In a recent First-tier Tribunal Tax Chamber case it was held that HMRC regulations which require the electronic filing of VAT returns were discriminatory.  The full decision (which runs to some 154 pages) can be found here.

The electronic filing of VAT returns was made compulsory for all businesses with a turnover of over £100,000, and any newly registered business, with effect from 1 April 2010 and for all businesses with effect from 1 April 2012.   

The only exceptions provided for in the legislation are where the Commissioners are satisfied that the person is a practising member of a religious society or order whose beliefs are incompatible with the use of electronic communications, or where the taxpayer is in an insolvency procedure. 

Since 31 March 2011, the Commissioners have been able to issue penalties against taxpayers who have failed to submit returns online unless they have a reasonable excuse.

In the appeals of LH Bishop Electric Company Limited, Allan Frederick Sheldon t/a Aztec Distributors, and Winston Robert Duff Tay t/a Rhos Filling Station, the three appellants, who all ran small businesses, appealed against HMRC’s requirement that their VAT returns be filed online. Two of the appellants suffered from disabilities making it difficult or impossible for them to use a computer, and the third appellant lived in a remote area where there was unreliable or non-existent broadband access. The three appellants were of an age which made learning how to use a computer particularly difficult and they would have had to bear the expense of instructing an agent. The three appellants had filed paper returns timeously and accurately for many years previously. These appeals were heard along with the appeal of Brinklow Marina Limited (“Brinklow”)Brinklow’s complaint was slightly different in that it did not claim to have difficulties in filing online, but that the risks in filing VAT returns and paying VAT online were such that the law should not compel it to do soThese appeals were taken as test cases, with approximately 100 taxpayers having stood behind these cases.

The Tribunal, with Judge Barbara Mosedale presiding, held in a very detailed judgement that the regulations which require online filing of VAT returns, without providing an exemption for older people, people with disabilities and those who lived in areas which lacked broadband coverage, were in breach of the appellants’ human rights and were unlawful under EU law.  Brinklow’s appeal was unsuccessful.  The Tribunal found that there is no right to guaranteed risk free communications and that the requirement to file online was not by itself unlawful. 

Anthony Thomas, Chairman of the Low Income Tax Reform Group (LITRG) which supported the appellants, commented that the “case shows that HMRC must consider the needs of taxpayers when making regulations about complying with VAT and other tax requirements”. Mr Thomas also commented that “digital mandation is a policy that contravenes the rule of law when it fails to make provision for the needs of older or disabled people or those who cannot access broadband easily because of where they live.” LITRG has indicated that it would be willing to work with HMRC to ensure that such people were treated appropriately, which may involve providing them with alternative means of complying with tax obligations.    

Interestingly, issued simultaneously was Judge Mosedale’s decision in the case of Graham and Abigail Blackburn, t/a Cornish Moorland Honey. This was one of a smaller group of cases in which the objection to online filing was on religious grounds.

In the Blackburn case, the Tribunal found that the appellants’ Article 9 rights to freedom of thought, conscience and religion were breached by the application of regulations.  Having heard Mr Blackburn’s evidence, the Tribunal accepted that using a computer, or having an agent use it on their behalf, was contrary to Mr & Mrs Blackburn’s religious beliefs.  The religious society to which Mr and Mrs Blackburn belonged did not have beliefs which were “incompatible with the use of electronic communications” and therefore on a straightforward reading of the regulations, the appellants did not fall within the stated exemption.  However, the Tribunal found that the requirement to file online restricted the manifestation of the appellants’ belief that they should “shun using computers”  and that manifestation was in fulfilment of a duty imposed on them by their religion and/or was ‘intimately linked’ with their religion.  The Tribunal concluded that it could read the regulations so as to give effect to them in a way which was compatible with the appellant’s Convention rights and in so doing found that the exemptions applied and allowed the appeal.  The decision can be found here.


The appeals were what the Tribunal has described as “tranche 1” cases, in that they involved taxpayers who had received notifications from HMRC about the filing of online returns.  Since 1 April 2012, the requirement of a taxpayer to file online no longer depends on a decision by HMRC.  The result is that there is no appealable decision for taxpayer’s to appeal against.  Judge Mosedale has made it clear that this is very unsatisfactory, as in relation to those cases, the only challenge to the regulations will be by judicial review proceedings or by appealing against a penalty imposed for non-compliance.  (See Judge Mosedale’s decision in Le Bistingo Ltd also released on 2 October 2013).  Therefore, a taxpayer who feels that the regulations are also discriminatory in relation to their particular circumstances will have a more difficult route to follow should they wish to challenge the regulations. 

It will be interesting to see whether HMRC appeal any of the decisions.  They will have 56 days from the date the decisions were issued to seek leave to appeal.  The decisions raise significant points regarding the Tribunal’s jurisdiction to consider the appellants’ cases under public law and the European Convention on Human Rights.  The Blackburn case in particular will be of interest in relation to the ability of the Tribunal to read UK secondary legislation in conformity with the Convention.