Tax Returned Ltd v The Commissioners for HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Heather Williams DBE |
| Judgment Date | 11 October 2022 |
| Neutral Citation | [2022] EWHC 2515 (Admin) |
| Docket Number | Case Nos: CO/1652/2022 & CO/2327/2022 |
| Court | King's Bench Division (Administrative Court) |
The King (on the application of
[2022] EWHC 2515 (Admin)
THE HONOURABLE Mrs Justice Heather Williams DBE
Case Nos: CO/1652/2022 & CO/2327/2022
IN THE HIGH COURT OF JUSTICE
KING'S BENCH DIVISION
ADMINISTRATIVE COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Joanne Clement KC and Zac Sammour (instructed by Hill Dickinson) for the Claimants
Adam Tolley KC and Marika Lemos (instructed by HMRC Solicitor's Office) for the Defendant
Hearing date: 15 September 2022
Approved Judgment
Introduction
The Claimants apply to judicially review the following decisions of The Commissioners for His Majesty's Revenue and Customs (“HMRC”): (1) to introduce a mandatory form, P87, for claiming tax relief on PAYE employment income under Chapter 2 of Part 5 of the Income Tax (Earnings and Pensions) Act 2003 (“the 2003 Act”) with effect from 7 May 2022; (2) to include within this P87 form a field for applicants to provide an employer's PAYE reference number, without indicating that completion of this field is not a mandatory requirement for submitting a valid claim for tax relief; and (3) an alleged threat to suspend the processing of claims for tax relief submitted by each of the Claimants if a “high level” of forms are considered by HMRC to be incomplete, as set out in the letter of 11 April 2022. The requirement to use the P87 form was contained in para 2 of the Commissioners' direction which was made on 6 May 2022 (“the Direction”), in the exercise of powers conferred by the Income Tax (Pay as Your Earn) and the Income Tax (Construction Industry Scheme) (Amendment) Regulations 2022, SI 2022/227 (“the 2022 Regulations”).
When referring to them individually, I will term the Claimants, “C1”, “C2” and “C3”. They are High Volume Agents (“HVAs”), who submit a high volume of tax relief claims on behalf of taxpayers. They have each operated for at least eight years. Their business models have relied upon the submission of the tax relief claims via bespoke online forms, based on information that taxpayers provide via their websites. The HVAs have marketed their services as a simple method of making these claims with a user-friendly form. The Claimants operate on a “no win, no fee” basis; taxpayers only pay for their services if they are successful in securing a tax refund. As the Direction mandates the use of the P87 form, the Claimants are no longer able to submit claims on their own bespoke forms. They say that this poses a threat to the viability of their business operations, in particular when allied to the fact that many taxpayers who use their services do not know their employer's PAYE reference number and in light of the threat made to suspend the processing of their claims if incomplete forms are submitted.
The Claimants rely on the following grounds in support of their claim:
i) HMRC acted unlawfully in failing to consult HVAs before making the Direction and mandating the use of the new P87 form. The duty to consult arose as: (a) the Claimants had a legitimate expectation of consultation arising from past practice and/or from the removal of a benefit (namely the previous submission of claims via their bespoke forms); (b) the failure to consult was conspicuously unfair; and/or (c) objectively viewed, HMRC had embarked upon a consultation with the HVAs and having embarked upon such a consultation, the Defendant was required to carry it out lawfully (“Ground 1”);
ii) Paragraphs 2 and 7 of the Direction are irrational. It was irrational to give HVAs only a matter of weeks to implement the far reaching changes to their business operations, when they had informed HMRC that a change of this magnitude would take many months to implement (“Ground 2A”); and/or
iii) It is irrational for HMRC to include a field for the employer's PAYE reference number in the new mandatory form in circumstances where: (a) it is common ground that they have no power to require taxpayers to provide this information; and (b) neither the P87 form nor the guidance notes inform taxpayers that this is the case (“Ground 2B”);
iv) The threat to suspend the processing of notifications of claims for tax relief submitted by the Claimants in the event that a “high level” of forms do not contain PAYE reference numbers is ultra vires. HMRC are required to process all valid notifications for tax relief (i.e. those notifications which comply with the Direction). The Commissioners are not entitled to use their ancillary powers to achieve a result indirectly (provision of PAYE reference numbers) that they have no power to achieve directly (“Ground 3”).
The Defendant explains that it introduced the new mandatory P87 form to speed up the processing of claims and in due course enable automation of this process. Prior to this, use of a similar, albeit not identical, P87 form was voluntary. HMRC says that it has encountered significant problems in the past with the HVAs' bespoke claim forms as there has been a high rate of ineligible claims and also of incomplete claims, meaning that the Defendant has had to expend time and resources in obtaining the information. HMRC denies that there was any duty to consult with the Claimants. The Defendant also denies that the challenged decisions are irrational; it is said that the choice of date for the introduction of the mandatory form was rational as a large number of claims tend to be submitted in May – September each year. Furthermore, it is rational to ask taxpayers to provide information that is relevant to the accurate and efficient processing of their claims. It is denied that the relevant part of the 11 April 2022 letter amounted to a threat and denied that the indications there given involved an ultra vires act. It is also said that Ground 3 is speculative, premature and academic.
The Defendant also contends that the challenges raised by Grounds 1, 2A and 2B were not brought in compliance with the time limit prescribed by CPR 54.5, as the grounds to first make these claims arose on 17, 18 or 24 February 2022. The Claimants, on the other hand, submit that time ran from 7 May 2022 when the Direction came into effect. It is agreed that time ran from 11 April 2022 in respect of Ground 3.
The procedural history is relatively complex. There are two claims brought by the same Claimants, challenging the same decisions and relying on the same grounds and, in effect, the same Statement of Facts and Grounds (“SFG”). The first claim was filed on 10 May 2022 and issued on 11 May 2022 (“JR1”). The Claimants contend that it was validly served by email on 11 May 2022 or by delivery of a hard copy on the following day. The Defendant disputes that valid service occurred within the prescribed seven day period from the day of issue. On 26 May 2022 the Defendants raised the service issue and in consequence the Claimants filed a second claim on 27 May 2022 (“JR2”), contending that this was still within the CPR 54.5 time limit.
In the meantime and in consequence of the Claimants' application for expedited consideration of JR1, Foster J made directions in an order dated 13 May 2022. By application notice dated 26 May 2022, the Defendant applied to vary the case management directions made by Foster J (“Application 1”).
By a further application notice dated 1 June 2022, the Defendants applied to set aside the Claim Form in JR1 on the ground that the Claim Form had not been validly served (“Application 2”). It is accepted that the Claim Form in JR2 was validly served. On the same date, the Defendant filed an Acknowledgment of Service (“AoS”) and Summary Grounds of Resistance (“SGR”) in JR1, without prejudice to the contention that the claim had not been validly served.
By application notice dated 13 June 2022 the Claimants applied for: (i) a declaration that the Claim Form in JR1 had been validly served; or (ii) an order for alternative service (“Application 3”). On the same date the Claimants filed a Reply to the SGR.
The Defendant filed an AoS and SGR in JR2 on 26 July 2022. The SGR were in substantially the same terms as the document served in JR1, save for some updating.
Applications 1, 2 and 3 are all contested. JR1 has not been discontinued and currently both sets of proceedings are before the Court. In the absence of any agreement between the parties as to how to resolve this procedural situation, it is necessary for the Court to rule on the validity of the service of the Claim Form in JR1. By order dated 28 June 2022, HHJ Auerbach, sitting as a Deputy High Court Judge, listed a one day hearing to determine the three applications and, provided time allowed, to determine the application for permission to apply for judicial review.
The Claimants' application for judicial review is supported by witness statements made by the founders and directors of each of the companies, specifically: Bradley Jonathan Sacher (for C1), Sanjay Soni (for C2) and Anthony William Mills (for C3). The Defendant has filed three witness statements from Ronald Kelly, Senior Solicitor in the Personal Tax Team of HMRC's Solicitor's Office in support of the Defendant's applications (which I will refer to as “Kelly 1” and so forth). The Claimants rely on the statement of Stephen Barnfield, solicitor at Hill Dickinson (“Barnfield 1”), responding to Kelly 1 and supporting Application 3.
In the event, it was necessary for me to reserve judgment in order to allow sufficient time for the parties to complete their submissions on the contested applications and on permission to apply for judicial review and to avoid the question of permission having to be adjourned to a future date. This is my judgment in relation to Applications 1 – 3 and the application...
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