In HBOS Plc and Lloyds Banking Group Plc v HMRC [2022] UKUT 139 (TCC), the Upper Tribunal (UT) dismissed the appellants' application, objecting to HMRC raising new issues in response to the appellants' arguments on appeal.

Background

The underlying substantive appeals concern HMRC's liability for interest under section 78, Value Added Tax Act 1994 (VATA), on VAT bad debt relief (BDR) claims. Section 78 makes provision for interest to be paid to taxpayers in certain cases of error on the part of HMRC. The BDR claims arose out of the appellants' car hire purchase business supplies in a period during which claims for BDR had to comply with certain conditions. One such condition (the property condition) was found to be unlawful under EU law. HMRC paid interest to the appellants from the dates the appellants claimed BDR up until the dates HMRC paid the BDR, as it had incorrectly insisted that the property condition had to be fulfilled.

The appellants argued they were entitled to interest from dates based on return dates linked to a statutory waiting period, or if later, the dates the debts were written off, which were many years before any claim for BDR had been made (the earlier dates). The agreed issue for determination by the FTT was whether interest arose from the claim dates (as HMRC argued) or the earlier dates (as the appellants argued).

The appellants’ claim for interest from the earlier dates was based on section 78(1)(c) or (d), VATA, it being common ground that (a) or (b) in that section did not apply. The FTT considered the enactment of the property condition was not an “error on the part of the Commissioners”, for the purposes of section 78(1), because it was an act of Parliament rather than of HMRC. It also found the reason the appellants did not claim BDR earlier was their belief that the property condition was legally valid. Section 78 was not engaged on the facts as there was not a causal connection between an “error on the part of the Commissioners” and one of the outcomes in section 78(1)(c) or (d) (the “due to …” requirement in section 78(1)). The FTT went on to consider the other aspects of section 78 that were argued at the hearing on the “hypothetical basis” that the “due to” requirement was satisfied, rejecting the appellants’ case on section 78(1)(c) but accepting it on section 78(1)(d). The FTT, having satisfied itself its interpretation and application of section 78 was consistent with the relevant EU law principles, and that no settlement agreement had arisen, dismissed the appellants’ appeals.

HMRC had also raised an alternative argument that, even if section 78(1)(d) was satisfied, the applicable period would begin later than the earlier dates because it was likely the appellants would have delayed claiming while discussing attribution of consideration issues regarding the finance and goods elements of the hire purchase supplies (the further issue). The FTT indicated that it did not determine the further issue as it had determined the agreed issue in HMRC’s favour (although it was part of the appellants’ case in the current application, that the FTT nevertheless did make an implicit determination rejecting the further issue).

Following their unsuccessful appeal in the FTT, the appellants filed a notice of appeal. In its Rule 24 response to the appellants' notice of appeal, HMRC raised the following two issues:

(1) it alleged that the FTT erred in law in its interpretation of section 78(1)(d); and

(2) it relied om an alternative argument based on the further issue.

The appellants objected, arguing that HMRC ought to have sought permission to appeal from the FTT in relation to these issues.

UT decision

The appellants' application was dismissed.

The UT confirmed that HMRC did not require permission to appeal and therefore the questions of whether the UT could waive that requirement and whether the UT should grant permission out of time, did not fall to be determined.

In reaching its decision, the UT applied the following principles:

(1) appeals lie against the decision;

(2) to identify the decision, you need to look at the FTT's jurisdiction and the issues put before the FTT;

(3) a party can only appeal against the decision when it is unsuccessful;

(4) a party who was successful in the decision cannot appeal reasons in that decision that went against it;

(5) it follows from (3) and (4) that a successful party to the decision, as properly identified, cannot appeal other findings or reasoning which were not part of the reasons in the decision; this includes views of the FTT on how it would have concluded the decision on the hypothesis that it was wrong in the decision it did make.

The UT therefore concluded that HMRC could not, having won on the decision, have sought permission to appeal against an issue which the FTT did not decide, or purport to decide, let alone decide against HMRC.

Comment

Since 6 April of this year, Rule 24(1C) of the Tribunal Procedure (Upper Tribunal) Rules, SI 2008/2698 (the UT rules), has permitted respondents to include a permission to appeal (PTA) application to the UT in their response to a notice of appeal (instead of making a separate PTA application to the FTT) but the UT rules do not specify when a winning party is required to apply for PTA. This decision is therefore helpful in providing guidance to respondents when an unsuccessful party before the FTT appeals to the UT.

Where a party has been entirely successful and the reasons for the relevant decision are clear, that party need not apply for PTA in order to rely on new arguments in response to the unsuccessful party's appeal.

The decision can be viewed here.