COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM Chancery Division
David Donaldson Q.C. sitting as a Deputy High Court Judge
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE TOULSON
LORD JUSTICE SULLIVAN
| HER MAJESTY'S REVENUE AND CUSTOMS
|- and -
Mr Arfan Khan (instructed by CT Emezie Solicitors) for the Respondent
Hearing date: 8th March 2011
Crown Copyright ©
"I accept ... that there are circumstances in which certain categories of client may not be subject to VAT in relation to immigration or asylum claims [but] it does not follow in any way from that that these returns were wrong. It seems to me that what [the Applicant] would have to demonstrate to the Revenue is, by reference to individual clients, that they fell within one of the exempt categories. It does not follow from her blanket statement that her returns were wrong. It seems to me, therefore, that to the extent this application repeats the application made to Mr Registrar Nicholls, it is as hopeless as the application that was made to him, in that it is plain for the reasons that I have given that on the date the bankruptcy order was made it ought to have been made and was properly made. For these reasons, I dismiss this application."
"...under the legislation in force at the material times the [VAT] returns did not give rise to a debt as submitted by [HMRC]"
HMRC now appeal to this court with the permission of Jacob LJ.
"(1) A taxable person shall–
(a) in respect of supplies made by him, and
(b) in respect of the acquisition by him from other member States of any goods,
account for and pay VAT by reference to such periods (in this Act referred to as "prescribed accounting periods") at such time and in such manner as may be determined by or under regulations and regulations may make different provision for different circumstances.
(2) Subject to the provisions of this section, he is entitled at the end of each prescribed accounting period to credit for so much of his input tax as is allowable under section 26, and then to deduct that amount from any output tax that is due from him.
[(3) – (5)]
(6) A deduction under subsection (2) above and payment of a VAT credit shall not be made or paid except on a claim made in such manner and at such time as may be determined by or under regulations; and, in the case of a person who has made no taxable supplies in the period concerned or any previous period, payment of a VAT credit shall be made subject to such conditions (if any) as the Commissioners think fit to impose, including conditions as to repayment in specified circumstances."
S.58 and Schedule 11 paragraph 2 authorise regulations for administration, collection and enforcement of VAT to which I shall refer in due course.
"Where an amount has been assessed and notified to any person under subsection (1), (2), (3) or (7) above it shall, subject to the provisions of this Act as to appeals, be deemed to be an amount of VAT due from him and may be recovered accordingly, unless, or except to the extent that, the assessment has subsequently been withdrawn or reduced."
"..showing the amount of VAT payable by or to him and containing full information in respect of the other matters specified in the form and a declaration, signed by him, that the return is true and complete.."
As is well known the prescribed form has 9 boxes to be completed by the person making the return. Boxes 1 to 3 relate to the VAT due in the period, box 4 to VAT reclaimed in the period and box 5 to "Net VAT to be paid to Customs or reclaimed by you". At the foot of the form is a declaration to be signed by or on behalf of the person making it that "the information given above is true and complete".
"Where a taxable person has made an error—
(a) in accounting for VAT, or
(b) in any return made by him,
then, unless he corrects that error in accordance with regulation 34, he shall correct it in such manner and within such time as the Commissioners may require."
The procedure known as "voluntary disclosure" is that described in VAT Notice 700/45. The procedure relevant to this appeal is called 'Method 2'. Its requirements have varied in detail over the years but in essence it requires the registered person either on the prescribed form or otherwise in writing to give full details of the alleged error, whether it relates to output tax or input tax, the VAT accounting period in which it occurred and the amount of the adjustment sought. There is a time limit of three years since the end of the accounting period in which the alleged error was made or occurred.
"I cannot think it possible that it is competent to the Bankruptcy Court, on the invitation of the trustee in bankruptcy or of the debtor, to reopen questions of that kind on a motion to expunge. It is quite impossible to conceive that it would be competent for me sitting here to go into the question of the rateable values of a union or of a parish, or any question of that sort. That seems to me to be a case which is analogous to the case in which I am at present invited to act. I think the application fails and must be dismissed with costs; but my decision will not interfere with any application the debtor may be advised to make to the Inland Revenue under the Board of Trade Regulations of May, 1888."
" I understand, but I have to remind myself (as [counsel for the Inland Revenue] has submitted), that authority clearly establishes that where assessments to tax are concerned Parliament has provided a clear and exclusive machinery for considering appeals against them. The statutory machinery does provide for appeals to the court. That machinery, as [counsel] correctly submits, is an exclusive machinery and an assessment, when made, is final and binding if it is not appealed. If it is appealed, the determination of an appeal is likewise final and binding, subject to any application there may be, in appropriate circumstances, to the court. In particular, she submits, it is not for the Bankruptcy Court to go behind those matters. As [counsel] also submits, there is a wealth of authority to that effect, stretching back (in relation to predecessors of the current legislation) to the latter part of the 19th century.
 [Counsel] is correct in that submission. It is not open to the Bankruptcy Court to review the manner in which the assessment has been made, much less to investigate the merits of the assessment. I can see that if there were evidence that the assessments had been made in some fraudulent or collusive way, or there were some other glaring miscarriage of justice, it might be that the Bankruptcy Court could go behind the assessment and not make the Bankruptcy Order based upon the debt created by the unpaid tax resulting from the assessment, but there is no suggestion of that in this case. On the contrary, as I have endeavoured to show, the Revenue have entertained attempts by Mr Lam, personally and through advisers, to reconsider the amount of the assessments, but have not been persuaded on the information that has been provided that they should do so."
"12. Clearly the purpose intended to be achieved by this elaborate, long established statutory scheme would be defeated if it were open to a taxpayer to leave undisturbed an assessment with which he is dissatisfied and adopt the expedient of applying to the High Court for a declaration of how much tax he owes and, if he has already paid the tax, an order for repayment of the amount he claims was wrongly assessed. In substance, although not in form, that would be an appeal against an assessment. In such a case the effect of the relief sought in the High Court, if granted, would be to negative an assessment otherwise than in accordance with the statutory code. Thus in such a case the High Court proceedings will be struck out as an abuse of the court's process. The proceedings would be an abuse because the dispute presented to the court for decision would be a dispute Parliament has assigned for resolution exclusively to a specialist tribunal. The dissatisfied taxpayer should have recourse to the appeal procedure provided by Parliament. He should follow the statutory route."
Later, in paragraph 15, Lord Nicholls continued:
"Lord Wilberforce's formulation indicates that, apart from cases of straightforward abuse, there is an area where the court has a discretion. In Glaxo Group Ltd v Inland Revenue Commissioners  STC 1075, 1083-1084, Robert Walker J put the matter this way:
'It is not easy to discern any clear dividing-line between High Court proceedings which are, and those which are not, objectionable as attempts to circumvent the exclusive jurisdiction principle. 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.'
I respectfully agree with this approach, subject to noting that, at least as a general principle, the taxpayer and the revenue are each entitled to insist that the statutory procedure for dealing with disputed assessments should be followed."
"The court may annul a bankruptcy order if it at any time appears to the court-
(a) that, on any grounds existing at the time the order was made, the order ought not to have been made, or
(b) that, to the extent required by the rules, the bankruptcy debts and the expenses of the bankruptcy have all, since the making of the order, been either paid or secured for to the satisfaction of the court."
The application made by the Applicant is made under paragraph (a). Thus the relevant ground must have existed at the time the bankruptcy order was made against her on 9th September 2005 even though it did not become apparent until later, see Royal Bank of Scotland v Farley  BPIR 638. Thus it would suffice if an appeal against, for example, an assessment to Schedule D tax were successful after the bankruptcy order in respect of which it had been made.
"The Respondent accepts that in the case of an asylum seeker or an illegal immigrant his usual place of residence is outside the United Kingdom. It follows, and is also common ground, that the Appellant's asylum and immigration clients did not "belong" in the United Kingdom for the purposes of the 1992 Order, and that her services to them were therefore supplied outside the United Kingdom and in consequence were not chargeable to VAT."
It is clear from the written arguments before the deputy judge and now before us that HMRC certainly accepted and still accept that a lawyer's advisory services supplied to a person belonging abroad are not supplied for the purposes of VAT in the United Kingdom. But they did not then and do not now accept that the services in respect of which the Applicant made the returns on which the statutory demand and the bankruptcy order were based were so supplied. Those facts have never been established to the satisfaction of either HMRC under either voluntary disclosure or of the VAT Tribunal on appeal.
(1) In the context of the VAT Act 1994 and its subordinate legislation a duly signed return gives rise to a debt for a sum certain sufficient to ground a statutory demand, bankruptcy petition and order.
(2) There were no circumstances entitling the deputy judge to determine whether or not the VAT stated in those returns to be due were due.
(3) Therefore there was no ground entitling the deputy judge to interfere with the decision of the Chief Registrar to the effect that the discretion conferred by s.282(1)(a) Insolvency Act to annul the bankruptcy order had arisen, let alone to exercise it in the way that he did.
Lord Justice Toulson
Lord Justice Sullivan