Beadle
| Jurisdiction | UK Non-devolved |
| Judgment Date | 05 July 2017 |
| Neutral Citation | [2017] UKFTT 544 (TC) |
| Date | 05 July 2017 |
| Court | First Tier Tribunal (Tax Chamber) |
[2017] UKFTT 0544 (TC)
Judge Jonathan Richards
David Ewart QC, instructed by Jefferies Essex LLP appeared for the appellant
Aparna Nathan, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Application for disclosure – Appeal against penalty for non-payment of an accelerated partner-payment notice (PPN) – FA 2009, Sch. 56, para. 13, 15 – FA 2014, s. 226 and Sch. 32, para. 7 − Whether tribunal has jurisdiction to consider HMRC's calculation of tax due under the PPN in appeal against penalty as preliminary issue − No – Application refused.
The First-tier Tribunal (FTT) held, as a preliminary issue, that it did not have jurisdiction in a penalty appeal to determine whether the amount determined as understated partner tax in the PPN was correct or not. Since the application for disclosure of information by HMRC was sought in order to help the applicant make such an argument, the application was therefore refused also.
The applicant, Mr Beadle, was a participant in an Ingenious Film Partners partnership scheme. Within the context of that scheme, he claimed to carry back his share of the partnership's purported trading loss to obtain a repayment of income tax of an earlier year.
HMRC eventually served a PPN on Mr Beadle under FA 2014, Sch. 32, para. 3. He made representations under FA 2014, Sch. 32, para. 5 against the PPN, chiefly on the grounds that HMRC had not followed the correct statutory procedure and that the “understated partner tax” on which the PPN was based, was therefore nil. HMRC rejected his representations, but Mr Beadle made no application for judicial review of their decision, nor did he pay the tax demanded by the PPN. His non-payment gave rise to a penalty for non-payment under FA 2014, s. 226. After HMRC rejected his appeal against that penalty, he appealed to the FTT. As part of that appeal, he made an application under the tribunal Procedure (First-Tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 5(3)(d) for HMRC to disclose information to him concerning the calculation of understated partner tax. HMRC refused, largely on the grounds that the FTT had no jurisdiction to consider the validity of the PPN or the amount claimed under it.
It was agreed that the FTT would rule on the jurisdiction question as a preliminary issue, as the outcome of the disclosure application depended on it.
According to the FTT, it was clear from the statutory provisions for PPNs that there was no statutory right of appeal to a tribunal against a decision by HMRC to issue a PPN or against HMRC's determination of the accelerated partner payment. The issue was therefore whether the tribunal had jurisdiction within the context of an appeal against a penalty notice for non-payment of the PPN to consider the correctness or otherwise of the determination on which the PPN was based.
The FTT held that Parliament had chosen to penalise taxpayers who did not pay an accelerated partner payment when it was due. Furthermore, the amount of that payment was within the sole authority of HMRC to determine, subject to their duties under public law and the taxpayer's right to make representations, and there was no provision of a general right for taxpayers to appeal to the tribunal against HMRC's calculation of the payment. In Walupu v R & C Commrs [2016] BTC 14 and Rowe v R & C Commrs [2015] BTC 27, the High Court had established that the right to make representations and to challenge HMRC's decision by way of judicial review was sufficient to accord with the principles of natural justice. If the applicant's approach were to be adopted, this would run counter to the purpose of the APN (accelerated-payment notice) legislation, which was to remove cash-flow advantages from taxpayers who entered into disputed tax avoidance arrangements.
It followed that the FTT had no jurisdiction in the penalty appeal to consider whether HMRC should have made a different determination of the accelerated partner payment, and since the application for disclosure of information was to enable the applicant to make such an argument in the appeal, the application was refused also.
This is the latest in a string of appeals against APNs. Here, although the applicant's underlying case was that HMRC had not followed the correct statutory procedure, the correct forum for challenging the method and amount of an HMRC determination was an application for judicial review, once HMRC had rejected the taxpayer's representations under FA 2014, Sch. 32, para. 5 (in the case of partner-payment notices) or under FA 2014, s. 222 (for accelerated payment notices generally).
For the requirement to pursue perfectly adequate and appropriate alternative remedies in priority to judicial review (here in the context of a diverted profits tax charging notice), see over other alternative remedies, see Glencore Energy UK Ltd v R & C Commrs [2017] BTC 20.
However, a decision of the Supreme Court as to the correct procedure for HMRC to counteract the carry-back of a loss under a tax avoidance arrangement is awaited in R (on the application of de Silva) v R & C Commrs (for the Court of Appeal judgment, see [2016] BTC 6). The outcome may have a direct bearing on the applicant's underlying argument in this case.
[1] Mr Beadle is appealing against a penalty that HMRC have assessed relating to the late payment of sums due pursuant to a partner payment notice (“PPN”) issued under provisions of the Finance Act 2014 (“FA 2014”). In the context of that appeal, he has made an application under rule 5(3)(d) of the Tribunal Procedure (First-tier Tribunal) Rules 2009 (the “Tribunal Rules”) for HMRC to disclose information to him. He believes that information will help him to establish that the “understated partner tax” that HMRC have calculated for the purposes of the PPN does not represent an amount of tax that could lawfully have been due for the relevant tax year. If he can establish that, he wishes to argue in the substantive appeal that the accelerated partner payment demanded (which is equal to the “understated partner tax” that HMRC calculated) either was, or should have been, nil with the result that no penalty can arise for failing to pay it. HMRC are opposing that application on the grounds that the information that Mr Beadle seeks is not relevant to his appeal, broadly because the Tribunal does not have jurisdiction to look behind HMRC's calculation of the understated partner tax or accelerated partner payment and/or that it would be an abuse of process for Mr Beadle to raise that argument in his penalty appeal (as they consider he should have raised it in judicial review proceedings).
[2] Mr Beadle's application, and HMRC's response to it, give rise to a question of procedure. If I dealt only with the interlocutory application for disclosure, decided that the Tribunal does have jurisdiction to hear Mr Beadle's ground of appeal outlined above, and directed that HMRC disclose the information requested, Mr Beadle would face the prospect of having to establish all over again in the substantive appeal hearing that the Tribunal does indeed have jurisdiction to consider that ground of appeal. Similarly, if I refused the interlocutory application for disclosure because I do not consider that the Tribunal has jurisdiction to consider the relevant ground of appeal, it would still be open to Mr Beadle to argue that the Tribunal has jurisdiction in the substantive hearing.
[3] The parties were agreed that it would be undesirable for the question of jurisdiction to be relitigated in the substantive appeal. Therefore, with the parties' consent, in this decision, as well as dealing with the application for disclosure, I will determine, as a preliminary issue in the substantive appeal, whether the Tribunal has jurisdiction to determine whether the figure of understated partner tax stated on the PPN is the lawful figure and, if not, what is the lawful figure1. I am conscious that it is not generally desirable for issues to be determined as preliminary issues (although I do consider that the preliminary issue that I have formulated meets the criteria referred to by the Upper Tribunal in Wrottesley v R & C Commrs [2015] BTC 537). Mr Beadle has other grounds of appeal that will necessitate the finding of facts. Therefore, to avoid any risk of my decision on the preliminary issue being the subject of an appeal to the Upper Tribunal before all facts relevant to Mr Beadle's appeal have been determined, I have extended the deadline for applying for permission to appeal against my decision on the preliminary issue until the substantive appeal has been concluded.
[4] Mr Beadle was a member of Ingenious Film Partners LLP (the “LLP”) in the tax year 2004–05. The LLP entered into arrangements (which were “DOTAS arrangements” for the purposes of s219(5) of FA 2014) which it considered resulted in a trading loss for that year. Mr Beadle claimed to carry back his share of that loss to reduce his taxable income for the tax year 2001–02 and obtained a repayment of some £100k of tax that he had previously paid in respect of the 2001–02 tax year.
[5] HMRC opened an enquiry into the LLP's tax return for, among others, the tax year 2004–05. On 30 November 2012, HMRC issued the LLP with a closure notice reducing the LLP's trading loss to nil.
[6] On 17 October 2014, HMRC issued Mr Beadle with the PPN. That document required Mr Beadle to pay an accelerated partner payment of £100,054.80. That figure was explained as the difference between two calculations the first being “Income Tax and Class 4 National Insurance Contributions (Declared)” of −£100,366.87 and the second being “Income Tax and Class 4 National Insurance Contributions due (Revised)” of £−314.07. The calculation of this figure lies right at the heart of Mr Beadle's case in this appeal and I will outline his arguments in this regard later in the decision. For the time being, I...
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