App Accounting Group Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 25 January 2024 |
| Neutral Citation | [2024] UKFTT 100 (TC) |
| Court | First-tier Tribunal (Tax Chamber) |
[2024] UKFTT 100 (TC)
Tribunal Judge Robin Vos
First-Tier Tribunal (Tax Chamber)
Procedure – Application to be joined as a party – Appeals against tax liabilities under managed service company legislation in Chapter 9 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003 – Application by alleged managed service company provider to be joined as a respondent – Rules 9(2)–9(4) First-Tier Tribunal (Tax Chamber) Rules – Application allowed.
[1] This is the decision of the Tribunal in respect of applications made by The App Accounting Group Limited (TAAG) to be joined as a respondent to the appeals made by each of Uberdev Limited (Uberdev) and Rosetta Software Limited (Rosetta).
[2] The hearing took place by video using the Tribunal's Video Hearing System. Prior notice of the hearing had been published on the gov.uk website, with information about how representatives of the media or members of the public could apply to join the hearing remotely in order to observe the proceedings. As such, the hearing was held in public.
[3] I announced at the end of the hearing that the applications would be allowed and briefly explained my reasons. This is written record of my decision.
[4] Uberdev and Rosetta are personal service companies which are both clients of TAAG. HMRC's position is that they are both managed service companies within the meaning of section 61B Income Tax (Earnings and Pensions) Act 2003 (ITEPA) and so they have issued determinations under regulation 80 of the Income Tax (Pay As You Earn) Regulations 2003 (the PAYE Regulations) to Uberdev and Rosetta in relation to tax liabilities which they say are due under the managed service companies legislation in Chapter 9 of Part 2 of ITEPA. The amount involved in respect of Rosetta is approximately £21,000. For Uberdev, the amount is just over £28,000.
[5] In order to be a managed service company, one of the requirements (in section 61B(1)(d) ITEPA) is that an MSC provider is "involved with" the company. An MSC provider is a person who carries on a business of promoting or facilitating the use of personal service companies.
[6] HMRC say that, in the case of Uberdev and Rosetta, TAAG is an MSC provider and that TAAG was involved with each of Uberdev and Rosetta within the meaning of section 61B(2) ITEPA.
[7] TAAG has over a thousand other clients to which HMRC have issued regulation 80 Determinations on a similar basis, some of which I am told have also made appeals to the Tribunal. Although no direction as to lead cases has been made under rule 18 of the Tribunal Rules, Ms Dhanoa (appearing for HMRC) confirmed that HMRC intended to apply for such a direction and acknowledged that, if a direction is made, it may well be the case that the appeals made by Uberdev and Rosetta will be designated as the lead cases.
[8] On 17 February 2023 and 3 March 2023, TAAG made applications to be joined as a respondent to the appeals made by Uberdev and Rosetta on the basis that it has a significant interest in the outcome of the appeals (as it can in certain circumstances be made liable to pay the tax due from Uberdev and Rosetta if it is in fact an MSC provider) and that it is in the best position to provide evidence and submissions as to whether it is an MSC provider as well as being able to assist in relation to the question as to whether, if it is an MSC provider, it was “involved with” Uberdev and Rosetta.
[9] The representative acting for Uberdev and Rosetta observed the hearing of the applications made by TAAG to be joined as a respondent but took no part in it. They had previously provided a letter questioning whether adding TAAG as a respondent would add anything over and above what might be gained by simply asking TAAG to provide witness evidence but ultimately confirmed that Uberdev and Rosetta did not object to the applications in principle.
[10] On the other hand, HMRC do object to the applications. Their position is that it would be sufficient for TAAG simply to provide evidence should it be thought that this would be helpful and that there is no need for it to become a party to the proceedings.
[11] In particular, they say that TAAG has no direct financial interest in the outcome of the appeals and that adding it as a party will add complexity and cost as well as delay matters.
[12] HMRC also refer to separate judicial review proceedings initiated by TAAG in 2022 in which it challenged HMRC's decision that it was an MSC provider. They submit that it would be an abuse of process for TAAG, in effect, to be allowed to make another challenge to that decision by being added as a party to the appeals made by Uberdev and Rosetta.
[13] The Tribunal's power to add a party as a respondent is contained in rule 9(2) of the Tribunal Rules. Any person who is not a party may apply to be added (rule 9(3)).
[14] The Tribunal Rules do not impose any conditions which must be satisfied before a party may be added as a respondent. Nor do the Rules giver any guidance as to what factors should be taken into account. Essentially, this is a case management decision (see the decision of the Upper Tribunal in Pierhead Drinks Ltd v R & C Commrs[2019] BTC 504 at [31]) to be taken in accordance with the overriding objective of dealing with cases fairly and justly set out Rule 2 of the Tribunal Rules. The need to focus on the interests of justice was stressed by the Tribunal in MCashback Software 6 LLP[2013] TC 03061 at [85].
[15] Although the Upper Tribunal in Pierhead did not need to decide the point, it commented at [31] that it is unlikely that the First-tier Tribunal would add a person as a respondent unless the outcome of the appeal would have some direct effect on that person. Typically this would be as a result of some financial interest in the outcome of the appeal but it might also be some other effect such as reputational damage or the ability to conduct business.
[16] This is however only one (albeit an important) factor to be taken into account. It is necessary for the Tribunal to consider all other relevant circumstances in reaching its decision.
[17] Mr Mullan (appearing for TAAG) also referred the Tribunal to the decision of the High Court in AerCap Ireland Limited v AIG Europe SA [2023] EWHC 96 (Comm). In that case, a claim was made against two insurers under an insurance policy both on their own behalf and, in a representative capacity, on behalf of all the insurers potentially liable under the policy. One of the insurers which was not a party applied to be joined as a party as it wished to conduct its own defence rather than being represented by the two insurers who had been chosen as defendants.
[18] Mr Mullan (appearing for TAAG) also referred the Tribunal to the decision of the High Court in AerCap Ireland Limited v AIG Europe SA [2023] EWHC 96 (Comm). In that case, a claim was made against two insurers under an insurance policy both on their own behalf and, in a representative capacity, on behalf of all the insurers potentially liable under the policy. One of the insurers which was not a party applied to be joined as a party as it wished to conduct its own defence rather than being represented by the two insurers who had been chosen as defendants.
[19] However, Mr Mullan observed that, in AerCap, Butcher J referred at [25] to the decision of Mann J in LB Holdings Intermediate 2 Limited v Lehman Bros Holdings Scottish LP 3 [2018] EWHC 2017 (Ch), a case where the financial interest of the entity applying to be joined as a party was only indirect. Mann J considered at [11] that, in the context of the relevant civil procedure rule (CPR 19.2(2)) the question to be asked is whether the proposed party “can, or might with sufficient certainty, be able to bring something to the party without at the same time imposing any unnecessary, unfair or disproportionate burdens on the other parties to the proceedings”.
[20] Although the civil procedure rules are different in that there is a threshold requirement before a party can be added, Mann J had decided that the threshold was met and his comment was made in the context of the exercise by the Court of its discretion as to whether or not to add the applicant as a party. This is very similar to the exercise by the Tribunal of its discretion in this case and, in my view, the question proposed Mann J is a relevant factor to take into account in deciding whether a party should be added where the interest of the party seeking to be added is not direct or immediate.
[21] Bearing these principles in mind, I will now turn to the key considerations which have led me to conclude that it is in the interest of justice for TAAG to be...
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