The First-tier Tribunal (Tax Chamber) ('FTT') has recently considered various difficult questions in relation to its public law jurisdiction and the relevance of human rights issues to taxation disputes in LH Bishop & Others v HMRC.
Three of the four appellants had been selected from a group of approximately 100 taxpayers who had filed appeals against notices to file online, mostly in VAT cases, on the basis that they would face difficulty doing so due to their age or disability, or that they lived too remotely from easy internet access.
A fourth appellant, whose appeal was merged with this case at a case management hearing, was ultimately unsuccessful in his argument that the risks of making a VAT return online were such that it should not be compelled to do so.
Much of the discussion in the judgment turns on the FTT's jurisdiction, which was based on section 83(1)(zc) VATA.
"…an appeal shall lie to a tribunal with respect to any of the following matters –
… a decision of the Commissioners about the application of regulations under section 135 of the Finance Act 2002 (mandatory electronic filing of returns)in connection with VAT (including, in particular, a decision as to whether a requirement of the regulations applies and a decision to impose a penalty).
The FTT made a number of observations as to its public law jurisdiction which will be of wide interest to taxpayers and practitioners a like. Of particular note, is the FTT's comment that:
"In cases where the taxpayer is claiming that HMRC should have exercised a discretion to exempt the taxpayer from liability, the taxpayer is in reality claiming that in the particular circumstances of his case the imposition of tax on him was not fair. Parliament cannot be supposed to have intended that the tax tribunal should have what amounts to jurisdiction to consider whether the imposition of tax was fair."
Instead, the "only way to challenge a refusal to exercise a discretion to exempt from liability is by judicial review". This, the FTT held, was correct not only on the authorities but also from a policy perspective.
This did not mean, however, that the FTT has no public law jurisdiction. The type of cases in which it will be relevant will, however, be "few and far between", and fall into two categories: to look at the legality of secondary legislation, and to look at an "exercise of discretion already taken by HMRC, either because an assessment depends on it or because ... HMRC are (allegedly) refusing to abide by a lawful exercise of their discretion".
The FTT found that there was an unjustified interference with the appellants' Convention rights, specifically Article 1 of the First Protocol (the right to the peaceful enjoyment of one's possessions) and Article 8 (the right to respect for private and family right) when combined with Article 14 (which requires that the Convention rights be enjoyed without discrimination). This was on the basis that there was a disproportionate application to those who were computer illiterate due to age, disabled in a way that made using a computer difficult or painful, or who lived too remotely from a reliable internet connection.
The FTT noted that this was a "very unusual case", and that it is "fairly unusual for the Convention to be relevant in a tax case". HMRC relied heavily at the hearing on the availability of telephone filing as what the Judge called a "get out of jail free card", on the basis that this concession would always trump the possibility that the relevant regulations unlawfully discriminated against the elderly, disabled, or those living remotely. In the view of the Judge, there was no justification for HMRC not to publish this policy. The very existence of the concession was an indication that the failure to exempt was discriminatory, but HMRC's implementation of the concession meant it should not be able to rely on it as a defence.
The Judge also noted that, since the appeals were made, the law has moved on, meaning that the "only way a taxpayer now has to challenge the regulations is by judicial review proceedings or by appealing against a penalty imposed for non-compliance". On this point she referred to another of her decisions Le Bistingo Ltd, published contemporaneously with this case.
As an aside, taxpayers and practitioners may empathise with the Judge's comments on the reference to taxpayers as HMRC's customers. Judge Mosedale described this as a "regrettable misuse of language by HMRC" which "implies people have a choice whether to interact with HMRC and that therefore the payment of taxes is voluntary".
To read the judgment click here.