A firm of accountants (Lunn) successfully applied for judicial review of a decision by HMRC to cease dealing with it as authorised tax representative1.
Following increasing concerns about a significant number of tax returns submitted by Lunn on behalf its clients, the local tax inspectorate began a criminal investigation. They came to the view that there were reasonable grounds to conclude that Lunn had systematically committed fraud in its dealings and HMRC decided to terminate Lunn’s status as an authorised agent.
Lunn challenged the legality of that decision on two grounds: (1) that HMRC had failed to give Lunn the opportunity to make representations, before it took the decision; and (2) that HMRC had failed adequately to state the reasons for its decision.
The court ruled that fairness required that Lunn should have been given the opportunity to make representations before the decision was made. Lunn had been longestablished as an authorised tax agent and had built up a significant client base. This status (of authorised tax agent) was valuable to a tax adviser and termination of that authority was likely to cause many clients to switch tax advisers and make it hard for the firm to acquire new clients. The fact that Lunn’s status was terminated for suspected systemic fraud was likely to cause Lunn long-term reputational damage and hamper its ability to rebuild its business. In such circumstances, Lunn should have been given the opportunity to consider whether it wished to set out a reasonably detailed response to such serious allegations.
The court also held that although there was no general duty on HMRC to give reasons for its decisions, in these circumstances Lunn was entitled to know that its probity and integrity were in issue. Fairness required that reasons be given to explain the termination of Lunn’s authorised tax agency. It quashed the decision on the ground of unlawful procedural failure and the matter was remitted to the Commissioners for reconsideration.