R & J Birkett (t/a Orchards Residential Home and Others) v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 02 March 2017 |
| Neutral Citation | [2017] UKUT 89 (TCC) |
| Date | 02 March 2017 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2017] UKUT 0089 (TCC)
Upper Tribunal (Tax and Chancery Chamber)
Mr Justice Nugee, Judge Ashley Greenbank
Stephen Hackett, instructed by Johnsons Solicitors, appeared for the appellant
Christopher Stone, instructed by the General Counsel and Solicitor for HM Revenue and Customs, appeared for the respondents
Income tax – Whether daily penalties payable – Jurisdiction of First-tier Tribunal to consider taxpayer's legitimate expectation – Compliance with Human Rights Act – Finance Act 2008 (FA 2008), Sch. 36 – Article 1 of Protocol 1 to the European Convention on Human Rights (A1P1).
The Upper Tribunal (UT) upheld a First-tier Tribunal (FTT) decision dismissing the taxpayers' appeals against daily penalties imposed by HMRC for failing to comply with information notices.
The appellants (Mr and Mrs Birkett) were partners in five partnerships operating residential care homes. HMRC issued information notices to each of the partnerships in respect of a remuneration trust used as part of a tax avoidance scheme.
Mr and Mrs Birkett failed to comply with the information notices. HMRC imposed initial penalties of £300 in respect of each partnership pursuant to FA 2008, Sch. 36, para. 39 and 46. HMRC indicated in a letter that daily penalties might be considered but that no further penalties would be assessed until the outcome of any appeal against the initial penalties had been settled. Mr and Mrs Birkett did appeal to the FTT against the initial penalties, but the papers appear to have been misplaced by the FTT and HMRC were not notified of the appeal. As HMRC were unaware of the appeal against the initial penalties they went on to issue daily penalties on each of the partnerships pursuant to FA 2008, Sch. 36, para. 40 and 46.
Mr and Mrs Birkett appealed to the FTT against the daily penalties (the appeals against the initial penalties were not proceeded with and they were paid “as a matter of commercial pragmatism”). The appeals essentially complained that HMRC had imposed the daily penalties in the belief that no appeal had been brought against the initial penalties, but that when it was made clear to HMRC that such an appeal had in fact been brought, HMRC refused to withdraw the daily penalties, thereby in effect penalising Mr and Mrs Birkett for a breakdown in communication between the FTT and HMRC.
The FTT dismissed the appeals against the daily penalties and confirmed the penalties imposed. The FTT found that Mr and Mrs Birkett may well have had a legitimate expectation that daily penalties would not be charged because of the appeal against the initial penalties, but decided that it had no jurisdiction to address this issue as it would amount to the exercise of a judicial review function. The FTT also rejected an argument that HMRC applying daily penalties was not Human Rights compliant.
Mr and Mrs Birkett appealed to the UT.
The two grounds of appeals pursued at the UT hearing were:
- The FTT had erred in law in determining that it lacked jurisdiction to consider Mr and Mrs Birkett's legitimate expectation and/or in failing to take account of HMRC's common law duty of fairness.
- The application of the daily penalties was not compliant with the appellants' human rights.
On the issue of legitimate expectation and HMRC's common law duty of fairness, the UT referred to the cases of Oxfam v R & C Commrs [2010] BVC 108, R & C Commrs v Hok Ltd [2012] BTC 1,711, R & C Commrs v Noor [2013] BVC 1,571 and Trustees of the BT Pension Scheme v R & C Commrs [2015] BTC 22. The UT derived these principles from these authorities:
- The FTT was a creature of statute and therefore its jurisdiction was entirely statutory.
- The FTT had no judicial review jurisdiction.
- But this did not mean that the FTT never had any jurisdiction to consider public law questions. A court or tribunal that had no judicial review jurisdiction could nevertheless have to decide questions of public law in the course of exercising the jurisdiction which it did have.
- In each case therefore when assessing whether a particular public law point was one that the FTT could consider, it was necessary to consider the specific jurisdiction that the FTT was exercising, and whether the particular point that was sought to be raised was one that fell to the FTT to consider in either exercising that jurisdiction, or deciding whether it had jurisdiction.
- Since the FTT's jurisdiction was statutory, this was ultimately a question of statutory construction.
By applying these principles, the UT agreed with the FTT that the FTT had no jurisdiction to decide the question of legitimate expectation that was raised – neither under FA 2008, Sch. 36, para. 47(a) as its jurisdiction there was confined to the question whether the penalties had been incurred, nor under para. 47(b) as the legitimate expectation point did not go the question of the amount of penalties but as to the principle of there being any penalty. The UT therefore dismissed this ground of appeal.
On the issue of human rights, the main argument was that although the penalty regime was perfectly acceptable in principle, this did not mean that the application of it in any particular case might not infringe the right to peaceful enjoyment of one's possessions found in Article 1 of Protocol 1 to the European Convention on Human Rights (A1P1). On the basis of the principles detailed in Allan v R & C Commrs [2015] BTC 502 the UT did not consider that there was any infringement of A1P1. The UT therefore dismissed this ground of appeal.
The UT accordingly dismissed the appeal.
HMRC had indicated that they would suspend the issue of daily penalties until the outcome of any appeal against initial penalties charged had been settled. But unfortunately although the taxpayers did appeal to the FTT against the initial penalties this was not communicated to HMRC and HMRC therefore issued daily penalties, and refused to withdraw them even once they knew that the initial penalties had been appealed.
The UT agreed with the FTT that:
- the FTT did not have jurisdiction to decide the question of legitimate expectation in these circumstances; and
- the daily penalties did not infringe the taxpayers' human rights.
[1] This is an appeal by Mr and Mrs Birkett from a decision (“the Decision”) of the First-tier Tribunal (Judge Christopher Hacking and Mr Alan Spier) (“the FTT”) dated 13 February 2015, the respondents being Her Majesty's Commissioners for Revenue and Customs (“HMRC”). Permission to appeal was granted by the FTT (Judge Hacking) dated 19 August 2015.
[2] The appeal concerns daily penalties imposed by HMRC on Mr and Mrs Birkett for failing to comply with information notices. Mr and Mrs Birkett appealed to the FTT against the penalties. The FTT dismissed their appeals. They now appeal to the Upper Tribunal (“UT”) against that dismissal.
[3] It is convenient at the outset to refer to the relevant statutory provisions. These are found in Schedule 36 to the Finance Act 2008 (“Sch 36”) which, so far as relevant, provides as follows:
(1) An officer of Revenue and Customs may by notice in writing require a person (“the taxpayer”)–
- to provide information, or
- to produce a document,
if the information or document is reasonably required by the officer for the purpose of checking the taxpayer's tax position.
(2) In this Schedule, “taxpayer notice” means a notice under this paragraph.
…
(1) In this Schedule, “information notice” means a notice under paragraph 1, 2 or 5.
…
(1) Where a person is required by an information notice to provide information or produce a document, the person must do so–
- within such period, and
- at such time, by such means and in such form (if any), as is reasonably specified or described in the notice.
…
(1) Where a taxpayer is given a taxpayer notice, the taxpayer may appeal against the notice or any requirement in the notice.
…
(1) This paragraph applies to a person who–
- fails to comply with an information notice, or
- deliberately obstructs an officer of Revenue and Customs in the course of an inspection under Part 2 of this Schedule that has been approved by the tribunal.
(2) The person is liable to a penalty of £300.
(1) This paragraph applies if the failure or obstruction mentioned in paragraph 39(1) continues after the date on which a penalty is imposed under that paragraph in respect of the failure or obstruction.
(2) The person is liable to a further penalty or penalties not exceeding £60 for each subsequent day on which the failure or obstruction continues.
…
A failure by a person to do anything required to be done within a limited period of time does not give rise to liability to a penalty under paragraph 39 or 40 if the person did it within such further time, if any, as an officer of Revenue and Customs may have allowed.
(1) Liability to a penalty under paragraph 39 or 40 does not arise if the person satisfies HMRC or (on an appeal notified to the tribunal) the tribunal that there is a reasonable excuse for the failure or the obstruction of an officer of Revenue and Customs.
…
(1) Where a person becomes liable for a penalty under paragraph 39, 40 or 40A–
- HMRC may assess the penalty, and
- if they do so, they must notify the person.
(2) An assessment of a penalty under paragraph 39 or 40 must be made within the period of 12 months beginning with the date on which the person became liable to the penalty, subject to sub-paragraph (3).
(3) In a case involving an information notice against which a person may appeal, an assessment of a penalty under...
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