or Code of Practice 14 or the "venerable principle", or non-performance by HMRC of their duty of fairness." (R (oao Bampton Property Group Limited) v. King [2012] EWCA Civ 1744)
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