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You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Foresight Financial Services Ltd v Revenue & Customs [2011] UKFTT 647 (TC) (05 October 2011) URL: http://www.bailii.org/uk/cases/UKFTT/TC/2011/TC01489.html Cite as: [2011] UKFTT 647 (TC) |
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[2011] UKFTT 647 (TC)
TC01489
Appeal number: TC/2011/04024
Penalty; late filing; fairness; s98A(2)(a) TMA 1970. Common law fairness. Conscionable conduct. Conspicuous unfairness. Oxfam (per Mr. Justice Sales) explained.
FIRST-TIER TRIBUNAL
TAX
FORESIGHT FINANCIAL SERVICES LIMITED Appellant
- and -
TRIBUNAL: GERAINT JONES Q. C. (TRIBUNAL JUDGE)
The Tribunal determined the appeal on 20 September 2011 without a hearing under the provisions of Rule 26 of the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009 (default paper cases) having first read the Notice of Appeal dated 28 May 2011 and HMRC’s Statement of Case submitted on 4 July 2011.
© CROWN COPYRIGHT 2011
DECISION
The Background.
The Law.
5. So far as the State and its several organs are concerned (HMRC being one such organ), there is a common law duty of fairness or, to put it in another way, a duty not to act in a manner that is conspicuously unfair towards any citizen/person. In R v Secretary of State for the Home Department [2003] EWCA Civ 364 at paragraph 69, the Court of Appeal expounded the principle as related to the decision making process under scrutiny in that appeal. In Secretary of State for the Home Department v Thakur [2011] UKUT 151 the Upper Tribunal, in paragraph 12 of its Decision, also recognised that principle, again in the context of a decision making process.
8. A convenient starting point is the decision of the House of Lords in CEC v J H Corbitt (Numismatists) Ltd [1980] STC 231 where the House of Lords had to determine whether, in relation to an appeal against an assessment which depended upon a prior exercise of a discretion by the Commissioners, the Tribunal had power under the then equivalent of section 83 Value Added Tax Act 1994 (section 40 Finance Act 1972) to review the exercise of the discretion. The House of Lords held that the form in which the discretion was given precluded any such review and that if the Act had been intended to give the Tribunal a supervisory jurisdiction, clear statutory words would have been expected.
9. In CEC v National Westminster Bank plc [2003] STC 1072 HMRC had relied upon a defence of unjust enrichment against an appellant's claim for repayment of VAT, but had not invoked that defence against a similar claim by one of the appellant's commercial rivals. The taxpayer bank complained of unfair treatment and Mr Justice Jacob had to determine whether the Tribunal had a supervisory jurisdiction in respect of the conduct of HMRC. Following the earlier decision of Mr Justice Moses in Marks and Spencer plc v CEC [1999] STC 205 he decided that the Tribunal had no jurisdiction to supervise the conduct of HMRC and/or so to quash its decision.
10. It is currently suggested that the decision of Mr Justice Sales in Oxfam v HMRC [2010] STC 686 leads to a different result because, in that case, the learned judge decided that the First Tier Tribunal did have jurisdiction to deal with the taxpayer’s case which was (in part) put on the basis that it had a legitimate expectation that a given approach to its tax affairs would be applied by HMRC. It is important to appreciate exactly what the learned judge did deal with and rule upon in that case – as to which, see below.
12. In my judgement the Oxfam decision cannot be properly understood whilst there is a misunderstanding of the differing principles involved. There has, so far, been a failure to advert to the fundamental difference between :
(1) the First Tier Tribunal exercising a supervisory jurisdiction by way of judicial review, and
(2) the First Tier Tribunal applying sound principles of common law; which has nothing to do with exercising a supervisory jurisdiction by way of judicial review.
13. When I have regard to section 15 of the Tribunals Courts and Enforcement Act 2007 it is notable that the Upper Tribunal has been given a Judicial Review power because that section specifically provides that it may grant relief of the kind that ordinarily comes within Judicial Review powers. No such power is given to the First Tier Tribunal. Nor, in my judgement, has the First Tier Tribunal ever claimed to exercise or purported to exercise such powers; any more than Mr Justice Sales said that it has any such powers.
14. What, in my judgement, Mr Justice Sales decided in the Oxfam case was that sound principles of the common law are not to be left languishing outside the Tribunal room door when an appeal is heard in the First Tier Tribunal. He decided that they are a welcome participant at the appeal proceedings and, in appropriate circumstances, must be applied. There is plainly a stark distinction between the Tribunal, on the one hand, applying sound common law principles, which amounts to the application of substantive common law to the appeal proceedings and, on the other hand, seeking to exercise a supervisory power by way of Judicial Review. Once that distinction is drawn and kept in mind, it seems to me that the authorities are readily understood and reconciled.
15. If support for that proposition is needed it is to be found in the line of cases Wandsworth London Borough Council v Winder [1985] 1 AC 461, followed in Clark v University of Lincolnshire and Humberside [2000] 3 All ER 752 as applied and explained in Rhondda Cynon Taff Borough Council v Watkins [2003] 1 WLR 1864. In the latter decision the Court of Appeal decided that in private law proceedings relating to the possession of land, the defendant was not and could not be precluded from relying upon what the claimant characterised as a public law defence, absent a clear provision appearing in a statute, court rules or authority to preclude him from so doing. There was no such clear statutory provision, no court rules precluding such reliance and no authority precluding such reliance. Indeed, the earlier authorities supported the ability of the defendant to rely upon something that amounted to a public law defence in private law proceedings for the possession of land.
16. That line of authority indicates, in my judgement, the application of sound common law principles by way of a defence to a claim, notwithstanding that the pleaded defence would independently found the basis for relief in Judicial Review proceedings.
17. Moreover, if we look at paragraphs 61 – 71 of the judgment of Mr. Justice Sales in Oxfam v HMRC [2009] EWHC 3078 (Ch) it seems clear to me, and is implicit in what he said, that he was recognising that common law principles are to be taken into account by the Tribunal. He was not saying, and nowhere did he say, that the First Tier Tribunal could exercise a judicial review function. One could not reasonably think that such a learned judge would have failed to have had in mind the clear distinction between applying common law principles (on the one hand) and exercising judicial review powers (on the other hand). The fact that he did not advert to the Winder line of authorities (see above) does not detract from that point.
19. HMRC may argue (as it did in its Review decision in this case) that it is not under a statutory obligation to issue any reminder to an employer to file a P35. That is correct. Nonetheless, as and when a First (or subsequent) Penalty Notice is sent it inevitably has the effect of being a de facto reminder. That is something that HMRC will inevitably realise; as any such realisation is dictated by common sense.
21. As explained above the general proposition that the common law has no part to play in any proceedings before a statutory Tribunal is, in my judgement, wrong. This Tribunal applies common law principles in just about every case that it hears and determines. For example, there is a common law duty to conduct proceedings in a fair and open manner applying, amongst others, the principle audi alterem partem. There is a common law duty upon a judge to recuse himself if it would be inappropriate for him to sit on a particular case because it might give rise to a perception of partiality. The fact that those are procedural matters is not, in my judgement, a basis for differentiating between applications of the common law in respect of those procedural issues and the application of the common law’s other well established important substantive principles such as the duty of a public body to act fairly or, perhaps I should say, its duty not to act in a manner that is conspicuously unfair. That is a duty that arises at common law. Similarly, it should be remembered that the Tribunal applies statutory provisions other than those found in revenue specific statutes. For example, the Tribunal has to apply section 2 European Communities Act 1972, which requires Courts and Tribunals to give effect to rights, powers, liabilities, obligations and restrictions from time to time created or arising by or under the Treaties (as defined).
The Facts.
24. As set out above, the default until the 21 October 2010 is admitted.
27. I am entitled to take judicial notice (based upon experience of sitting in a specialist Tribunal) of the fact that where a taxpayer defaults in sending in a VAT return on time, or defaults in paying the amount of VAT due on time, a Default Notice or Surcharge Notice (whichever is appropriate) is usually sent out within 14 – 21 days. I can and do take judicial notice of that fact. In a VAT default case the penalty (if applicable) does not increase with the passage of time, by contrast to the penalty regime for failing to file an end of year return by the 19 May. Thus in a VAT case HMRC has no interest in delaying sending out the Penalty Notice (where applicable), as the penalty does not increase as time goes by. It may be otherwise in P35 default situations.
32. In my judgement the conduct of HMRC in desisting from sending out a timeous First Penalty Notice gives rise to conspicuous unfairness which would be recognised as such by any fair-minded objective observer. Such an objective observer would recognise such conspicuous unfairness being caused by HMRC choosing not to notify the appellant that it had incurred any penalty until well into September 2010. In my judgement, it was/is not the intention of Parliament, or within its contemplation based upon s98A Taxes Management Act 1970 (and its other provisions), that HMRC would or should desist from acting timeously in issuing a first (or other) Penalty Notice.
(1) HMRC’s failure to comply with the obvious intention of Parliament that where a penalty is incurred, that penalty should be promptly notified to and collected from the transgressor.
(2) The complete lack of any explanation for, or justification of, HMRC’s dilatoriness in failing to send out a First Penalty Notice for four months or thereabouts.
(3) The fact that HMRC notifies and collects penalties or surcharges for failing to file a VAT return or failing to make a VAT payment, with expected promptness. By contrast, it shows no such inclination to act with promptitude in cases involving a penalty for failing to file end of year returns, which just happen to incur increasing penalty sums as time goes by.
(4) By failing to act promptly in notifying and collecting penalties due for a failure to file an end of year return on time, HMRC is thereby failing to give effect to the intention of Parliament that it should so act.
(5) It is an overwhelming inference that if HMRC can set its computer system to notify VAT penalties promptly, its computer system could also be persuaded to notify late filing penalties in respect of end of year returns, with equal promptness.
34. In my judgement the only fair and just outcome to this appeal is that as a result of the conspicuous unfairness referred to above, which meant that the appellant had no prompt de facto reminder that its default needed to be remedied, the penalty relating to the period of conspicuous unfairness, which I find on the facts of this case to be three months, should be disallowed so as to negate the effect of that identified conspicuous unfairness.
(1) that the appellant puts forward an excuse, and
(2) when viewed objectively, that excuse is properly to be characterised as reasonable.
37. In my judgement the internal failing of the administrative procedures within the appellant company, which gave rise to the (unexplained) oversight, do not amount to an excuse which, when viewed objectively, can properly be characterised as reasonable.
39. Applying those principles this appeal is allowed in part and the penalty reduced to £300.
Appeal allowed in part.
The penalty is reduced to £300.