HM Revenue and Customs v Lunn
| Jurisdiction | England & Wales |
| Judge | Mr Justice Kenneth Parker |
| Judgment Date | 16 February 2011 |
| Neutral Citation | [2011] EWHC 240 (Admin) |
| Docket Number | Case No: CO/12837/2010 |
| Court | Queen's Bench Division (Administrative Court) |
| Date | 16 February 2011 |
[2011] EWHC 240 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Before : Mr Justice Kenneth Parker
Case No: CO/12837/2010
Jonathan Fisher QC (instructed by McGrigors LLP) for the Claimant
Beverley Lang QC (instructed by Her Majesty's Revenue and Customs) for the Defendant
Hearing dates: 1, 2 February 2011
Mr Justice Kenneth Parker :
Introduction
The Claimants (collectively referred to hereafter as "CLAC") challenge by an application for judicial review the decision of the Commissioners for Her Majesty's Revenue and Customs ("HMRC") made on 25 November 2010 and sent to CLAC in a letter dated 30 November 2010 ("the decision") to cease to deal with CLAC as an agent or representative for any taxpayer and to cease to communicate, by any means, with CLAC as tax agents for taxpayers. By letter dated 30 November 2010 HMRC informed the clients of CLAC of the decision.
A wide-ranging attack on the lawfulness of the decision narrowed, by the time of the ("rolled up") oral hearing of the application for judicial review, to two grounds, namely, first, an alleged unlawful failure by HMRC to give CLAC the opportunity to make representations before HMRC took the decision and, secondly, an alleged failure to state reasons, or adequate reasons, for the decision.
The Background to Authorised Tax Agents
Section 1 of the Taxes Management Act 1970 (" TMA 1970") provides that the Commissioners for Her Majesty's Revenue and Customs shall be responsible for the collection and management of income, corporation and capital gains tax.
Under Section 5 of the Commissioners for Revenue and Customs Act 2005 ("CRCA 2005"), the Commissioners are responsible for the collection and management of revenue, defined as including taxes, duties and national insurance contributions.
By Section 9 of the CRCA 2005
"(1) The Commissioners may do anything which they think –
(a) necessary or expedient in connection with the exercise of their functions, or
(b) incidental or conducive to the exercise of their functions."
HMRC has adopted the practice of dealing with agents on behalf of taxpayers in the exercise of its general statutory powers. There is no specific statutory provision which requires HMRC to deal with agents authorised by taxpayers.
HMRC's guidance on agents, posted on its websites, states, inter alia:
i) Tax agents, advisers or accountants must be formally authorised by an individual or business to deal with HMRC on their behalf.
ii) HMRC defines an "agent" as someone who is appointed to discuss, correspond or transact with them about matters they are responsible for.
iii) Once an agent is authorised to act on a client's behalf, HMRC can discuss and exchange the client's personal and financial information with the agent, and send letters, forms or returns relating to their tax affairs.
iv) Agent authorisation will not transfer a client's legal obligations to his agent.
v) Under the heading "How long does the authorisation last?", the guidance states:
"The authorisation will continue until HMRC are told that you or your client has withdrawn it or when your client dies."
HMRC has no formal procedure to deal with the termination of an authorised agency for suspected fraud or other serious misconduct.
HMRC Business Customer Unit issued a confidential Note to HMRC staff on 30 June 2009 giving guidance on dealing with agents.
The Summary of the Note states that it is:
"designed to help HMRC staff identify agent conduct that falls below that which HMRC and the major agent representative bodies would consider appropriate in a professional relationship and sets out the reporting mechanisms to use when issues of this nature arise".
The Note identifies four main headings of poor agent behaviour:
i) Suspected repayment fraud or evasion;
ii) Abusive, threatening or discriminatory behaviour;
iii) Technical ability that puts tax at risk;
iv) Agent behaviour, which though legal, give HMRC cause for concern.
The Note sets out "general principles and guidance" to apply when HMRC is considering what can be done on a practical level when poor agent behaviour is encountered. Under the heading "Refusal to deal with an agent entirely – is this an option?" the Note states that HMRC should not refuse to deal with an agent completely other than in "the most exceptional and extreme circumstances", in which case legal advice should be sought. Under the heading "What can we tell our customers if we refuse to deal with their appointed agent?" the Note indicates that, generally, disclosure of information regarding an agent's behaviour is prevented by Section 18(1) of CRCA 2005 but
"there are … exemptions within Section 18(2) CRCA 2005 that would enable a necessary, relevant and proportionate disclosure to be made to our customer about the behaviour of their agent."
Valuable information about authorised tax agents is contained in the Report of the National Audit Office ("Engaging with Tax Agents") dated 13 October 2010. In Part One the following general information is given under the heading "Tax agents are important intermediaries between the Department and its customers [sc. taxpayers]":
" 1.1 HM Revenue & Customs (the Department) estimates that around eight million taxpayers receive help from third parties in completing and filing income tax and corporation tax returns each year. Third parties are responsible for filing around 65 per cent of self-assessed income tax returns, 78 per cent of Corporation Tax returns for small and medium sized enterprises, 33 per cent of end-of-year PAYE returns filed by employers and 43 per cent of VAT returns. There are around 43,000 professional tax agent firms, ranging from international corporations to sole traders representing most of these taxpayers. Others are assisted by the voluntary sector, including unpaid intermediaries who look after the tax affairs of their friends and family. This report covers professional tax agents which we have defined as those authorised and paid to act on another's behalf in their dealings with the Department. The analysis in the report covers self-assessed income tax, PAYE, corporation tax and VAT, although we recognise that tax agents will also assist taxpayers on other taxes.
1.2 Taxpayers may choose to use tax agents for a variety of reasons. Some taxpayers may consider they do not have the knowledge to manage their own tax affairs or want assurance that they are paying the right amount of tax. While others simply want to save time. Some taxpayers need help because their tax affairs are more complex. We estimate that the market for preparing tax returns in the UK is worth around £2.5 billion. Many tax agents also charge their clients for tax advice.
1.3 Tax agents are therefore an important intermediary between the Department and its customers. Most professional tax agents have hundreds of clients, so it is efficient for the Department to engage with these intermediaries to ensure that their customers pay the tax due. Recent research by the Department into tax agents' role in the compliance of small and medium sized enterprises has indicated that good agents have a positive impact, helping their clients get their tax right and reducing errors."
It might intuitively be thought that the use of a tax agent would improve the accuracy of tax returns. However, work carried out by the National Audit Office tended to show that tax returns from authorised agents contained a significant level of under-declared liabilities:
" 2.6 We analysed the sample of around 5,000 cases where the Department had reviewed tax returns to establish where there were under-declared liabilities. We found that self-assessed income tax returns filed by represented taxpayers appear to be associated with higher levels of under declared tax liabilities than returns filed by non-represented taxpayers. In the sample, covering returns for 2004–05, 37 per cent of self-assessed income tax returns from represented taxpayers had under-declared tax liabilities compared to 26 per cent of returns filed by unrepresented taxpayers. The sample results are statistically significant and we also analysed equivalent data for the previous two years and found that the results were broadly consistent over the three year period. Analysis of the Department's enquiries into corporation tax returns revealed under-declared tax liabilities on 43 per cent of tax returns filed by represented businesses in the sample, compared with 36 per cent for returns filed by unrepresented businesses in the years 2001–04 but owing to a smaller sample size, these results are not statistically significant.
2.7 In 2004–05 the average under-declared self-assessed income tax liability detected by an enquiry into represented taxpayers was just under £900 compared to around £350 for unrepresented taxpayers. There was, however, little difference between the average value of under-declared tax liabilities on corporation tax returns from represented and unrepresented taxpayers, at around £3,450 for represented taxpayers and £3,360 for unrepresented taxpayers. We also analysed under-declared liabilities as a percentage of total self-assessed income tax or corporation tax liability due, net of tax taken at source. The analysis indicates that tax returns from represented taxpayers do have substantial...
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