Prince and Others v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 23 February 2012 |
| Neutral Citation | [2012] UKFTT 157 (TC) |
| Date | 23 February 2012 |
| Court | First Tier Tribunal (Tax Chamber) |
[2012] UKFTT 157 (TC)
Judge John Clark, Christina Hill Williams
Mrs Alison Shaw, interested person, appeared in person
Mr Richard Vallat, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents
Mr Keith Gordon and Ms Ximena Montes Manzano, counsel, appeared as advocates to the Tribunal
Income tax - PAYE - taxpayers with too little tax deducted at source - HMRC seeking underpaid tax by means of Form P800 - ESC A19 - whether First-tier Tribunal has jurisdiction to consider discretionary concession - no - whether P800 an assessment susceptible of appeal - no - appeals struck out
The First-Tier Tribunal decided that it had no jurisdiction to consider whether or not HMRC had exercised their discretion correctly and that a taxpayer who claimed to be within the terms of extra-statutory concession should seek a remedy by judicial review. It also decided that the remedy of a taxpayer who challenged the manner in which the PAYE system was being applied to his affairs was to appeal against a new or amended notice of coding in accordance with Income Tax (PAYE) Regulations 2003, regs. 18 and 19.
The three taxpayer-appellants ("the appellants") were all individuals whose incomes were subject to the deduction of tax at source, by means of the PAYE system. The first appellant received earnings from current employment and a pension from a former employer. For part of the tax years 2007-08 and 2008-09 he also had a second employment for which he was deducted a basic tax rate. As he was in fact a higher-rate taxpayer, the second employer deducted too little tax. The second appellant had only one employer, but the employer treated her as if she had two separate employments. The employer was not issued with a code for the (notional) second employment, and instead applied the default code, which resulted in deduction of tax only at the basic rate. As she too was liable to tax at the higher rate, she underpaid in the years 2008-09 and 2009-10, although the code was corrected part way through the later year. HMRC then adjusted her code again in order to recover the underpaid tax, but neglected to tell her that that was what they were doing. The third appellant had a single employment. The code issued to his employer in the years 2008-09 and 2009-10 took account of taxable benefits paid to him by the employer, and was in each case based upon the expense payments disclosed on the employer's annual return (form P11D) for the year 2007-08. The expenses actually paid in 2008-09 and 2009-10 were significantly higher than those paid in 2007-08, and as a result, little tax was deducted from his earnings. Forms P800 were issued to the appellants for their respective underpayments.
None of the appellants challenged the arithmetic of the P800s they had received, nor the underlying contention that there had been an underpayment of tax. However, they relied instead on the extra-statutory concession ("ESC"), known as A19. HMRC argued that the ESC did not apply in their cases. Thus, HMRC argued that the Tribunal had no other course open to it than to strike out the appeals for lack of jurisdiction in accordance with the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, r. 8(2)(a).
(2) Whether the First-tier Tribunal has any jurisdiction in relation to an ESC.
(3) Whether it was possible to challenge a P800 before the First-tier Tribunal.
(2) The First-Tier Tribunal (Judge Colin Bishopp) (striking out the appeals) held that it had no jurisdiction to consider whether or not HMRC had exercised their discretion correctly. The ESC on which the three appellants relied provided terms under which tax may be given up. The essence of the dispute between the taxpayers and HMRC, however, was whether the taxpayers did, as a matter of fact, come within those terms. It is axiomatic that tax may be imposed only in accordance with statutory authority: there is no common-law or discretionary right to tax. Similarly, and for the same reason, rights of appeal are conferred by statute, and if no right of appeal to it is conferred, this Tribunal has no discretion to accept and deal with an appeal, or purported appeal. In the absence of a statutory right of appeal, the taxpayers in the position of the appellants should seek a remedy by judicial review. There could be no room for doubt that this Tribunal did not have any judicial review jurisdiction (C & E Commrs v J H Corbitt (Numismatists) LtdVAT(1979) 1 BVC 251; C & E Commrs v National Westminster Bank plcVAT[2003] BVC 633 considered). Here, the Tribunal was not being asked to determine how much tax was due, but whether HMRC should be required to exercise their discretion not to collect the tax. That was not a tax dispute at all, but a matter governed by public or administrative law, and precisely the kind of issue which must be determined by judicial review. Nothing in the Tribunals, Courts and Enforcement Act 2007 could be construed as conferring any jurisdiction to determine such an issue on First-Tier Tribunal. Neither could there be any basis on which an argument of legitimate expectation that a statutory duty would, or should, be waived could properly be regarded as the province of a Tribunal whose task was to determine the amount of tax which was due.
(3) There is no right of appeal against a P800. A P800 reflects a reconciliation of the taxpayer's PAYE record. It is not the result of the ordinary assessment process, by which a taxpayer's income, gains, allowances and reliefs are determined, a calculation of the tax is made, the calculation is notified to the taxpayer and (subject to appeal) the amount so calculated becomes payable; nor is it akin to the adjustment of a self-assessment return, by closure notice or discovery assessment. It is, rather, an adjustment made in the course of the mechanical process by which the PAYE system attempts to deduct the correct amount of tax over the course of a tax year. That some of that tax may be due in respect of a previous year seems to me irrelevant, since it is one function of the PAYE system to recover such underpayments. As the challenge of an aggrieved taxpayer is to the manner in which the PAYE system is being applied to his affairs, the appeal route of that taxpayer should be one provided for by the same system, that is to appeal against a new or amended notice of coding in accordance with Income Tax (PAYE) Regulations 2003, regs. 18 and 19.
1.The appellants in these, and in a large number of similar appeals pending before this tribunal, are all individuals whose income is subject to the deduction of tax at source, by means of the PAYE system. That system depends for its working on the notification by HMRC to the person making relevant payments (ordinarily an employer or a pension provider) of a code. In the simplest of cases, where a taxpayer has a single source of income, the combination of the code and tables, also provided by HMRC, enables the payer to determine precisely the amount of tax which must be deducted from the gross payment before it is handed to the recipient. The code reflects the taxpayer's personal allowance and any other deductions to which he or she may be entitled; the tables (nowadays usually represented by a computer program which makes the calculations automatically) reflect the current rates of tax at differing levels of income. In this simple case the correct amount of tax is deducted as payments are made during the course of a tax year (and handed over by the payer to HMRC), and the taxpayer has no more to pay. Commonly, he or she has no need even to complete a tax return. Before the beginning of each tax year a new code which reflects any change in the personal allowance is automatically issued to the taxpayer and to the payer, and the tables are revised to reflect changes in tax rates and thresholds. The process is then repeated in the following tax year.
2.Not all taxpayers' affairs are so simple. Some have more than one source of income, derived from different payers, each of whom must be provided with a code in order to operate the PAYE system. Again, in a simple case, it may be possible to include all of a taxpayer's allowances in the determination of one code, and none in the other or others: the code allocated instead requires tax to be deducted at, most commonly, the basic rate from the entire payment. Provided the amount due to the taxpayer from the person to whom the first code has been sent exceeds the basic rate threshold (after taking account of any allowances) and the aggregate amount due from all payers does not exceed the upper limit of the basic rate band, the correct amount will be deducted; but if either of those conditions is not satisfied, there may be an over- or under-payment. Codes can sometimes be generated to cover such situations, but as it is impossible to predict every eventuality, some taxpayers must make an additional payment after the end of the tax year, or may be entitled to a refund. Such events as changes of employment introduce other complications which may necessitate adjustments at the end of a tax year.
3.In addition, mistakes occur. Taxpayers may, sometimes quite innocently, claim allowances to which they are not entitled (or fail to claim allowances to which they are entitled). And sometimes HMRC issue incorrect codes. That is the position in most of the appeals before the tribunal-typically, the taxpayer has been given the benefit of a personal allowance in more than one code. As a result, although each payer has operated the PAYE system correctly, by deducting the tax determined by the combination of the code provided and the tables, the taxpayer has, overall, paid too little.
4.In June 2009 HMRC introduced a new PAYE computer system. One of its functions was to reconcile taxpayers' tax records, with the consequential result that many errors which might...
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