An interesting procedural issue was recently considered by the Upper Tribunal ("UT") in Steven Price, John Myers and James Lucas v HMRC. The UT had to consider the distinction between affirmation of a decision of the First-tier Tribunal ("FTT") on different grounds to those relied upon by the FTT, and whether the respondent to an appeal requires permission to appeal in order to enable it to contend for a different outcome in relation to one specific aspect of the FTT's decision.
The original appeals to the FTT concerned a tax avoidance scheme which was intended to exploit capital gains tax ("CGT") base cost rules for employment-related "securities options" and "convertible securities" to generate CGT losses that could be used to relieve income tax.
The scheme attracted a large number of participants of whom Steven Price, John Myers and James Lucas (the "Appellants") were examples.
In order for the scheme to create the intended fiscal consequences, it was necessary for the Appellants to establish that, for CGT purposes, their acquisition costs of acquiring shares pursuant to an option was the value for which was contended. This meant that they had to avoid being caught by deeming provisions contained within the Taxation of Capital Gains Act 1992 ("TCGA"), in particular, section 17, which has the effect of substituting market value where an asset is acquired otherwise than by a bargain made at arm's length.
The FTT, concluded that the scheme was not effective and rejected the Appellants' argument that they made substantial allowable losses.
Before the FTT the parties had proceeded on the basis that the participants' acquisition of the relevant shares was a non-arm's length bargain such that section 17 would prima facia apply. The Appellants' case was that the scheme had succeeded in coming within sections 144ZA or 149AA TCGA, and thus avoided section 17. However, somewhat surprisingly, the FTT, decided that the market value rule did not apply for a different reason, namely, because the relevant transaction was not "otherwise than by way of a bargain made at arm's length" and hence was not subject to section 17 at all.
This meant that it was necessary for the FTT to decide what the acquisition cost of the shares was, since it was not market value under section 17, which required a consideration of section 38 TCGA, under which the acquisition cost of an asset is the amount of the consideration given "wholly and exclusively" for the acquisition of the asset.
The FTT concluded that the Appellants did not give the amount paid, "wholly and exclusively" for the shares. The most that could be said to have been given for the shares, for example in the case of Mr Myers, was £600. The FTT therefore reduced Mr Myers' acquisition cost to £600 and his allowable loss to £48.
On appeal to the UT, the Appellants sought to uphold the FTT's decision that section 17 did not apply (referred to as "Decision 1") and challenged the FTT's decision on the "wholly and exclusively" issue, applying section 38 TCGA (referred to as "Decision 2").
The procedural issue before the Upper Tribunal
The Appellants obtained the permission of the FTT to appeal against Decision 2 to the UT and they contended that that was the only issue properly before the UT. The Appellants argued that if HMRC wished to challenge Decision 1 before the UT, it needed to seek permission to appeal that aspect of the FTT's decision, but as it had not done so, the UT could not, and should not, grant HMRC permission to challenge Decision 1. HMRC contended that it did not need permission to challenge Decision 1.
The UT rejected the Appellants' argument in relation to Decision 1, and concluded that HMRC did not need permission to appeal that decision. The Appellants were also unsuccessful in relation to Decision 2, and the appeal was therefore dismissed.
What was the decision of the FTT?
The UT said that an important consideration in identifying the decision of a court or tribunal was to identify what issue or issues had been referred to it for decision. It was appropriate, therefore, to examine what was referred to the FTT under the Taxes Management Act 1970 ("TMA").
Mr Myers appealed to the FTT by notice dated 11 September 2012, which specified the decision which he was appealing "as the closure notice dated 23 August 2012" and "the amount of tax" as "£2,400,258.80".
The UT noted that:
- The appeal was brought under section 31(1)(b) TMA under which the appeal was brought against any conclusion stated or amendment made in HMRC's closure notice.
- The FTT was acting under section 49(3) TMA, under which its jurisdiction was to decide the matter in question.
- The FTT's powers were contained in section 50(7A) TMA, which required it to decide (i) whether Mr Myers' claim to offset capital losses should have been allowed and (ii) if so, the extent of the allowance that was appropriate.
The UT commented that (paragraph 46):
"These are therefore the issues which were referred to the FTT by Mr Myers' appeal, the issues which the FTT had jurisdiction to decide under s49D(3) TMA and the issues they were required to decide by s50(7) TMA."
None of the other matters considered by the FTT therefore were matters that were or could have themselves been the subject of an appeal under section 31(1)(b) TMA, or arose for decision under section 50(7A) TMA, they were rather matters that formed part of the reason why it decided what it did.
Before the FTT, HMRC's position had been that the market value was "some £600 odd" and the UT noted that HMRC did not challenge the findings of the FTT in this regard. The UT concluded therefore that HMRC's Respondents' notice fell squarely within the principle that a Respondent who sought to uphold the decision below by a different route was not thereby appealing that decision, and did not need permission to do so.
The UT's decision contains a useful summary of the provisions which apply to appeals from the FTT to the UT and is a helpful reminder of the principles which apply in determining whether a party is simply seeking to affirm a decision on different grounds to those relied upon by the FTT (which argument may be contained in the Respondent's Response to the Appellant's Notice of Appeal) or is challenging the decision itself, which requires an appeal, and permission to bring that appeal.