QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
(Sitting as a Judge of the High Court)
| PML ACCOUNTING LTD
|- and -
|THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS
Mr Akash Nawbatt QC and Mr Sebastian Purnell (instructed by HMRC) for the Defendants
Hearing date: 21 and 22 March 2017
Crown Copyright ©
Sir Ross Cranston:
HMRC's civil enquiry
"The appeal was in relation only to the request to extend the deadline."
"You are, of course, entitled to make contact with these companies but we have concerns that such an approach is premature given the fact that you still have not received all of the background information requested and are therefore not in a position to formulate a reasoned view of the applicability of the MSC legislation to our client company's position…Furthermore, PML Accounting Limited is very concerned that direct approaches to its clients by HMRC in these circumstances may have a damaging effect on its commercial relationships with those clients. Our client company, therefore, feels obliged to put HMRC on notice that it will, if necessary, seek legal redress should its commercial interests be adversely affected by HMRC's premature actions."
"We want to make you aware of this issue in case the judge raises the question of whose tax position is the notice actually about…[The claimant] could have a tax position but it is not immediately apparent."
The Tribunal decision ("the penalties appeal")
"77. We consider that the exchange of correspondence between Mr Dootson and Hazell Minshall effectively settled the appeal – Hazell Minshall proposed that the filing deadline be extended, and Mr Dootson accepted the proposal. The agreement is evidenced in writing by the exchange of correspondence, and therefore satisfies the requirements of section 54, Taxes Management Act 1970 which permits tax appeals to be settled by agreement between the parties or their representatives. The fact that the correspondence does not expressly mention section 54 does not prevent section 54 from applying."
"160. As regards PML, HMRC submit that the Information Notice was proportionate to the underlying need and necessary for the economic wellbeing of the UK. We agree, and PML's arguments as regards Article 8 were not in respect of its own rights.
161. We find that the Information Notice did not breach any of PML's rights under Article 8."
"181. We disagree with HMRC's submissions. This is an appeal by [the claimant] against penalties, and the onus of proof is on HMRC to demonstrate that the penalties have been assessed in accordance with the law. If [the claimant] can show that the Information Notice to which the penalties relate was not valid, it follows that the penalties are also invalid, and the appeal must succeed."
"183. As we have found that the Information Notice was invalid, it follows that HMRC are in possession of documents and information to which they are not entitled. Save to the extent that they lawfully have these documents otherwise than pursuant to the Information Notice, they must therefore return the documents (and any copies they may have made) to PML, and cannot rely upon them.
184. However we recognise that HMRC may now wish to apply under paragraph 2 or 5 of Schedule 36 for the same documents and information. There are procedural requirements with which HMRC would need to comply, and the requirements include an application to this Tribunal. Should HMRC make such an application within a reasonable time of the release of this decision, then we would understand why HMRC might retain the documents and information, pending the decision of the Tribunal to grant the third party notice. However, in the interim HMRC could not rely upon or use the information obtained by the Information Notice.
185. We note that this Tribunal does not have any power to require HMRC to return documents, and in the event that HMRC should fail to do so, [the claimant] would need to pursue its remedy either by judicial review in the High Court (which could be transferred to the Upper Tribunal), or through the Revenue Adjudicator."
Aftermath of Tribunal's decision
HMRC'S criminal investigation
Information notices and appeals against them
"(c) to the officer of Revenue and Customs by whom the information notice was given."
On an appeal the tribunal may set aside the information notice itself or the requirement contained in it: para. 32(3)(c). Paragraph 32 adds:
"(5) Notwithstanding the provisions of sections 11 and 13 of the Tribunals, Courts and Enforcement Act 2007 a decision of the tribunal on an appeal under this Part of this Schedule is final.
(6) Subject to this paragraph, the provisions of Part 5 of TMA 1970 relating to appeals have effect in relation to appeals under this Part of this Schedule as they have effect in relation to an appeal against an assessment to income tax."
"(1) Subject to the provisions of this section, where a person gives notice of appeal and, before the appeal is determined by the tribunal , the inspector or other proper officer of the Crown and the appellant come to an agreement, whether in writing or otherwise, that the assessment or decision under appeal should be treated as upheld without variation, or as varied in a particular manner or as discharged or cancelled, the like consequences shall ensue for all purposes as would have ensued if, at the time when the agreement was come to, the [tribunal] had determined the appeal and had upheld the assessment or decision without variation, had varied it in that manner or had discharged or cancelled it, as the case may be."
Penalties regarding information notices
"47 Right to appeal against penalty
A person may appeal against any of the following decisions of an officer of Revenue and Customs–
(a) a decision that a penalty is payable by that person under paragraph 39, 40 or 40A, or
(b) a decision as to the amount of such a penalty".
"(3) …the First Tier Tribunal may confirm or cancel the decision."
"(3) If the appellant notifies the appeal to the tribunal, the tribunal is to decide the matter in question."
"38… Under s.49D(3) TMA, the FTT's jurisdiction is to decide "the matter in question", and under para 48(3) of sch 36, the FTT is limited to confirming or cancelling the decision. The matter in question on an appeal under para 47(a) is whether "a penalty is payable by that person [that is, the appellant] under paragraph 40". That seems to us to be the same question as whether "the person is liable to a further penalty" under para 40(2), which in turn depends on whether the requirements of para 40(1) are met. In other words, the FTT's jurisdiction on an appeal under para 47(a) is in our view confined to asking whether the statutory requirements under para 40(1) are met.
39 That means that the FTT cannot on an appeal under para 47(a) review the decision of the HMRC officer on any other grounds. In the present case the appellant partnerships wished the FTT to review the decision on the grounds that it was unfair to issue the penalties because they had a legitimate expectation of deferring any further penalties. That does not seem to us to be an issue which goes to the matter in question on an appeal under para 47(a).
40 We have reached this conclusion simply as a matter of construction of the relevant statutory provisions…"
"42…[A]s we read the legislation, para 47(a) does not confer a right of appeal against the discretionary decision of an HMRC officer under para 46(1)(a) to assess the penalty. Instead para 47(a) only confers a right of appeal against the decision that a penalty is payable under paras 39, 40 or 40A. Under para 46(1) HMRC can only assess the penalty when a person becomes liable for a penalty under paras 39, 40 or 40A , so the question whether the person has become so liable is a pre-condition to the exercise of the para 46(1) powers. Para 47(a) confers a right of appeal against the officer's decision that that pre-condition has been met, but that is simply a question of whether the requirements in para 40 have been satisfied."
Managed service companies
TRIBUNAL'S FINDING RE INFORMATION NOTICE
Section 54 TMA 1970
Issues in a penalties appeal
GROUNDS OF JUDICIAL REVIEW
Article 8 ECHR
" Any breach of section 15 or 16 [Police and Criminal Evidence Act 1984] renders the issue and/or execution of the relevant warrant unlawful (see paragraph 40 above); and, on the principle that a person should not profit from his own wrong, that imposes an obligation on the agency of the State that has obtained documents to return all of the material seized and not use any work product derived from that material, such as copies. That would apply even if the error in the application (as reproduced in the warrant) was small, and immaterial in the sense that, had the application contained the correct information, the court would in any event have issued a warrant."