Upper Tribunal (Administrative Appeals Chamber)

 

 

DECISION ON THE APPEAL OF THE UPPER TRIBUNAL

(ADMINISTRATIVE APPEALS CHAMBER)

 

The DECISION of the Upper Tribunal is to allow the appeal by the Appellant.

 

The decision of the Chester First-tier Tribunal dated 27 February 2014 under file reference SC065/13/03493 involves an error on a point of law. The Tribunal’s decision is therefore set aside.

 

The Upper Tribunal is in a position to re-make the decision on the Appellant’s appeal against the original decision of Her Majesty’s Revenue and Customs (HMRC) dated 25 February 2013. The decision that the First-tier Tribunal should have made is as follows. The Upper Tribunal re-makes the decision accordingly:

 

The Appellant’s appeal against the HMRC decision dated 25 February 2013 is allowed.

 

As at the date of the decision under appeal, there were no grounds for holding that the Appellant did not satisfy the entitlement conditions for working tax credit (WTC) as at 6 April 2012.

 

The HMRC decision dated 25 February 2013 to contrary effect is set aside accordingly.

 

This decision is given under section 12(2)(a) and 12(2)(b)(ii) of the Tribunals, Courts and Enforcement Act 2007.

 

 

 

 

REASONS FOR DECISION

 

Introduction: another fine tax credits mess

1. This is (regrettably yet another) tax credits case involving a poorly assembled written response by Her Majesty’s Revenue and Customs (HMRC) to a claimant’s appeal to the First-tier Tribunal (FTT) against a decision to shut down her tax credits claim.

 

2. Unfortunately that problem was compounded when the FTT failed to identify whether there was any proper basis for the HMRC decision. The FTT therefore erred in law in dismissing the Appellant’s appeal. I now allow her appeal to the Upper Tribunal, set aside the FTT’s decision and replace it with a decision that in turn allows the Appellant’s appeal to the FTT, so setting aside the original HMRC decision in issue.

 

The First-tier Tribunal decision

3. On the day of the hearing, the FTT issued a decision notice containing summary reasons for dismissing the appeal. The main passage read as follows:

 

‘The Tribunal considered the whole of the evidence. The appellant had not supplied to HMRC the information requested in its letter dated 15/04/2013 nor had she supplied any documents relevant to the information requested. No documentation of relevance was produced today and the appellant had still not replied to the letter. No persuasive or creditable reasons were advanced for the failure to supply the information and accordingly the tribunal was unable to conclude that the decision made on 25/02/2013 was incorrect and the appeal accordingly failed.’

 

The grant of permission to appeal to the Upper Tribunal

4. I gave the Appellant permission to appeal on the papers. In doing so I commented as follows:

 

‘1. The grounds of appeal are arguable, which is enough at this stage.

 

2. The history of the case is by no means clear but it seems that on a renewal claim tax credits were awarded for the 2012/13 tax year but then withdrawn in February 2013 with retrospective effect, creating a recoverable overpayment (which is itself by law not appealable, although there is a right of appeal on the entitlement issue).

 

3. I note that when HMRC submitted the appeal to the First-tier Tribunal (FTT) there was a request that the appeal be struck out (p.B, paragraph 5.8). There is, however, no suggestion that the rule 8(4) procedure was adopted. Indeed, the FTT does not appear to have noted or dealt with that HMRC application at all, which in itself may be an arguable error of law – although, of course, it is not one that would perhaps assist the Appellant in any event.

 

4. The HMRC submission to the FTT is, to put it mildly, light if not slight. There is no reference or citation of any legislation relied on by HMRC. Presumably (but this is supposition on my part) HMRC was relying on section 16 of the Tax Credits Act 2002. HMRC plainly has the power to terminate a tax credits award under s.16(1) where it has reasonable grounds for believing certain matters to be the case. Alternatively, if it thinks that such matters in s.16(1) “may” be the case, then by s.16(2) and (3)(a) HMRC may issue the claimant with a notice requiring information or evidence. However, as I understand it, there is no power to disallow tax credits for a simple failure to provide information – rather, the HMRC decision maker must actually decide the issue arising under s.16(1).

 

5. It may be – but is unclear – that this appeal was a case in which the s.16(2) procedure was adopted. Alternatively the matter may have been approached on some more informal basis. Be that as it may, the FTT’s task was surely to decide whether or not the Appellant was working 16 hours a week at the material time, in either/or/both as a holistic therapist and/or carer. It is by no means clear to me that the FTT addressed itself to that question and made the necessary findings of fact on that issue.

 

6. Bizarrely, the FTT’s decision notice appears to uphold an HMRC decision taken in February 2013 on the basis of an apparent failure to provide information in response to a HMRC letter in April 2013. On the face of it this finding put the cart before the horse and was simply irrational.

 

7. I would add that the FTT office appears to have included the Appellant’s letter of appeal in the case papers in a jumbled and so confusing order – the correct pagination sequence seems to be pages 14, 16, 15, 17 and then 18.

 

8. On one reading these problems with this FTT decision are so manifest – doubtless in part because of the inadequate presentation of the case by HMRC – that the simplest thing is for me to propose to allow the appeal and send the case back for re-hearing before a fresh FTT. I could simply give the parties one month to agree to that course of action without further ado. However, assuming the matter is to go back, I think it would be helpful to have a more considered HMRC view as to the issues that the FTT must grapple with (and the sort of evidence the Appellant might be asked to provide). For that reason I am directing sequential submissions.’

 

The HMRC response to the appeal before the Upper Tribunal

5. The HMRC representative (Mr D P Eland), with his customary fairness, supports the Appellant’s appeal to the Upper Tribunal. It is unfortunate that the original HMRC response to the FTT below failed to show the same forensic and legal skills as Mr Eland has demonstrated at this level.

 

6. Mr Eland argues that the HMRC submission to the FTT in the present case shares many, if not all, of the same faults as those identified by Judge Wright in SB v HMRC (TC) [2014] UKUT 543 (AAC). As Mr Eland frankly concedes in his written submission to the Upper Tribunal (at paragraph 4):

 

“The net effect in the present case is that the tribunal was left completely unaware of the issue it needed to decide, and instead proceeded on the basis that HMRC’s decision under appeal must have been correct because the claimant had failed to provide evidence pursuant to a request made only after that decision was given.”

 

7. Mr Eland’s summary in the paragraph above only needs to be re-read to appreciate the full enormity of what went wrong in this case. In short, the FTT well and truly grabbed the wrong end of a stick which had itself been wrongly proffered to it by HMRC. The result is a FTT decision and a statement of reasons which simply cannot stand, despite running to four sides of dense printed text.

 

8. Mr Eland’s own detective work is such that I am in a position to allow the Appellant’s appeal and remake the FTT decision rather than waste time and money by sending the case back for a new hearing at the FTT. The relevant parts of Mr Eland’s analysis bear quoting at some length:

 

‘6. The claimant was receiving an award of working tax credits in the 2012/2013 tax credit year. This was on the basis that she was normally working 16 hours a week[1]. On 11 February 2013, the claimant contacted the Tax Credits Helpline about a matter. Following something that was apparently said during the course of that conversation, the Helpline operator terminated the claimant’s award on the basis the “hours condition” for working tax credit had not been satisfied since 6 April 2012. It is this decision that was under appeal. The record shows that the decision was formally notified on 25 February 2013.

 

7. The claimant appealed against the decision (page 2). In her appeal, she stated that she did maintain 16 hours of work, and that she could evidence that. The claimant was asked to provide that the evidence in HMRC’s letter of 15 April 2013 (pages 6-8).

 

8. Thereafter, the focus in this case shifted to whether the claimant had provided the evidence requested in the letter of 15 April 2013. From the tribunal’s statement of reasons it is clear that the continued absence of the evidence requested in that letter was a significant aspect of the tribunal’s decision.

 

9. I submit that this is where the error in law lies. HMRC’s decision under appeal was given under section 16(1)(b) of the Tax Credits Act 2002. This has some significance vis a vis the question to be determined on appeal, and the respective roles of the parties to the appeal. As the Judge in SB put it:

 

“8. Section 16(1)(b) provides, so far as is material, that:

‘where at any time during the period for which an award of tax credit is made to a person…[HMRC] have reasonable grounds for believing that [the person] has …ceased to be, or never been entitled to tax credits for the period, [HMRC] may decide to amend or terminate the award.’

9. The focus thus for HMRC in its appeal response was on why it had reasonable grounds for believing that the appellant had never been entitled to tax credits (as a single person). Standing in HMRC’s shoes on the appeal, that was also the focus for the tribunal: paragraph 34 of CTC/3981/2005. However, the test is whether there were reasonable grounds for the belief at the time the section 16 decision was made: see paragraph 36 of CTC/3981/2005. Of course, evidence that is provided after the date of the section 16 decision may still be relevant to the time the decision was made and whether there were reasonable grounds for believing at that time.

10. …….

11. However, given the onus of proof rests  squarely on HMRC under section 16, in my judgment the correct starting point was that it was for HMRC to make good the evidential basis for the ‘reasonable grounds for believing’ statutory test it was seeking to rely on. Conversely, the starting point was not for the appellant to show that the award had been properly made…..She had an award made pursuant to section 14 of the Tax Credits Act 2002 and that award remained valid and lawful unless and until, here, properly terminated under section 16.”

10. In my submission, in approaching the appeal in the way that it did, HMRC failed to discharge the burden of proof that was upon it. In particular, there was no explanation at all for the decision that had been taken. And whilst it may well be that the claimant could have done a better job of undermining the decision by providing further evidence, there was no compulsion on her to do so. In those circumstances, and on the limited information about the decision that was available, I submit that there was only one possible outcome for the tribunal on 27 February 2014. This was that:

As at the date of the decision under appeal there were no grounds for holding the appellant did not satisfy the entitlement conditions for working tax credit as at 6 April 2012, and HMRC’s decision to contrary effect notified on 25 February 2013 is set aside.

11. On that basis, I respectfully suggest that the tribunal’s decision in this case should be set aside. I also invite the Judge dealing with the present appeal to give the final decision in this case, the terms of which are set out in the preceding paragraph.’

 

The Upper Tribunal’s disposal of the appeal

9. I agree with Mr Eland. I therefore allow the Appellant’s appeal to the Upper Tribunal for the reasons identified in my original grant of permission of appeal and now supported by and indeed elaborated upon by Mr Eland for HMRC.

 

Conclusion

10. I therefore allow the Appellant’s appeal, set aside the First-tier Tribunal’s decision as involving an error of law (Tribunals, Courts and Enforcement Act 2007, section 12(2)(a)) and re-make the FTT’s decision under section 12(2)(b)(ii) of the same Act in the terms as set out at the head of these reasons.

 

11. This is not the first time that the Upper Tribunal has had cause to make adverse comment on the standard of HMRC appeals responses filed with the First-tier Tribunal. The simple fact is that, as regards this aspect of its work, if HMRC were an educational establishment it would now be in special measures.

 

Signed on the original Nicholas Wikeley

on 21 April 2015 Judge of the Upper Tribunal