X Ltd and Others v R & C Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 30 January 2020 |
| Neutral Citation | [2020] UKUT 29 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2020] UKUT 29 (TCC)
Judge Jonathan Richards, Judge Thomas Scott
Upper Tribunal (Tax and Chancery Chamber)
Procedure – Taxpayers' applications for closure notices under FA 1998, Sch. 18, para. 33 – HMRC applying to FTT without notice for approval of third party information notices under FA 2008, Sch. 36, para. 3 – FTT refusing to allow taxpayers to participate in third party notice hearings and staying closure notice applications – FTT's powers in without notice applications to approve information notices – Whether FTT's decisions wrong in law – Wrong to conclude ex parte hearing could not be heard in public – One decision remade but same overall results.
The Upper Tribunal (UT) dismissed appeals against: (a) a First-tier Tribunal (FTT) decision not to allow an inter partes hearing to decide whether to approve an HMRC application for the giving of a third party information notice in R & C Commrs without notice to X Ltd [2018] TC 06846; and (b) an FTT decision to stay closure notice applications behind HMRC's application for approval of third party information notices.
HMRC opened enquiries into the tax positions of X Ltd, Y Ltd and Z Ltd (the “Companies”) because they were concerned about cash extractions from the Companies. The Companies became unhappy with the progress of the enquiries and in October 2017 they applied (the “Closure Notice Application”) to the FTT under FA 1998, Sch. 18, para. 33, for a direction requiring HMRC to close the enquiries.
In parallel with the closure notice proceedings, HMRC had written to the directors and shareholders of the Companies and their spouses (the “Individuals”) asking them to provide information on their finances. After the individuals refused to provide the information, HMRC sent them formal “opportunity letters” explaining that they would be applying to the FTT under FA 2008, Sch. 36, para. 3 for approval of third party information notices. HMRC then applied to the FTT for approval of such information notices (the “Schedule 36 Application”).
In May 2018, the Companies and Individuals (together the “Taxpayers” or the “appellants”) applied (the Adversarial Hearing Application) to the FTT for directions which would have given the Taxpayers:
- the ability to attend a public hearing of the Sch. 36 Application;
- the right to be provided with a summary of HMRC's arguments in support of the application; and
- the ability to make submissions to the FTT as to why the Sch. 36 Application should not be approved.
In July 2018, the FTT listed the Closure Notice Application for oral hearing in September 2018, on dates agreed as suitable by both parties. In August 2018, HMRC applied to the FTT to postpone the hearing and to stay it pending determination of the Sch. 36 Application. The Companies objected to the application and provided a witness statement and 624 pages of new documents and information in support of the Closure Notice Application.
The FTT allowed HMRC's Postponement Application and stayed the Closure Notice Application pending determination of the Sch. 36 Application. The FTT decided that it would grant the Postponement Application on the basis of the volume of new material that the Companies had provided and decided to stay it because the outcome of the Sch. 36 Application would be an important factor in the Tribunal's consideration of the Closure Notice Applications.
In R & C Commrs without notice to X Ltd [2018] TC 06846, the FTT dismissed the Adversarial Hearing Application. The FTT decided that it did not have the power to make the directions sought.
The Companies appealed against the FTT's decision on the Postponement Application and both the Companies and the Individuals appealed against the FTT's refusal of the Adversarial Hearing Application. The UT dismissed both appeals.
With regard to the Postponement Application, the Companies accepted that there was little point appealing against the decision to postpone the hearing but appealed against the decision to stay the Closure Notice Application behind the Sch. 36 Application. In dismissing the appeal, the UT decided that:
- The FTT's decision was not inadequately reasoned. The FTT's explanation that it had rejected one of the Companies' core arguments and had accepted one of HMRC's core arguments was adequate to explain why, in the context of an application it clearly found to be finely balanced, it had decided that the relisted Closure Notice Application should be heard after the Sch. 36 hearing.
- There was no particular time limit in legislation or in the FTT rules by which HMRC had to apply for a stay.
- Although the Companies had a good case for asking the FTT to relist the Closure Notice Application before the Sch. 36 Application was heard, the fact that they had a good case did not mean that the FTT was plainly wrong to prefer HMRC's argument. In the UT's judgment, it was perfectly open to the FTT to conclude that it would benefit from knowing, before deciding whether to direct HMRC to close their enquiries, whether and to what extent HMRC had been successful in the Sch. 36 Application. The FTT had a difficult decision to make. All possible courses of action came with their own advantages and disadvantages. It was appropriate for the FTT to reach an on balance conclusion having weighed matters up.
With regard to the Sch. 36 Application, given the statutory provisions in FA 2008, Sch. 36, para. 3 and commentary from courts senior to the UT in R (on the application of Derrin Brothers Properties Ltd) v A Judge of the First-tier Tribunal (Tax Chamber) [2016] BTC 10 and R v Special Commr, ex parte Morgan Grenfell & Co Ltd [2001] BTC 000, the UT reached the clear conclusion that the FTT simply lacked any power to grant the Taxpayers' request that they be permitted to participate in an inter partes determination of the Sch. 36 Application. The UT accepted that Parliament would have been aware of the FTT's case management powers in the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2003/273), r. 5(1) when amending Sch. 36 to provide that applications for approval of third party notices should be made to the FTT. It also acknowledged that Sch. 36 did not expressly set out a procedure that the FTT was obliged to follow when considering an application for approval of an information notice. There was, therefore, room for an argument that Parliament intended to leave matters of procedure to the FTT so that it retained the power to direct an inter partes hearing. However, the UT came to the conclusion that, by necessary implication, the scheme of the legislation in Sch. 36 excludes the possibility of information notices being approved following an inter partes hearing. Since the FTT's case management powers could only apply in the context of directions that the FTT was authorised to give it did not consider that the existence of those case management powers supported the Taxpayers' submissions.
The UT concluded there was no absolute bar to the FTT directing that an ex parte hearing be heard in public. It followed that, by the FTT concluding that it did not even have the limited power to direct an ex parte hearing to be heard in public, it had made an error of law. Although the UT stressed that it was not saying that power should be exercised routinely or even at all. In view of this conclusion the UT set aside the FTT's decision on that point and remade it. It noted that allegations that had been made about HMRC's behaviour did not indicate that the hearing should be in public. The UT accordingly remade the FTT's decision so as to lead to the same overall result: the Sch. 36 Application was to be heard in private.
This decision confirms that when HMRC apply to the FTT for approval of a third party information notice the FTT does not have any power to permit the relevant taxpayer to participate in any hearing.
Michael Firth, instructed by Independent Tax & Forensic Services LLP, appeared for the appellants
Julie Anderson, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondent
[1] The two appeals in this case arise in relation to competing applications of the appellants and HMRC. On the one hand, the three corporate appellants (the “Companies”) applied under paragraph 33 of Schedule 18 of Finance Act 1998 (“Schedule 18”) to the First-tier Tribunal (Tax Chamber) (the “FTT”) for a direction requiring HMRC to close enquiries into the Companies' tax returns. On the other hand, HMRC applied to the FTT under paragraph 3 of Schedule 36 of Finance Act 2008 (“Schedule 36”) for approval of “third party notices” requiring 17 individuals (the “Individuals”) to provide information HMRC considered relevant to the Companies' tax position.
[2] The Companies and the Individuals (together the “Taxpayers”) are appealing the FTT's decision that they should have little participation in HMRC's application under Schedule 36. The Companies are appealing against the FTT's decision that their applications for closure notices should not be determined until after HMRC's application under Schedule 36.
[3] Some aspects of the relevant background were contentious, with the Taxpayers making allegations of impropriety in relation to HMRC's conduct. In this section, we set out what is intended to be an uncontroversial and neutral account of the relevant background. We will address the relevance or otherwise of the Taxpayers' allegations as to HMRC's conduct later in this decision.
[4] In 2014, HMRC opened enquiries into the tax positions of the Companies under the provisions of paragraph 24 of Schedule 18. Very broadly, the FTT's decisions record that HMRC were concerned that there had been significant “extractions” of cash from the Companies that were not accurately reflected in the Companies' records which could have led to the Companies' tax liabilities being understated.
[5] The...
To continue reading
Request your trial
-
Quentin v HMRC
...DIVISION) ON APPEAL FROM THE UPPER TRIBUNAL (TAX AND CHANCERY CHAMBER) MR JUSTICE MICHAEL GREEN AND UPPER TRIBUNAL JUDGE ANDREW SCOTT [2020] UKUT 29 (TCC) Royal Courts of Justice Strand, London, WC2A 2LL Michael Firth (instructed by Direct Access) for the Akash Nawbatt KC and Michael Ripley......
-
X Ltd, Y Ltd, Z Ltd and 17 Individuals v The Commissioners for HM Revenue and Customs
...[2020] UKUT 0029 (TCC) Appeal number: UT/2019/0036 UT/2019/0037 PROCEDURE – Taxpayers’ applications for closure notices – HMRC applying to FTT without notice for approval of third party information notices – FTT refusing to allow taxpayers to participate in third party notice hearings and s......