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Taxpayer’s choice: Appeal or judicial review

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8th Aug 2017
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John Flood considers the guidance offered by two linked decisions as to when an appeal to the first-tier tribunal is necessary and when to use judicial review (JR).

The alternatives

When faced with a tax dispute a tax advisor must consider the different challenge routes that are available. Usually, this will involve a statutory appeal to the first-tier tax tribunal (FTT) and onward to higher courts, or judicial review of HMRC’s decision, but sometimes both are possible.

The route to be taken is an important decision, which has serious consequences if misjudgements are made. Often, it may be impossible to retrieve the position of being able to take action if the wrong route is taken.

Tom Herbert recently considered the increasing number of judicial review challenges to HMRC. In this article, I consider two recent decisions concerning the same case. The first decision shows that the courts remain ever vigilant not to allow judicial review proceedings when there is an alternative remedy. The second decision considers the appeal permissions required if leave to bring JR is refused by the high court.

Judicial review route

In Glencore Energy Ltd v HMRC [2017] EWHC 1476, Glencore challenged a charging notice issued by HMRC under FA 2015, s 95. This type of notice imposes a charge for claimed diverted profits tax (DPT), which in this instance concerned tax of £21,129,349.

A charging notice requires steps to be taken by HMRC and the taxpayer. These steps are intended to encourage resolution of issues rather than have an appeal, although this will occur if the matter is not settled at an early stage. The steps required have a distinct structure to them.

Glencore contended it could challenge HMRC’s issue of a notice by way of JR in that:

  • HMRC applied a test which was not in accordance with the statutory requirements;
  • HMRC failed to take account of the taxpayer’s representations;
  • HMRC failed to give any or any adequate reasons for the calculation of DPT; and
  • the calculation of DPT was, in any event, irrational.

The honourable Mr Justice Green, however, ruled that you had to look closely at these traditional JR-type challenges. Here they had been carefully crafted, but when the outer garments were peeled back and the true substance was revealed, you had the true meat of a statutory review and FTT appeal procedure.

In other words, the reality of the challenge was an appeal on the merits of a decision and there was an alternative remedy to JR. Accordingly, this meant the appeal procedure should be adopted.

Glencore also contended that as appeal procedures were slow, inappropriate and ineffective they should be entitled to challenge, but Judge Green found there was no substance in these arguments.

Appeal route

In the second published decision involving Glencore [2017] EWHC 1587, the court looked at the question of appeal rights. When seeking JR there is an initial application on the papers (within the civil procedure rules no. 54 in England and Wales). If leave is refused then the applicant may renew their application before the high court, as here.

Civil procedure rule 52.8 then provides that an applicant may apply to the court of appeal to proceed. Glencore, however, contended that the rules did not prohibit the high court from giving leave. In rejecting this Judge Green felt that the rules provided a complete code and accordingly he had no power to grant permission to appeal.

Summary

The high court will not permit JR if the substance of the argument involves alternative remedies.

The court will consider the nature of the challenge to the decision and not just the carefully and skilled “wrap up” to the arguments advanced. The current FTT procedure is not so cumbersome as to justify the use of JR.

In England and Wales, the Court of Appeal is the only court which has jurisdiction to grant leave to appeal, where leave has previously been refused by the High Court.

 

John Flood is a retired barrister and co-author with George Rowell of Tax Penalties: A Practitioners Guide (Sweet & Maxwell Thomson Reuters)

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By Malcolm McFarlin
09th Aug 2017 11:21

I think a large majority of recent Judicial Reviews involve excise traders who wholesale alcohol. HMRC have the power to approve duty paid alcohol wholesalers ('AWRS') under their recent legislation which became effective from 01/04/17. Any excise alcohol wholesaler must be approved by HMRC as a 'Fit & Proper Person'. This is similar requirement to those alcohol traders who trade under bond or in duty suspended alcohol which has been in place for many years.
The only recourse to a business if HMRC see a trader as not a 'fit & proper person' is to seek a Judicial Review since the HMRC Review and then, appeals process is too slow -at least a year.
I currently have a client who is sitting in an empty warehouse all 'racked out' and ready to go with HMRC dragging their heels over the application process. The HMRC Officers consider they have 45 days to review/authorise an application regardless of the cost and stress to clients. Clearly it takes time for a business to set up a warehouse. I am aware of a number of companies who have applied for Judicial Review within the alcohol industry.

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