Revenue and Customs Commissioners v BPP Holdings Ltd and Others
| Jurisdiction | UK Non-devolved |
| Judgment Date | 03 October 2014 |
| Neutral Citation | [2014] UKUT 496 (TCC) |
| Date | 03 October 2014 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2014] UKUT 0496 (TCC)
Upper Tribunal (Tax and Chancery Chamber)
Judge Colin Bishopp
Miss Jessica Simor QC and Mr Sarabjit Singh, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the appellants
Mr Sam Grodzinski QC, instructed by Simmons & Simmons LLP, appeared for the respondents
Procedure - HMRC barred from further participation - Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 2 and 8 - (1) Whether FTT applied correct principles - No - (2) Whether FTT's decision outside reasonable exercise of judicial discretion - Yes - Decision by FTT set aside and remade, so no barring order against HMRC - HMRC's appeal allowed.
The Upper Tribunal (UT) allowed HMRC's appeal against the decision of the First-tier Tribunal (FTT) ([2014] TC 04031) to bar HMRC from participating further in the proceedings.
Following an appeal by BPP, HMRC submitted a statement of case that fell short of what could reasonably be expected. HMRC apparently accepted that the further information requested by BPP should be supplied, but prevaricated about the time within which that could be done. BPP applied to the FTT for a direction (1) that the information should be supplied within 14 days of the making of the direction and (2) that in default HMRC should be barred from further participation in the proceedings in accordance with r. 8.
Judge Mosedale in the FTT granted the order that BPP had requested ([2014] TC 03768). Then HMRC applied for a direction lifting the barring order, but Judge Herrington in the FTT declined to lift it ([2014] TC 04031). Judge Herrington held that it was not permissible to adopt that course unless one of two conditions is satisfied:
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(2) the judge making the direction was plainly in error in overlooking, or being ignorant of, a material fact or a clearly relevant legislative provision or judicial authority; or
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(3) there had been a material change of circumstance (whether of fact or in the interpretation of the law by a higher court or tribunal) since the direction was made (para. 13 of the decision).
However, Judge Herrington gave HMRC permission to appeal against Judge Mosedale's direction.
HMRC appealed to the UT under r. 8(5) and (7)(b) for the lifting of the bar imposed by the FTT on the basis that the FTT had exercised its powers unlawfully.
The UT noted that the overriding objective, as it applies to the FTT, is set out in r. 2:
The overriding objective of these Rules is to enable the Tribunal to deal with cases fairly and justly (para. 43 of the decision).
The rules are designed, so far as possible, to put the parties on an equal footing and to ensure that appeals before the FTT are resolved fairly, at a reasonable speed and without undue expense. Directions are made for the same purpose, and they may warn a litigant of the automatic, or possible, consequence of failing to comply. They should not be lightly disregarded.
Although compliance is important, it does not trump the requirement that the FTT must deal with cases fairly and justly (para. 45 of the decision).
The UT held that the likely reason for HMRC's unsatisfactory conduct was they wanted time to reflect, but were reluctant to admit as much (para. 51 of the decision).
The UT found little to explain, still less to justify, that conduct (para. 52 of the decision).
The UT was not attracted by the argument that the appeals process should be compromised, to the detriment of individual taxpayers, because the government (which is the respondent to any tax appeal) devotes insufficient resources to that process (para. 58 of the decision).
In allowing HMRC's application, the UT held that the consequence of imposing a barring order would be that the FTT's decision on the merits of the appeal would be unsatisfactory, in that it may hand an unwarranted windfall to BPP. However, more importantly it would not adequately determine whether BPP's supplies are zero-rated. The consequence of refusing a barring order, on the other hand, is that the FTT would be able to reach a conclusion after full argument, and would be able to deal with the case fairly and justly in accordance with the overriding objective (para. 60 of the decision).
The UT held that the most compelling factor in its decision was that there was no risk to the hearing, nor of compromise to the FTT's ability to apply the overriding objective (para. 62 of the decision).
There have been many cases concerning the consequences that should follow if a litigant fails to comply with a rule or direction and the considerations that the court or tribunal should take into account when considering an application for relief from sanctions. However, usually the result turns on the facts. In this case, HMRC's failings were not so grave as to warrant a barring order.
[1]The respondent taxpayers, to whom I shall refer collectively as BPP, make supplies of education and of books and other materials which are pertinent to the supplies of education. Some of BPP's supplies of education are exempt but those relevant to the dispute between them and the present appellants, HMRC, are standard-rated for VAT purposes; the parties disagree about the correct tax treatment of the supplies of books and other materials. HMRC say they are standard-rated, BPP that they are zero-rated because they come within Value Added Tax Act 1994 schedule 8 group 3Group 3 of Sch 8 to the Value Added Tax Act 1994 ("VATA").
[2]Until late 2006 a company within the BPP group made what was accepted by BPP to have been a single supply of standard-rated education and books to the group's students. Following a corporate reconstruction two separate companies, within the BPP trading group but in different VAT groups, made the supplies of, respectively, education and books. BPP took the view that the supplies of books were now zero-rated, and did not account for VAT on those supplies. HMRC maintained that the change in the manner of supply made no difference to the VAT treatment, and in the alternative that the arrangements into which the BPP group had entered following the 2006 changes were abusive in the sense developed by the European Court of Justice in Halifax plc v C & E CommrsECAS (Case C-255/02) [2006] BVC 377. On 29 November 2102 they issued two assessments for the VAT for which they maintained BPP should have accounted during the period following the change in the manner the supplies were made.
[3]In the meantime, the relevant law was amended when Value Added Tax Act 1994 schedule 8 group 3notes (2) and (3) to Group 3 of Sch 8 to VATA were introduced, with effect from 19 July 2011, by Finance Act 2011 section 75s 75 of the Finance Act 2011. The significance of that amendment, HMRC say, is that if there was any doubt about the tax treatment of the supplies before that date it was now laid to rest, and the supplies of books and other materials made by companies within the BPP group on or after 19 July 2011 were clearly standard-rated. They made a decision to that effect which is set out in a letter of 6 December 2012. BPP had, in fact, been standard-rating the supplies of books since July 2011, and the decision was prompted by an approach to HMRC in which BPP contended that Finance Act 2011 section 75s 75 did not, after all, apply to those supplies. A claim for repayment of the disputed VAT has since been made.
[4]There had been extensive correspondence and some discussions between the parties in the period leading up to the making of the assessments and the decision, requests by BPP for review and letters from HMRC following the requested reviews. In the course of the correspondence HMRC explained their perception of the facts relevant to BPP's supplies, a perception which changed in some respects over time, as well as their interpretation of the law.
[5]The two assessments and the decision were appealed to the Tax Chamber of the First-tier Tribunal ("the F-tT") in time, but by way of three separate appeals. A direction was, however, made that the appeals should proceed together and that HMRC should serve a single statement of case by 2 October 2013. The statement of case was in fact served on 21 October, accompanied by a request for an extension of time. It seems that there was no direction formally extending time, but the application was not opposed by BPP. BPP did, however, take the view that the statement of case did not adequately set out HMRC's position, and on 11 November 2013 BPP sent what was termed a request for further information to HMRC, at the same time seeking a response within seven days. Although, as I shall explain, I agree that the statement of case fell short of what could reasonably be expected and that the request was justified that was, in my view, an excessively short time-scale. HMRC appear to have accepted that the requested information should be supplied but prevaricated about the time within which that could be done, and on 22 November BPP applied to the F-tT for a direction that the information should be supplied within 14 days of the making of the direction, and that in default HMRC should be barred from further participation in the proceedings in accordance with rule 8(1) and (7) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, to which I come below. All references below to rules are to those rules, unless otherwise indicated.
[6]The application came before Judge Hellier on 9 January 2014. By this time, the parties had agreed that the information should be provided by 31 January, but they did not agree upon the imposition of the automatic bar in the event of default for which BPP had applied; HMRC resisted the making of any direction which would come into effect upon default. The relevant part of the direction made by Judge Hellier, it seems as a compromise, was in...
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