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HMRC debarred from Appeal

14th Aug 2017
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Late July saw a significant Supreme Court decision, where the Court approved the FTT’s decision to debar HMRC from an Appeal.

The underlying issue relates to supplies of commercial education, and whether related supplies of books by a separate company should be zero rated (as contended by the company), or standard rated (as argued by HMRC). One limb of HMRC’s case is that the corporate re-structuring in 2006 provided for abuse of VAT rules, and was therefore ineffective.

The decision is here: https://www.supremecourt.uk/cases/uksc-2016-0069.html

HMRC persistently submitted documents late to the Tribunal, and also failed to provide requested information. BPP lost patience with HMRC, and applied to the Tribunal that their appeals should be allowed in light of HMRC’s non-compliance. The Supreme Court referred to the FTT decision in this non-compliance:

She (Judge Mosedale) was unimpressed with HMRC’s suggestion that “it ought not to have been required to state every fact and matter on which it relied”, not least because “the Reply failed to state any fact or matter on which HMRC relied”. In paras 81 and 82, she said that “HMRC does not appear in this appeal to have appreciated the importance of adhering to directions (para 17).

The FTT made a Direction, which included:

If the respondents fail to provide replies to each of the questions identified in the appellants’ request for Further Information by 31 January 2014, the respondents may be barred from taking further part in the proceedings ...

The debarring order was issued, see [2014] UKFTT 644. Para 8 of the Supreme Court decision describes the subsequent appeals in the issue.

The Supreme Court (para 9) had to consider whether the FTT decision to make a debarring order could be justified. Para 21 makes the point that an Appeal is not a re-hearing of the original arguments, but whether it was a reasonable decision. Para 33 adds: “an appellate judge should only interfere where the decision is not merely different from that which the appellate judge would have made, but is a decision which the appellate judge considers cannot be justified.” (HMRC frequently seem to miss this point, and think that appeals beyond the FTT are an opportunity for a ‘second opinion.’)

The SC reviewed rule 8 of the Tribunal Rules, and noted that the various sanctions apply equally to HMRC as to taxpayers. Indeed, Rule 8(7) actually states: “This rule applies to a respondent as it applies to an appellant.”

In conclusion, the Supreme Court commented that the existing sanctions lack sophistication. The FTT Judge was ‘left with two unpalatable choices’ (see para 35 of the SC decision). But the SC confirmed that the Judge was fully justified in reaching her decision.

Hopefully the substantive issued can be heard soon!

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