Ellis and Another v R & C Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 22 September 2022 |
| Neutral Citation | [2022] UKUT 254 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2022] UKUT 254 (TCC)
Judge Ashley Greenbank, Judge Rupert Jones
Upper Tribunal (Tax and Chancery Chamber)
VAT – Alleged deliberate inaccuracies – Personal liability notices – PAYE, income tax and National Insurance contributions on alleged extractions – Application for disclosure – FTT granted HMRC’s application and made a direction for disclosure in the terms sought – Appeal against direction – FTT found to have made errors of law – Direction partially remade restricting time period covered – Appeal partly allowed – Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 5 and 16.
In Ellis & Anor v R & C Commrs [2022] BTC 530, the Upper Tribunal (UT) partly allowed an appeal by two taxpayers against a direction made by the First-tier Tribunal (FTT) requiring them to disclose material relating to ongoing substantive appeals.
HMRC applied to the FTT for Mr Ellis and North Yorkshire Properties Ltd (the appellants) to disclose a wide range of material to HMRC. The material was in relation to ongoing substantive appeals involving both the direct tax and VAT affairs of a group of property development companies. The FTT granted the application and made a disclosure direction.
The appellants appealed to the UT against the FTT’s disclosure direction on the grounds that:
- The FTT had erred in admitting and relying on a letter from a liquidator of one of the companies (RSM), which was produced on the evening before the hearing which stated that the liquidator had not given copies of material to HMRC. This letter was relied upon by HMRC to counter the appellants’ argument that HMRC were already in possession of the material they sought to be disclosed.
- The FTT had erred in failing to address and take into account whether HMRC had been aware for some time of the existence of the documents they sought to be disclosed.
- The FTT had erred in granting the extraordinarily wide and unfocused disclosure application.
On ground one, the UT accepted that the FTT made errors of law by: (a) failing to identify and apply any test in law for admitting the letter at the hearing; and (b) failing to articulate any reasons for the grant of the application to admit the letter. Notwithstanding that these two errors of law were material in the context of the decision to admit the RSM letter, the UT was not satisfied that they were sufficiently material to the decision to make the disclosure direction. Therefore, in the UT’s view they did not justify disturbing the FTT’s decision to grant the application for disclosure. This first ground of appeal was accordingly dismissed as the errors of law in the FTT’s decision were not material.
On ground two, the UT found that the FTT did err in law by failing to address a letter from the appellants’ representative in making its decision. The appellants relied upon the wording of the letter to submit that HMRC had been aware for two years that the appellants were in possession of the material they were seeking. As this meant that the FTT’s decision to grant the application for disclosure involved a material error of law, the UT set the decision aside, but remade the decision granting HMRC’s disclosure application.
On ground three, the UT found that for the most part, the appellants had not established that the breadth of the disclosure ordered was so plainly wrong that it had to be regarded as outside the generous ambit of discretion entrusted to the FTT. The exception was that it was neither justified nor proportionate for the FTT to make such a disclosure direction without any limit on the timescales to which the material related. The UT therefore allowed this ground of appeal in part. It set aside the disclosure direction and remade it in the same terms but limited in time to material falling within the tax periods subject of the substantive appeals.
While the UT found that the FTT had made several errors of law, the only change made by the UT to the wide ranging disclosure direction was to limit the period to be covered by the required material to the periods subject to the substantive appeals.
Comment by Meg Wilson, Lead Technical Writer at Croner-i.
Michael Firth, Counsel, instructed by Reynolds Porter Chamberlain LLP appeared for the appellant
Howard Watkinson and Marika Lemos, Counsel, instructed by the General Counsel and Solicitor for His Majesty's Revenue and Customs appeared for the respondents
[1] The Appellants appeal against a direction made by the First Tier Tribunal (“FTT”) in a written decision dated 13 April 2021 (the “FTT Decision”) following a case management hearing which took place by video on 13 October 2020.
[2] HMRC made an application on 2 June 2020 for the Appellants to disclose a wide range of material to HMRC in relation to ongoing substantive appeals, the details of which are set out below. The FTT granted the application and made a disclosure direction, the precise terms of which are set out below but were summarised at [4] of the FTT Decision. The direction required the Appellants to disclose material to HMRC including:
- hard copy and electronic documents held by the Appellants relating to the day-to-day operations, management, financial and tax affairs of six relevant companies;
- documents held by the Appellants relating to the personal affairs of Mr Darren Broadbent, a business associate of the first Appellant, Mr Paul Ellis; and
- correspondence, held by the Appellants, between any of Mr Ellis, Mr Broadbent and a firm called Craggs & Co. which represented both of them, in respect of an investigation by HMRC under HMRC Code of Practice 9 (COP 9).
[3] The Appellants, with the permission of the FTT judge, appeal to the Upper Tribunal against the FTT's disclosure direction. The Appellants submit that the FTT erred in law in making the direction in three ways.
- The FTT erred by admitting and relying on a letter from a liquidator of one of the companies, RSM Restructuring Advisory LLP (RSM), which was produced on the evening before the hearing (12 October 2020) which stated that the liquidator had not given copies of material to HMRC. This letter was relied upon by HMRC to counter the Appellants' argument that HMRC were already in possession of the material they sought through disclosure.
- The FTT erred in failing to address and take into account whether HMRC had been aware since January 2018 of the existence of the documents and material held by Mr Ellis in relation to which they sought disclosure.
- The FTT erred in granting the disproportionately wide and unfocussed disclosure application.
[4] We are grateful to all counsel for their written and oral submissions: Mr Watkinson leading Ms Lemos for HMRC, and Mr Firth for the Appellants.
[5] The substantive appeals before the FTT challenge various decisions of HMRC. The proceedings concern both direct and indirect taxes and arise out of the operation by Mr Ellis, and Mr Broadbent, of a group of property development companies, referred to as the “Skelwith” companies, over a period of several years. Within the substantive appeals, some £18 million in tax and penalties is at stake. On any view, this is high-value and complex litigation.
[6] The various appeals arise from a verification by HMRC of the VAT return of Skelwith (Leisure) Limited (“SLL”) for the 05/14 period, which led HMRC to allege that the Skelwith companies had been making false claims to input tax repayments on a large scale. On 23 July 2014, an HMRC officer visited SLL in relation to that verification, only to be told that all of SLL's business records had been destroyed. This event led to a COP 9 investigation into the affairs of Mr Ellis and Mr Broadbent.
[7] Brief details of the relevant appeals are set out below:
- TC/2016/05431 and TC/2017/00427 – appeals by Mr Ellis against personal liability notices (PLNs) served on him in respect of alleged deliberate VAT inaccuracies relating to the affairs of three Skelwith companies of which he and Mr Broadbent were directors (the VAT PLN appeals).
- TC/2017/01924 – an appeal by the second Appellant, North Yorkshire Properties Limited (NYPL), which was formerly known as Skelwith Properties Ltd, in respect of PAYE income tax and national insurance contributions (NICs) on alleged extractions of value by Mr Ellis from NYPL (the PAYE and NICs appeal).
- TC/2018/02515 – an appeal by Mr Ellis in respect of assessments, closure notices and decisions in respect of income tax and NICs on alleged extractions of value by him from Skelwith companies of which he and Mr Broadbent were directors (the employment income appeal).
[8] The appeals have been joined to be case managed and heard together.
[9] In relation to the VAT PLN appeals, Mr Ellis appeals against PLNs totalling £15.3m notified to him as director of three companies: SLL, Skelwith Leisure (Raithwaite) Ltd (“SLRL”), and Skelwith Leisure (Raithwaite Cottages) Ltd (“SLRCL”) under paragraph 19(1) of Schedule 24 to the Finance Act 2007. The PLNs made Mr Ellis liable for 50% of various penalties issued to those companies for rendering VAT returns that HMRC allege contained deliberate and concealed inaccuracies. HMRC also notified Mr Ellis's co-director, Mr Broadbent, of PLNs making him liable for the other 50% of the penalties. Mr Broadbent did not appeal against the PLNs.
[10] The issues likely to be decided by the FTT on the VAT PLN appeals are, in summary:
- Were SLL, SLRL and SLRCL's VAT returns inaccurate and did such inaccuracies amount to, or lead to, a false or inflated claim to repayment of tax?
- Were such inaccuracies deliberate and concealed?
- Were the deliberate and concealed inaccuracies attributable to Mr Ellis as a director of the companies?
- Were the penalty amounts as attributed to Mr Ellis correct?
[11] The burden of proof will be on HMRC in the VAT PLN appeals to establish that there was an...
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Paul Ellis(1) North Yorkshire Properties Ltd(2) v The Commissioners for HM Revenue and Customs
...citation number: [2022] UKUT 00254 (TCC) UT (Tax & Chancery) Case Numbers: UT/2021/000135 & 136 Upper Tribunal (Tax and Chancery Chamber) Hearing venue: The Royal Courts of Justice, Strand, London WC2 Hearing date: 13 June 2022 Decision Date: 21 September 2022 Before: JUDGE ASHLEY GREENBANK......