HMRC is barred again by Supreme Court

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John Flood
Tax Author
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John Flood considers a useful decision which identifies the arguments to be used against HMRC in an application to debar them from participating in a case.

End of the road

AccountingWEB has been following this case concerning BPP Holdings v HMRC for some years; from the FTT to upper tribunal, then on to the Court of Appeal. The Supreme Court has now given its final judgement (BPP Holdings & others v HMRC [2017]), and the case can go no further.

The Supreme Court was asked to consider the factors which justify refusing HMRC permision to defend a case; a barring order. It was the lowest court: the FTT, which initially barred HMRC from participating under rule 8 of the Tribunal Procedure (First Tier Tribunal) (Tax Chamber) Rules 2009.

History of Proceedings

The background to the case is a dispute over the VAT treatment of supplying books and of education. BPP contended that following a corporate re-arrangement they made separate supplies of education - standard rated, and books - zero rated, through two separate companies.

HMRC contended that this was not the case and the matter proceeded to the FTT. BPP felt further information was required before the case could proceed and directions were given by the FTT including:

“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 …”

On 31 January 2014 HMRC served a response to BPP’s request but according to BPP, HMRC failed to respond properly in that they did not answer each of the questions asked. Later HMRC supplied a defective disclosure statement and a list of documents, and only belatedly applied for an extension of time to lodge the necessary documents. BPP applied for a debarring order, which Judge Mosedale granted.

There was no “unless” order which is commonly regarded as a “last chance” to comply with a court order. Permission was later given to appeal the decision and the upper tribunal allowed the appeal, but the Court of Appeal restored the original decision. The Supreme Court then rejected HMRC’s appeal.

The judgment 

In giving the Supreme Court judgment, Lord Neuberger pointed out that the key issue in such cases was whether the FTT was correct in granting the debarring order. The reasoning of the upper tribunal and Court of Appeal was irrelevant.

Examining the decision, the FTT had given a very carefully considered judgment but the Supreme Court could interfere, if it could be shown that irrelevant material had been considered or relevant material had been ignored, assuming of course that this would have made a difference.

Looking in detail at the decision of the FTT, Lord Neuberger highlighted that the FTT was not considering an application by HMRC “to be relieved from a debarring order which had automatically come into effect as a result of the earlier order: rather BPP was seeking to have a debarring order imposed, when such an order had been foreshadowed by the earlier order.”

The FTT judge had considered the correct tribunal rule Para 8(3) (order may be made) and not para 8(1) (order should be made).

Applicable principles

For a summary of the principles applied – see results below.

Judge Mosedale had in exercising her discretion said she “must simply weigh all the factors”. She had given significant weight to the overall objective of dealing with cases fairly and justly and avoiding unnecessary delay and expense. Here there had been unnecessary delay and expense.

Reason for delay

There had been no reason for the delay by HMRC and there had been previous less serious breaches of the tribunal rules. There had been clear prejudice to the taxpayer in having to wait eight months for a proper statement of HMRC’s case. If there was not a barring order, the taxpayer would have been left without a remedy for the prejudice caused.

HMRC had been on notice from the January 2014 that failure to comply with directions might lead to a barring order, but the position was not corrected until five months later. The judge had adopted a correct approach.

HMRC’s public duty

It was suggested that a debarring order prevents HMRC from discharging its public duty and leads to the loss of VAT, which would be a dangerous precedent if accepted. There was at least as strong an argument that the courts should expect higher standards from public bodies compared to individuals and private bodies.

Disproportionate

Was the debarring order disproportionate? It could not be said that for BPP to have allowed six weeks to elapse after the breach before applying for a debarring order was in any culpable. Neither could it be said that a debarring order was an unjustified windfall, as that point could always be made by a party facing this type of application. There were no exceptional circumstances in favour of HMRC.

Outside scope

Was the debarring order outside the scope of what a reasonable judge could have ordered? The court accepted that her decision might be viewed as tough and not one that would have made by every tribunal, but an interference with a discretionary decision by an appellate court would only occur if the decision was plainly wrong. The decision must be plainly unjustifiable. This was not the situation here. It was not, however, to say that an appellate court cannot interfere with a debarring order.

In relation to a debarring order; there is a limit to the permissible harshness or generosity of a decision. Here though it cannot be said that the decision was on the wrong side of the line.

The result

Accordingly, the appeal of HMRC was dismissed.

Summary of principles

a)An application for a debarring order will be considered by the FTT as matter of discretion depending on all the factors of the case.

b)An order is more likely to obtained if there:

  • Are previous breaches of tribunal directions;
  • Was a delay by HMRC in correcting the position;
  • Was an absence of explanation for the delay in complying with an order;

c)Care must be taken in distinguishing the Court of Appeal guidance on sanctions and striking out cases and the authorities dealing with tribunal matters which can come from the whole of the UK.

d)HMRC cannot argue that it is in the public interest not to impose barring orders.

e)An application will succeed if it can be shown that no reasonable tribunal could have made the decision it did. A decision close to the line will not be upset. The fact that another tribunal might have made a different decision is not enough to result in an appeal succeeding.

f)In any appeal, the challenge should be directed at highlighting the errors of reasoning at the FTT decision.

 

John Flood is a retired barrister and ex-employee of HMRC. He is a co-author with George Rowell of the new book, Tax Penalties: A Practitioners Guide (Sweet & Maxwell Thomson Reuters)

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