Upper Tribunal (Administrative Appeals Chamber)

IN THE UPPER TRIBUNAL Case No. CTC/636/2014

ADMINISTRATIVE APPEALS CHAMBER

Before Upper Tribunal Judge Rowland

Decision:

The claimant’s appeal is allowed. The decision of the First-tier Tribunal dated 28 August 2013 is set aside and the case is remitted to a different judge of the First-tier Tribunal to be re-decided.

Directions:

HMRC must send to the First-tier Tribunal within one month of being sent a copy of this decision –

(a) notice of a determination under section 39A to treat, or not to treat, the claimant’s appeal as being in time;

(b) a submission as to whether the claimant’s appeal should be treated as being an appeal against a decision that he was not entitled to tax credits in 2011-2012;

(c) copies of all documents in its possession that have not already been provided to the First-tier Tribunal but are relevant to the case, including in particular details of the information provided by the claimant on his claims for tax credits made in 2010 and 2011.

The claimant must send to the First-tier Tribunal within one month of being sent a copy of this decision –

(a) any payslips, P60, P11d or other evidence of his earnings and the hours he worked in 2010-2011 that he has in his possession or can obtain from his accountants;

(b) evidence of any dividend income received in 2010-2011;

(c) copies of the accounts of Kandi Bar and Grill Ltd covering any part of that year and evidence as to the date when that company started trading.

These directions may be varied by the First-tier Tribunal. Therefore, any request by either party for an extension of time should be sent to the First-tier Tribunal.

REASONS FOR DECISION

1. This is an appeal against a decision of the First-tier Tribunal dated 28 August 2013 whereby, in the claimant’s absence, it dismissed his appeal against a decision by HMRC to the effect that he was not entitled to working tax credit during 2010-2011 because he was not in remunerative work.

2. On a date not recorded in the documents before me, the claimant was awarded working tax credit amounting to £2,715.60 for the year 6 April 2010 to 5 April 2011. After the end of that year, his case was selected for review and he was sent a letter by HMRC dated 20 September 2011 asking him to send in respect of only the period 1 January 2011 to 5 April 2011 “Your Self-employment details” and bank and building society statements. HMRC did not receive a reply and, on 24 October 2011, a compliance control adviser in an office in Cambridge wrote saying –

“I have made a decision that I do not accept that you are working for payment or in expectation of payment for at least 30 hours each week since 05/04/2010. I have made my decision as you have not supplied the evidence requested in my letter of 20/09/2011. I have adjusted your claim as a result.

You will soon receive an award notice detailing your tax credits for 2010-11.”

3. Final decision notices appear to have been sent on both 26 October 2011 and 8 February 2012. Following receipt of the second of them, the claimant telephoned HMRC on 22 February 2012 asking which documents he had to send to HMRC as he had previously been asked to supply documents relating to self-employment even though he was a company director. He was told that he would be sent an appeal form, although he would have to give reasons for lateness, and was advised to send payslips, P60, P11d and any other evidence of dividend income, pay or hours worked.

4. As was required at that time, the claimant submitted his notice of appeal dated 1 May 2012 to HMRC. He said that he had been a director of Kandi Bar and Grill Ltd, that he had had to reduce staff hours but still worked 30 hours a week himself and that the company had never made a profit and he was getting only £80 per week. He said that further details were available from his accountants, whom he named.

5. In a letter dated 14 May 2012 from an HMRC office in Croydon, the claimant was informed that the Cambridge office had closed and that the appeal had been forwarded to Croydon. The letter sought more information, saying –

“You have stated in your appeal that your business is now a coffee shop opening a few hours in the evening. Can you please confirm your business Kandi Bar & Grill is now closed or is the coffee shop in addition?”

6. On 17 May 2012, the claimant telephoned HMRC and a record of the call states that the claimant said that his company’s main business ceased on 31 December 2011 but it was now trading under the same name as a coffee shop open from 6pm to 9pm, six days a week. The claimant said that, as he had to prepare for opening and then clean up after closing, he worked from 5pm to 10pm, six days a week. He was told that the information would be forwarded to the Appeals team who would review the case and write to him.

7. On 21 May 2012, HMRC wrote to the claimant, saying –

“I refer to your appeal dated 01.05.2012.

Our decision to end your single claim is based on the following:

·         You failed to respond to our original letter dated 20.09.2011.

·         No supporting information sent with your appeal to confirm entitlement to Working Tax credits.

I have considered the information provided in your appeal of 1 May 2012 but out decision stands. Please consider my reasons and let me know by 4 June 2012 whether or not you wish to continue with your appeal. If you decide not to go ahead with your appeal you will need to withdraw it either verbally or in writing otherwise your appeal will go through to a tribunal and you will be required to provide supporting evidence.”

The claimant says that he did not receive that letter but, in any event, it is common ground that he did not reply to it.

8. 4 June 2012 came and went and HMRC did nothing in relation to the appeal until 15 May 2013, when HMRC sent to the First-tier Tribunal a two-page submission and ten other pages of documents consisting only of the claimant’s notice of appeal, the HMRC letters dated 20 September 2011 and 24 October 2011, two computer screen prints dated 8 May 2013 and 14 May 2013 showing the issuing of the two “final decision notices”, a note of the telephone call from the claimant on 22 February 2012, the letter from HMRC dated 14 May 2012, the note of the telephone conversation dated 17 May 2012 and the letter from HMRC dated 21 May 2012. In Section 3 of the submission, it was explained that HMRC did not keep copies of decisions issued to claimants and that that was why only screen prints had been provided.

9. In Section 4 of the submission, it was said –

“The Appeal

The appeal was not received within the 30-day time limit for appealing but is accepted by HMRC and is attached to this response at pages 1 and 2.

Note that the regulations governing the administration of tax credits differ from those covering Social Security benefits in that HMRC may accept a late appeal themselves.

Tax Credits (Appeals)(No.2) Regulations 2002, reg.5”

10. I observe that, even had the 2002 Regulations (SI 2002/3196) been in force and valid at that time, the claimed distinction with social security case was misconceived because regulation 5 of those Regulations was in very similar terms to, and was clearly based on, regulation 32 of the Social Security and Child Support (Decisions and Appeals) Regulations 1999 (SI 1999/991). (Regulation 32 of the 1999 Regulations has now been revoked because it has been recognised that it merely served to limit the Secretary of State’s power to admit a late appeal, when he could achieve, without any similar limitation, the same effect under the Tribunal Procedure (First-tier Tribunal) (Social Entitlement Chamber) Rules 2008 (SI 2008/2685) by simply not raising any objection to the appeal being admitted (see now rule 22(8)(a) and formerly rule 23(4)).

11. Section 5 of the submission set out the facts and then paragraphs 10 and 11 said –

“10. The Tribunal Procedure Rules allow the Tribunal to strike out any appeal if it considers there is no reasonable prospect of the appellant’s case, or part of it, succeeding.

The Tribunal Procedure (First-tier Tribunal) (Social Entitlement Chamber) Rules 2008, rule 8(3)(c)

11. I respectfully request the tribunal agree to strike out the appeal on the basis that the appellant has failed to make any contact regarding how he wish (sic) to proceed with the appeal.”

12. The notification document sent to the First-tier Tribunal but not usually copied to an appellant said, under the heading “Any other information” –

“HMRC respectfully request the tribunal to strike out the appeal as without contact from the appellant they are unable to proceed with the appeal.”

13. However, it is not clear that the First-tier Tribunal ever noticed that there was an application for the appeal to be struck out. In the normal way, it sent the claimant a form asking whether he wanted an oral hearing and, when the claimant did not reply, it sent him a reminder dated 6 June 2013. The claimant seems to have returned that letter – possibly at the same time as he returned the questionnaire saying that he did not want an oral hearing – with a note on the back, saying –

“Please note that in the original letter it stated that a letter was sent on the 21^st May 2012 asking how I wanted to proceed and that no reply had been given. This was because I never received this letter. Also the reason for this appeal was that when I renewed my credits they asked if I was employed or self-employed. I said I’m employed but when the original claim was done over the telephone the agent must have put self-employed by mistake. Hence the reason this is all happening and I’ve been short of money for over a year now because of this clerical error.”

14. Both parties having said that they did not want a hearing, the case was listed for determination on the papers on 5 July 2013. However, the case was adjourned on that date on the ground that it was necessary for both parties to attend for the case to be dealt with properly. On 17 July 2013, the claimant telephoned to say that he would attend a hearing and on 29 July 2013, the parties were informed that the hearing would take place on 28 August 2013.

15. At that hearing, HMRC was represented but the claimant did not appear and the First-tier Tribunal decided to proceed in his absence and dismissed his appeal. The claimant then wrote to the First-tier Tribunal, saying that a letter he had received, had told him to bring to the hearing “the set of papers relating to your appeal” and that he had then tried to contact HMRC but “[a]s I didn’t receive any information to take with me to court I didn’t go to court”. That was treated as an application for the setting aside of the decision but it was refused. The claimant then asked for a full statement of reasons for the decision and, when he received it, for permission to appeal, which was refused by the First-tier Tribunal but granted by me.

16. When I granted permission to appeal, I said –

“My only reason for granting permission to appeal is that it appears possible that the claimant was never sent the papers for the case and this may illustrate a systemic problem. The Respondent applied for the appeal to the First-tier Tribunal to be struck out (paragraph 11 of section 5 of its response to the appeal). I am not sure that the First-tier Tribunal ever noticed that application but, if it did, it did not act on it and so the case proceeded to a full hearing. However, if the Respondent was asking for the appeal to be struck out, there arises the question whether it ever sent the response to the claimant or whether it left the First-tier Tribunal to do so. The First-tier Tribunal did not do so.

This is only relevant because the claimant says that he did not attend the hearing because he had not got the papers and was unable to get them from the Respondent.

It may also be arguable that the point is anyway irrelevant because, if he could not obtain the documents, the claimant should have informed the First-tier Tribunal who could have sent him a copy of postponed the hearing or even given him a copy on the day of the hearing. It was ultimately the claimant’s choice not to attend the hearing. If there was no prior procedural unfairness, it currently seems to me that the First-tier Tribunal was perfectly entitled to hear the appeal in the claimant’s unexplained absence and was entitled to reach the decision it did for the reasons it has given.”

17. In his helpful response on behalf of the Respondent, Mr Eland accepts that the submission and documents that HMRC sent to the First-tier Tribunal were not sent by HMRC to the claimant. He also accepts that the claimant telephoned HMRC on 16 August 2013 saying that he had received a letter from the First-tier Tribunal that directed him to bring the appeal paperwork to the hearing and asking HMRC to either send him the documents or call him back and that there was no record of HMRC having done either of those things. He therefore concedes that there was “a procedural error that could well justify setting aside the tribunal’s decision”, subject to another consideration which is a question as to whether the First-tier Tribunal had jurisdiction to hear the appeal at all in view of the apparent lateness of the appeal.

18. I accept the concession. I had wondered whether the note written by the claimant on the back of the letter of 6 June 2013 indicates that in fact he had received the bundle of documents for the appeal and that the reference to the “original letter” was a reference to the submission. However, in his application to the Upper Tribunal for permission to appeal he refers to having received a letter from HMRC dated 14 May 2013, the day before the documents were sent to the First-tier Tribunal, saying that they had unsuccessfully tried to contact him by telephone (which was not said in the submission). In view of what Mr Eland says, it seems likely that that was the “original letter” and that it was not accompanied by the bundle of documents.

19. Moreover, in my judgment, the bundle of documents did not contain all the information one would expect in a response to an appeal. This may be because it was not really intended to be such a response but only to be an application for the appeal to be struck out but, if that was the case, one might have expected HMRC to provide the balance of the information when it was plain that there was to be a hearing.

20. Indeed, the more one looks at such evidence as there was, the more HMRC’s handling of the case seems to have been inadequate. The period said to be in issue ran from 6 April 2010 to 5 April 2011, yet the letter of 20 September 2011 asked the claimant to provide only information in respect of the last quarter of that period and, as the claimant has pointed out, asked only for evidence of self-employment and not also of evidence of employment. Perhaps the period was dictated by the claimant having made his original claim with effect only from 1 January 2011, but that merely serves to highlight the point that HMRC failed to provide to the First-tier Tribunal any details of the original claim on which the award was based. Even if HMRC’s records showed the claimant as having said that he was in self-employment – which, quite apart from the possibility of clerical error by HMRC could well be due to an understandable error of classification by a claimant – it seems odd that HMRC did not ask for evidence of all types of employment when reviewing his award. Moreover, the requests for further information made on 14 May 2012 and on the telephone on 17 May 2012 were about events after the end of the relevant period and the claimant was never asked in writing to provide the documents mentioned in the telephone conversation on 22 February 2012. It is particularly surprising that no question appears to have been asked on 17 May 2012 about the nature and extent of the claimant’s work in 2010-2011 if the main point of seeking further evidence was to see whether an appeal could be avoided. The claimant’s failure to reply to the letter of 21 May 2012 plainly did not justify HMRC sitting on the appeal for a year and to say that they were unable to proceed with the appeal due to a lack of contact with the claimant was nonsense. The lack of response could have been relied upon as a further justification for the decision that was being challenged and the appeal could have been submitted at any time after 4 June 2012.

21. At that time, rule 24 of the 2008 Rules required a respondent to send or deliver to the First-tier Tribunal a response to an appeal “as soon as reasonably practicable after the decision maker received the notice of appeal” and to include with it “copies of all documents relevant to the case in the decision maker’s possession”. It also requires that the decision maker “must provide a copy of the response and any accompanying documents to each other party at the same time as it provides the response to the Tribunal.”

22. An application for the striking out of an appeal can be distinguished from a response to an appeal but, except where providing a full response would clearly be disproportionate, there are several reasons why an application for the striking out of an appeal under rule 8(3)(c) on the ground that it has no prospects of success should be accompanied by a full response and should be copied to the claimant. First, it is obviously difficult for the First-tier Tribunal to decide whether an appeal has any prospects of success unless it has a substantial amount of information about the merits of the appeal. Secondly, rule 8(4) requires the First-tier Tribunal to give the appellant an opportunity to make representations in relation to the proposed striking out and the claimant needs a copy of the application in order to make effective representations. Striking an appeal out rather than determining it is not likely to be justified unless there will be a saving of time and money and requiring the First-tier Tribunal to send the claimant the application rather than the decision maker doing it is likely to be both time-consuming and more costly. Thirdly, and again in the interests of saving time and money, the provision of a response with an application for striking out enables the First-tier Tribunal to proceed to list the case for determination straightaway if not minded to strike it out.

23. In any event, the application for the appeal to be struck out under rule 8(3)(c) was plainly inappropriate in this case. The claimant could have succeeded in his appeal if he produced to the First-tier Tribunal the evidence that he had been asked to produce. It would have been more appropriate for HMRC to ask the First-tier Tribunal to issue a direction requiring the claimant to produce material documents with a warning that his appeal might be struck out under rule 8(3)(a) if he failed to do so. However, it would obviously have been sensible for HMRC itself first to have asked in writing for the material documents.

24. Although the First-tier Tribunal was perfectly entitled to proceed in the claimant’s unexplained absence and to reach the decision it did on the evidence before it for the reasons it gave, and although the claimant could have attended the hearing notwithstanding that he had not been sent a copy of HMRC’s response to the appeal, the First-tier Tribunal presumably proceeded as it did on the assumption that HMRC had complied with its duty under rule 24 to provide the claimant with a copy of the response to the appeal. Had it known that the claimant had not only not been sent those documents but had also failed in an attempt to obtain them from HMRC, I have little doubt that it would have adjourned again, possibly with a direction that the claimant provide the evidence he had been asked by HMRC to provide. Subject to the question of jurisdiction, I am satisfied that HMRC’s failure to comply with rule 24(5) was a material irregularity in the proceedings

25. In respect of jurisdiction, Mr Eland draws attention to my decision in JI v Commissioners for Her Majesty’s Revenue and Customs (TC) [2013] UKUT 199 (AAC), in which I held that neither the First-tier Tribunal nor HMRC had the power to extend the 30-day time limit for appealing then prescribed in section 39(1) of the Tax Credits Act 2002. In particular, I held the 2002 Regulations to have lapsed.

26. Despite the fact that it had been the intention that both HMRC and the First-tier Tribunal should have had the power to extend the time for appealing and HMRC had understood that that was indeed the position and despite also the fact that HMRC had been well aware that there was a question about the correctness of that understanding long before my decision was signed, the Treasury took nearly a year to fail fully to reverse the effect of my decision. It has only fully reversed the effect of my decision in relation to appeals against decisions given on or after 6 April 2014 (see the Tax Credits, Child Benefit and Guardian’s Allowance Reviews and Appeals Order 2014 (SI 2014/886)). However, the Tax Credits (Late Appeals) Order 2014 (SI 2014/885) (hereinafter “the Late Appeals Order”), which applies to appeals against decisions given before 6 April 2014, is much more limited in its effect. In particular, it fails to confer, or to enable there to be conferred, on the First-tier Tribunal any power to extend the time for appealing. It does, on the other hand, confer power on HMRC to do so and so the limitations may not be fatal in the present case.

27. Article 2 of the Late Appeals Order provides –

“2.—(1) The Tax Credits Act 2002 is amended as follows.

(2) After section 39 (exercise of right of appeal) insert—

“Late appeals

39A.—(1) The Commissioners for Her Majesty’s Revenue and Customs may treat a late appeal under section 38 as made in time where the conditions specified in subsections (2) to (6) are satisfied, except that the Commissioners may not do so in the case of an appeal made more than one year after the expiration of the time (original or extended) for appealing.

(2) An appeal may be treated as made in time if the Commissioners are satisfied that it is in the interests of justice to do so.

(3) For the purposes of subsection (2) it is not in the interests of justice to treat an appeal as made in time unless—

(a) the special circumstances specified in subsection (4) are relevant; or

(b) some other special circumstances exist which are wholly exceptional and relevant,

and as a result of those special circumstances it was not practicable for the appeal to be made in time.

(4) The special circumstances mentioned in subsection (3)(a) are—

(a) the appellant or a partner or dependant of the appellant has died or suffered serious illness;

(b) the appellant is not resident in the United Kingdom; or

(c) normal postal services were disrupted.

(5) In determining whether it is in the interests of justice to treat an appeal as made in time, regard shall be had to the principle that the greater the amount of time that has elapsed between the expiration of the time for appealing and the submission of the notice of appeal, the more compelling should be the special circumstances.

(6) In determining whether it is in the interests of justice to treat an appeal as made in time, no account shall be taken of the following—

(a) that the appellant or any other person acting for the appellant was unaware of or misunderstood the law applicable to the appellant’s case (including ignorance or misunderstanding of any time limit); or

(b) that the Upper Tribunal or a court has taken a different view of the law from that previously understood and applied.

(7) If in accordance with the preceding provisions of this section the Commissioners for Her Majesty’s Revenue and Customs treat a late appeal under section 38 as made in time, it is to be treated as having been brought within any applicable time limit.”.

(3) Where, in respect of a late appeal made on or after 1 April 2013 and before this Order comes into force, the Commissioners for Her Majesty’s Revenue and Customs have before this Order comes into force notified the appellant that they consider the appeal should proceed even though it was not made within the period specified in section 39(1) of the Tax Credits Act 2002, that notification is to have effect after this Order comes into force as a decision under section 39A to treat the appeal as made in time.”

28. That Order had not come into force at the time of the First-tier Tribunal’s decision and, in any event, article 2(3) does not retrospectively validate decisions purportedly made under regulation 5 of the 2002 Regulations before 1 April 2013. Mr Eland therefore submits that the First-tier Tribunal erred in law in proceeding to determine the claimant’s appeal without considering whether it had jurisdiction to do so in the light of the apparent lateness of the appeal and my decision in JI. I agree.

29. The decision against which the claimant was appealing was issued on 8 February 2012 and the claimant’s formal notice of appeal was not sent to HMRC until 1 May 2012. The claimant had not advanced any reason for that apparent delay in appealing but, in the light of their belief that a late appeal could be admitted under regulation 5, HMRC were sensible not to object to the appeal being admitted in view of their own delay in submitting the appeal to the First-tier Tribunal. Its delay could perhaps be regarded as “some other special circumstances … which are wholly exceptional and relevant”. However, in the light of JI, that decision to admit the appeal was unlawful whatever its rationale.

30. Mr Eland rightly accepts that, notwithstanding JI, the First-tier Tribunal could have admitted the appeal after the time limit had expired if the claimant had personally done all that he could do to bring the appeal timeously and there would otherwise have been a breach of Article 6 of the European Convention on Human Rights (see Adesina v Nursing and Midwifery Council [2013] EWCA Civ 818; [2013] 1 WLR 3156) but he argues that the claimant gave no indication that he could not have appealed earlier despite having an opportunity to do so in the standard notice of appeal. That is true, but it is also true that the claimant was not subsequently told that his appeal was out of time and given a further opportunity to address that issue because, of course, both HMRC and the First-tier Tribunal were content to accept that the appeal was within time. It seems unlikely that the claimant would have been able to show that he had done everything he could have done to bring his appeal within time if it was late, but there are other arguments that might have been made had he been asked to explain the apparent delay. Given that before the 2014 Orders were made, neither the First-tier Tribunal nor HMRC had the power to accept a late appeal, it was incumbent on a tribunal to make quite sure that an appeal really was late and that, for instance, it might not be taken to have been an appeal against a later decision (see paragraph 49 of JI) or that some earlier communication with HMRC might not have been taken as a valid appeal. In this case, the claimant had telephoned HMRC within 30 days of the decision being challenged and it might have been necessary to consider whether that could have amounted to notice of appeal, notwithstanding that the notice was not in writing. As far as the requirement in rule 23 of the 2008 Rules for a notice to be in writing is concerned, that could have been waived under rule 7. Whether a breach of the overlapping requirement that a notice of appeal be in writing in regulation 2(2)(a) of the Tax Credits (Notice of Appeal) Regulations 2002 (SI 2002/3119) necessarily invalidates a notice is a point that may need to be considered on another occasion.

31. However, many appeals were simply stayed to await legislation to reverse the effect of JI and it seems to me that, had the First-tier Tribunal thought there was any merit in the claimant’s case and that it was necessary to consider the effect of JI, it might well have taken that course of action. Had it done so, there seems no reason why, although HMRC’s previous decision to admit the appeal was not validated by article 2(3) of the Late Appeals Order because the appeal was made before 1 April 2013, HMRC should not have made a new decision to the same effect in exercise of its new power under section 39A of the 2002 Act, inserted by article 2(1) and (2) of the Order, which effectively reproduces the effect of regulation 5 of the 2002 Regulations. Nor, it seems to me, is there any reason why HMRC should not still make such a decision.

32. Therefore, I am satisfied that there is some point in remitting this case to the First-tier Tribunal, both because it might be concluded that the appeal was in time, either as an appeal against the decision of 8 February 2012 or against a decision in April 2012, and because, if it was not, HMRC can still treat it as being in time which, under section 39A(7) would have the effect that “it is to be treated as having been brought within any applicable time limit”.

33. Accordingly, I am satisfied that the First-tier Tribunal’s decision is wrong in law both because HMRC had failed to send the claimant the relevant documents and because the First-tier Tribunal failed to consider whether the appeal was within time. I set aside the decision of the First-tier Tribunal and remit the case to the First-tier Tribunal. I also direct both parties to send to the First-tier Tribunal those documents that they ought already to have submitted.

34. Finally, I add that the claimant has been protesting against the ending of his award of tax credits which appears to have included an award in respect of 2011-2012. There therefore arises the question whether the claimant’s appeal should be treated as an appeal in respect of that year. HMRC’s practice of sending entirely separate letters in relation to different types of decisions in respect of different tax years, notwithstanding that they all arise out of the same dispute, can confuse claimants and sometimes lead to only half the relevant documents being included in bundles sent to the First-tier Tribunal. Accordingly, I direct HMRC to consider whether the claimant should be treated as having appealed against a decision in respect of 2011-2012 and to make a submission to the First-tier Tribunal on that issue. Meanwhile, if the claimant is currently engaged in remunerative employment, there is nothing to stop him from making a new claim for tax credits before the First-tier Tribunal decides this case.

35. My decision and directions are set out on page 1 above.

Mark Rowland

20 February 2015