Fessal
| Jurisdiction | UK Non-devolved |
| Judgment Date | 17 February 2015 |
| Neutral Citation | [2015] UKFTT 80 (TC) |
| Date | 17 February 2015 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Rachel Short, Mr Michael Bell
Mr Patel of H.M Patel & Co (on 22 May) and Ms Lovejoy (on 27 November) representing the Appellant
Mr Bradley (on 22 May) and Mr Stone (on 27 November) instructed by the General Counsel and Solicitor to HM Revenue and Customs appeared for the Respondents
Income tax Self-assessment HMRC strike out application Barrister Move from cash to true and fair basis Time limit for overpayment relief Overpayment between two underpayment years Tax paid twice on same profits Revenue discretion Application of European Convention on Human Rights and Human Rights Act Held No jurisdiction to consider discretion applied by HMRC High hurdle to rely on Human Rights legislation Taxpayer and agents at fault Out of time claim to tax repayment not property for ECHR purposes ECHR could not be relied on to extend time limits Strike out allowed for overpayment year ECHR claim against double taxation in earlier years Reasonable argument that disproportionate for HMRC to pursue tax already paid Application for strike out rejected for underpayment years.
The First-tier Tribunal (FTT) has refused an HMRC application to strike out an appeal against discovery assessments, finding that it was at least arguable that HMRC's failure to take account of overpaid tax (paid in respect of the same profits as included in the discovery assessments) breached the European Convention on Human Rights, even though a corresponding amount of overpaid tax could not be claimed because the statutory time limit had elapsed.
The appellant (Mr Fessal) was a barrister. He was in the transitional regime applicable to barristers moving from the cash to the true and fair basis of recognising profits for tax purposes under Finance Act 1998 (FA 1998), s. 42 for the three tax years 200506, 200607 and 200708. HMRC enquired into Mr Fessal's tax position and it was agreed that the correct application of the true and fair basis resulted in profits being decreased for 200607 and increased for 200506 and 200708. This appeal concerned a refusal by HMRC to accept Mr Fessal's claim for recovery of overpaid tax made for 200607 or to offset that claim against tax payments due from Mr Fessal for 200506 and 200708, for which HMRC had issued discovery assessments. HMRC applied to have the appeal struck out under the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009 (the Tribunal Rules), r. 8(2)(a) on the basis that it was out of time and the tribunal had no jurisdiction to consider it or that it had no reasonable prospect of success under r. 8(3)(c). The appeal had been adjourned on 22 May 2014 to allow both parties to provide further arguments based on the Human Rights Act 1998 (HRA 1998), s. 3(1) and the European Convention on Human Rights (ECHR).
Mr Fessal argued that striking out his claim would be unfair and unjust and therefore not in line with the tribunal's over-riding objective, because:
1) although he accepted that by law the appeal in respect of the overpayment should have been made by 5 April 2011 he only became aware of the relevant information about the over and underpayments from an HMRC letter dated 14 April 2011, by which time it was already too late to make a claim (as the deadline expired on 5 April 2011).
2) the overpayment year fell between two underpayment years and it was not fair to allow HMRC to claim further tax for 200506 and 200708, but not allow him to claim the for the intervening year, 200607. HMRC should have exercised its discretion to allow set off between the over and underpaid years, with no overall loss to the public purse if this was allowed.
3) a claim would have been made before the deadline had Mr Fessal been aware of the basis for that claim before the time limit had expired. He had written to HMRC on 19 February 2011 but HMRC had not responded until 14 April 2011, after the time for making a claim had expired.
4) he should not be penalised for the faults of others, in this instance his former accountant who had failed to properly apply the true and fair approach for 200506 and 200607; as a result profits had been charged to tax twice, once in 200607 and then again, under HMRC's amended assessments for 200506.
5) the application of the time limits in the Taxes Management Act 1970 (TMA 1970) had led to him paying tax on the same profits twice and this was counter to the HRA. A claim to the right to have tax repaid could be a possession if that claim is sufficiently substantiated, as Mr Fessal argued in this case and therefore the retention of the tax by HMRC breached Mr Fessal's rights under the ECHR, art. 1, protocol 1. The UK's tax legislation was not proportionate to pursue Mr Fessal for further tax which he had already paid on the same income.
6) he should be able to rely on the common law principle of restitution which is applicable on the principle that it removes unjust enrichment, corrects a wrong doing and vindicates property rights.
HMRC, however, argued that Mr Fessal's appeal should be struck out because:
1) it was Mr Fessal's obligation to file correct returns. If his returns had been made correctly in the first instance there would have been no need to rely on overpayment claims and the four year cut off period would not have been in point.
2) although HMRC had been slow in dealing with Mr Fessal's enquiry, Mr Fessal and his agents had also been slow providing information to HMRC.
3) the tribunal did not have jurisdiction to deal with the free standing ECHR appeal regarding 200607 because the appeal was made outside the statutory time limit, this could only be raised through judicial review proceedings.
4) although it was accepted that tax legislation could amount to interference with an individual's possessions that could not be said in these circumstances, where the non allowance of offsetting the overpayment year's tax and the underpayment years' tax due meant that HMRC were pursuing the tax legally due from Mr Fessal.
5) any issues concerning HMRC's unfairness or failure to exercise its discretion were outside the remit of the tribunal.
6) although valid appeals could be made for the underpayment years and the ECHR could be in point, Mr Fessal's appeal did not raise any specific arguments in respect of these years which seemed in any event to have been agreed with HMRC.
7) any question of restitutionary claims should be made as a common law claim through the civil courts and any issues with the exercise of HMRC's powers should be made by way of judicial review.
8) Mr Fessal had no valid right or expectation on which a ECHR claim could be made; he had no possession, but only a claim for which he had failed to meet the statutory criteria.
The FTT approached the ECHR question on the basis that there were two separate claims to which that legislation could apply; whether Mr Fessal could rely on the ECHR to extend the four year time limit for re-claiming tax due for 200607 and whether Mr Fessal could rely on the ECHR to object to the way in which HMRC assessed him to tax for 200506 and 200708.
On the basis of the decisions in R & C Commrs v Hok Ltd TAX[2012] BTC 1,711, R & C Commrs v Noor VAT[2013] BVC 1,571 and Prince TAX[2012] TC 01852, the FTT found that it had no jurisdiction to consider the fairness of HMRC's decisions not to exercise its discretion in this case which could only be dealt with through judicial review.
In considering whether the ECHR could override statutory time limits, such as that applied by TMA 1970, Sch. 1AB, the FTT concluded that it could, but only in exceptional circumstances. It was also clear to the FTT that the ECHR could be applied to override a statutory time limit if this limitation could be shown to be counter to the ECHR in a particular case without needing to establish that the time limits themselves were not proportionate.
On the basis of the decisions in Prince Hans-Adam II of Liechtenstein v Germany (application no 42527/98) [2001] ECHR 467 and R (on the application of Carvill) v IR Commrs TAX[2004] BTC 123, the FTT found that Mr Fessal's claim to a repayment for 200607 outside the statutory time limit for making a claim did not amount to property or a possession for the purposes of the ECHR. Given that this meant that the ECHR, art. 1, protocol 1 was not engaged it was not strictly necessary for the FTT to consider whether the time limits in TMA 1970, Sch. 1AB pursued a legitimate aim in a proportionate manner, but if it had been relevant the FTT would have concluded that they did and that the time limits in this case had not been applied in an arbitrary or disproportionate way. The FTT did not consider that Mr Fessal had a claim under the ECHR to extend the time limits for making a repayment claim under TMA 1970, Sch. 1AB in respect of the 200607 overpayment year and it allowed HMRC's strike out application in this respect.
In respect of Mr Fessal's tax claim for the underpayment years 200506 and 200708 the FTT found it clear that Mr Fessal had possession or property to which the ECHR could apply. The FTT also considered that it was at least arguably disproportionate for HMRC to collect tax for 200506 when they had already collected tax on those profits in the now closed 200607 self-assessment return. This was particularly the case because at the time when HMRC issued their discovery assessments for 200506 and 200708, they already knew that the overpayment year was closed and the same profits would be taxed again in 200506, resulting in an effective penalty of 100% of the tax due for 200607. The FTT also found that it was at least arguable that the issuing of assessments which HMRC were aware at the time when they are issued would give rise to double taxation of profits did not reflect a reasonable relationship between the ends and the means and HMRC's actions were without reasonable foundation and could be subject to the restrictions provided by the ECHR. The FTT therefore concluded that Mr...
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