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England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Wallace v Revenue And Customs  EWHC 3115 (Ch) (06 December 2017)
Cite as:  2 All ER 833,  BTC 2,  STI 88,  STC 790,  EWHC 3115 (Ch)
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London EC4A 1NL
B e f o r e :
| MARK WALLACE
|- and -
|HER MAJESTY'S REVENUE AND CUSTOMS
John Brinsmead-Stockham (instructed by HMRC Solicitor's Office) for the Defendant
Hearing dates: 25 September 2017
Crown Copyright ©
Chief Master Marsh:
The old regime
"(1) If a person who has paid income tax or capital gains tax under an assessment (whether a self-assessment or otherwise) alleges that the assessment was excessive by reason of some error or mistake in a return, he may by notice in writing at any time not later than five years after the 31st January next following the year of assessment to which the return relates, make a claim to the Board for relief. [emphasis added]
(2) On receiving the claim the Board shall inquire into the matter and shall, subject to the provisions of this section, give by way of repayment such relief … in respect of the error or mistake as is reasonable and just: …
(2A) No relief shall be given under this section in respect of –
(a) an error or mistake as to the basis on which the liability of the claimant ought to have been computed where the return was in fact made on the basis or in accordance with the practice generally prevailing at the time when it was made; …
(b) an error or mistake in a claim which is included in the return, or
(c) an error or mistake consisting of the making of a claim under section 809B of ITA 2007 (claim for remittance basis).
(3) In determining the claim the Board shall have regard to all the relevant circumstances of the case, and in particular shall consider whether the granting of relief would result in the exclusion from charge to tax of any part of the profits of the claimant, and for this purpose the Board may take into consideration the liability of the claimant and assessments made on him in respect of chargeable periods other than that to which the claim relates.
(4) If any appeal is brought from the decision of the Board on the claim, the tribunal shall determine the appeal in accordance with the principles to be followed by the Board in determining claims under this section.
(4A) The determination of the tribunal of an appeal under subsection (4) shall be final and conclusive (notwithstanding the provisions of sections 11 and 13 of the TCEA 2007) except on a point of law arising in connection with the computation of profits."
The new regime
"1 Claim for relief for overpaid tax etc
(1) This paragraph applies where –
(a) a person has paid an amount by way of income tax or capital gains tax but the person believes that the tax was not due, or
(b) a person has been assessed as liable to pay an amount by way of income tax or capital gains tax, or there has been a determination or direction to that effect, but the person believes that the tax is not due.
(2) The person may make a claim to the Commissioners for repayment or discharge of the amount.
(3) Paragraph 2 makes provision about cases in which the Commissioners are not liable to give effect to a claim under this Schedule.
(4) Paragraphs 3 to 7 … make further provision about making and giving effect to claims under this Schedule.
(5) Paragraph 8 makes provision about the application of this Schedule to amounts paid under contract settlements.
(6) The Commissioners are not liable to give relief in respect of a case described in sub-paragraph (1)(a) or (b) except as provided –
(a) by this Schedule and Schedule 1A (following a claim under this paragraph), or
(b) by or under another provision of the Income Taxes Acts or an enactment relating to the taxation of capital gains.
2 Cases in which The Commissioners not liable to give effect to claim
(1) the Commissioners are not liable to give effect to a claim under this Schedule if or to the extent that the claim falls within a case described in this paragraph (see also paragraphs 3A and 4(5)).
(2) Case A is where the amount paid, or liable to be paid, is excessive by reason of –
(a) a mistake in a claim, election or notice,
(b) a mistake consisting of making or giving, or failing to make or give, a claim, election or notice,
(c) a mistake in allocating expenditure to a pool for the purposes of the Capital Allowances Act or a mistake consisting of making, or failing to make, such an allocation, or
(d) a mistake in bringing a disposal value into account for the purposes of that Act or a mistake consisting of bringing, or failing to bring, such a value into account.
(3) Case B is where the claimant is or will be able to seek relief by taking other steps under the Income Tax Acts or an enactment relating to the taxation of capital gains.
(4) Case C is where the claimant –
(a) could have sought relief by taking such steps within a period that has now expired, and
(b) knew or ought reasonably to have known, before the end of that period that such relief was available.
[Cases D to F omitted]
(8) Case G is where –
(a) the amount paid, or liable to be paid, is excessive by reason of a mistake in calculating the claimant's liability to income tax or capital gains tax (other than a mistake in a PAYE assessment or PAYE calculation), and
(b) liability was calculated in accordance with the practice generally prevailing at the time.
(9) Case H is where –
(a) the amount paid, or liable to be paid, is excessive by reason of a mistake in a PAYE assessment or PAYE calculation, and
(b) the assessment or calculation was made in accordance with the practice generally prevailing at the end of the period of 12 months following the tax year for which the assessment or calculation was made.
(9A) Cases G and H do not apply where the amount paid, or liable to be paid, is tax which has been charged contrary to EU law.
(9B) for the purposes of sub-paragraph (9A), an amount of tax is charged contrary to EU law if, in the circumstances in question, the charge to tax is contrary to –
(a) the provisions relating to the free movement of goods, persons, services and capital in … the Treaty on the Functioning of the European Union, or
(b) the provisions of any subsequent treaty replacing the provisions mentioned in paragraph (a).
3 Making a claim
(1) A claim under this Schedule may not be made more than 4 years after the end of the relevant tax year."
[remainder of paragraph 3 is omitted]
i. there is no need for the taxpayer to have paid the tax;
ii. the taxpayer must believe that the tax was or is not due;
iii. any tax that has been paid does not need to have been assessed;
iv. there is no need for there to have been an error or mistake in a return in order for a claim to be made.
v. the broad discretion in section 33(2) to "… give by way of repayment such relief … as is reasonable and just" is replaced.
"… provides that a person may make a claim for repayment of an amount they have overpaid by way of income tax or CGT or discharge of an amount that has been over-assessed, subject to restrictions. It also provides that the Commissioners for HM Revenue and Customs (HMRC) are not liable to give relief except under this provision or any other provision relating to income tax or CGT." [emphasis added]
"27. Error or mistake relief is intended to provide a final opportunity for taxpayers to reclaim overpaid tax.
28. However, the current rules only apply to tax overpaid on assessments as a result of a relevant mistake in a return. The claim must be made within time limits. On receiving a claim, HMRC determine what amount is just and reasonable to repay and may take into account any liabilities that have not been assessed.
29. Claims under the new rules will apply to all overpayments of tax, ensuring there is a single route to obtain redress and that, as far as possible, disputes are dealt with through the tribunal. [emphasis added]
30. A claim will be possible only if no other statutory steps are available to recover an overpayment when a person first becomes aware, or might reasonably be expected to be aware, that they have overpaid.
31. The person must also have used any appeal rights that were available and the claim will have to be made within time limits."
i. The purpose of section 33 is to protect public finances. "If there was no control over claims for repayment, there would always be the risk that a very substantial amount of tax would become repayable as a result of developments in case law possibly many years after it had been spent. That would create understandable difficulty." 
ii. Arden LJ regarded section 33 as creating its own code for repayments and described it as a "… parallel universe to the common law remedy." She observed that in many respects the provisions of section 33 are more restrictive than those of the common law. One example of this is that the limitation period is five years. Furthermore, an appeal lies to the special commissioners and thence to the High Court on a point of law only. She attributed the differences between section 33 and the common law to the public policy in conserving public finances and managing the risk thereto created by error claims. 
iii. "There is, however, one provision which is conspicuous by its absence in section 33, and that is a provision which takes away common law rights." She goes on to contrast the position under s80(7) of the Value Added Tax Act 1994 and which contains a clear exclusionary provision. 
iv. "… under domestic law principles rights can only be taken away by express language or necessary implication (see R v Secretary of State for the Home Dept, ex parte Simms  3 All ER 400 at 412,  2 AC 115 at 131 per Lord Hoffmann). Mr Monro also has on his side the fact that in two recent decisions the House of Lords has found that common law causes of action lie in the field of tax notwithstanding the existence of statutory remedies: see Deutsche Morgan Grenfell Group plc v IRC and the Attorney General  UKHL 49,  STC 1, (referred to below as 'DMG') and Revenue and Customs Comrs v Total Network SL  UKHL 19,  STC 644." 
v. "In my judgement, the authorities which provide greatest assistance on the issues to be determined on this appeal are first, as to the general approach, an extract from the speech of Lord Hoffmann in Johnson (see  1 AC 518 at ) and as to the specific application of the principle to section 33, the speech of Lord Walker in DMG (see  STC 1 at ,  1 AC 558 at ), which is set out by the Chancellor. I would base my decision on these issues on those two passages." 
vi. The passage in DMG to which Arden LJ makes reference is at :
"When Parliament enacts a special regime providing special rights and remedies, that regime may (but does but does not always) supersede and displace common law rights and remedies (or more general statutory rights and remedies). Whether it has that effect is a question of statutory construction: [citations omitted]. Where section 33 of the Taxes Management Act 1970 … applies it does no doubt displace any common law remedy for tax paid under a mistake. But in Woolwich tax was demanded under a regulation which was void. There was therefore no valid assessment and the statutory regime was simply not engaged: see Lord Goff in Woolwich Equitable Building Society v IRC  STC 657 at 675,  AC 70 at 169."
vii. "In my judgement, the authorities give clear guidance that if Parliament creates a right which is inconsistent with a right given by the common law, the latter is displaced. By 'inconsistent', I mean that the statutory remedy has some restriction in it which reflects some policy rule of the statute which is a cardinal feature of the statute. In those circumstances, the likely implication of the statute, in the absence of contrary provision, is that the statutory regime is an exclusive one." 
viii. "Undoubtedly, Mr Monro paid money under mistake of law, and a remedy at common law in general exists in that situation. Such a right can, however, be excluded by express words or necessary implication. In this case, the implication arises because Parliament has created a specific remedy with a limitation to exclude payments made under generally accepted practice. That limitation would be defeated if the court permitted an action to be brought at common law. That principle applies even though the statute is a taxing statute which must be interpreted so as not to impose burdens on the taxpayer unfairly. I have already discussed the obvious purpose of sub-s (2A). It would make a nonsense of that purpose if it was possible to bring an action at common law for the recovery of money in circumstances where s33(1) applies." 
ix. "It follows that the present claim cannot be brought. It also follows from the proposition of law which I have formulated above that my conclusion is not confined to a case where the claim leads to no relief because of section 33(2A). The same would in my judgement apply whenever a case which could have been brought under section 33 cannot succeed because of some restriction on such claims which reflects a policy rule of the statute and constitutes an important feature of it." 
"31. … I do not accept the submission that the Child Poverty Action Group have to surmount the high hurdle erected by Lord Hutton in the B (A Minor) case or Lord Hobhouse in the Morgan Grenfell case. Rather the question is whether, as a matter of statutory interpretation, section 71 is an exclusive code for recovery of overpayments. That question is to be answered not by applying any presumptions or by saying that the common law remedy in restitution is not displaced unless, in Lord Hobhouse's words, as a matter of logic, it cannot coexist with the statutory regime for recovery.
32. The importance of the tax cases is that they show that the test is whether in all the circumstances Parliament must have intended a common law remedy to coexist with the statutory remedy."
"33. If the two remedies cover precisely the same ground and are inconsistent with each other, then the common law remedy will almost certainly have been excluded by necessary implication. To do otherwise would circumvent the intention of Parliament.
34. The question is not whether there are any differences between the common law remedy and the statutory scheme. There may well be differences. The question is whether the differences are so substantial that they demonstrate that Parliament could not have intended the common law remedy to survive the introduction of the statutory scheme. The court should not be too ready to find that a common law remedy has been displaced by a statutory one, not least because it is always open to Parliament to make the position clear by stating explicitly whether the statute is intended to be exhaustive. The mere fact that there are some differences between the common law and the statutory positions is unlikely to be sufficient unless they are substantial.
The question is whether, looked at as a whole, a common law remedy would be incompatible with the statutory scheme and therefore could not have been intended by [sic] coexist with it."
i. In DMG the House of Lords concluded that section 33 did not bar a claim for restitution that arose from EU law. The claim in that case arose from the payment of Advance Corporation Tax (ACT) deducted from distributions made by companies that were resident in the UK. The ACT paid by the taxpayers was not the subject of an assessment by the Revenue. The taxpayers made a claim in restitution to take advantage of the longer limitation period under section 32(1)(c) of the Limitation Act 1980. The House of Lords held that there was no bar, in principle, to making a claim against the IRC based on a mistake of law and that time started to run from the date of the judgment of the European Court of Justice in Metallgesellschaft Ltd v IRC and Hoechst AG v IRC (Joined cases C-397 and 410/98)  Ch 620. Their Lordships gave consideration to section 33 TMA 1970 but it appears to have been accepted that it had no application because the tax had not been paid "under an assessment". Lord Hoffmann described a submission by leading counsel, that even though section 33 had no application it nevertheless had the effect of excluding a remedy, as going much too far and after making the observation cited in Monro stated at :
"But the question is in the end one of construction. When a special or qualified statutory remedy is provided, it may well be inferred that Parliament intended to exclude any common law remedy which would or might have arisen on the same facts … But I see no reason to infer that Parliament intended to exclude a common law remedy in all cases of mistake … in which the revenue was unjustly enriched but did not fall within section 33."
Both Lord Hope and Lord Walker note that section 33 was not engaged because there had been no assessment [54 and 135].
ii. Section 33 was also considered in Test Claimants in the FII Group Litigation v Revenue and Customers Commissioners  2 WLR 1149 ("FII"). The issue in FII concerned the recovery of tax that had been levied contrary to EU law. The taxpayers made a claim in restitution and, for present purposes, the relevant issue was whether section 33 excluded claims to recover ACT paid under section 18 (schedule D, Case V) of the Income and Corporation Taxes Act 1988. The approach adopted by the Supreme Court can be seen from the judgement of Lord Sumption at :
"[Section 33] confers a right subject to highly restrictive conditions to invoke what is essentially a discretionary power of the commissioners to grant a refund of overpaid tax. No one suggests on this appeal that such a limited remedy could possibly be enough in itself to satisfy the virtually unqualified obligation of the United Kingdom to provide an effective means of recovering tax overcharged contrary to EU law.
However, it is axiomatic that the courts cannot imply an exclusion of unrestricted rights of action at common law where that would be inconsistent with an overriding rule of EU law that an unrestricted right must be available. Section 33 cannot therefore be an exclusive right to recover tax overcharged contrary to EU law. Whether it is an exclusive right in other circumstances, is not a point which needs to be considered on this appeal."
Lord Walker approached the question in the following way:
 "The issue on section 33 is whether it is an obstacle to the test claimants and if so, whether it can be given a conforming interpretation under the Marleasing principle … . In terms of the amount of tax at stake, this issue is relatively minor in the context of the litigation as a whole, as it extends only to tax charged under Schedule D, Case V, pursuant to section 18 of ICTA 1988. But it is still a point of some general importance. Before Henderson J HMRC argued, but only it seems quite briefly, that the decision of the Court of Appeal in Monro v Revenue and Customs Comrs  Ch 69 established that section 33 was an exclusive remedy which left no room for any common law claim in unjust enrichment. The judge …. rejected that on two grounds: first that section 33 did not extend to tax levied otherwise than by an assessment; secondly that in any event the national legislation must, in a San Giorgio claim, yield to the principle of effectiveness. It now seems to be common ground that the first of these reasons does not hold good for tax under Schedule D Case V."
 … In my view the Marleasing principle can be applied in a simpler and more natural way by not construing section 33 as impliedly setting itself up as an exclusive provision (which it did not do expressly, unlike section 80 of the Value Added Tax Act 1994). The test claimants submit that the application of Marleasing cannot rework section 33 in a way that serves any relevant purpose. But to read it as non-exclusive does not go against its grain. It would merely exclude an implication which is itself no more than a process of statutory construction. In practical terms the effect is the same as that which Henderson J reached by the second limb of his reasoning."
i. The new regime is plainly intended to be a "parallel universe" when set alongside the common law. It is a regime that provides special rights and remedies. This can be seen from the provisions that are set out earlier in this judgment.
ii. The same policy considerations that were noted by Arden LJ in Monro apply to the new regime. Claims in relation to tax repayments are regulated for the reasons that are explained in her judgment.
iii. It is common ground that the new regime is wider than the old regime. It is less restrictive than the old regime and offers a clearer and more beneficial basis for the making of a claim for relief. One example of this is that the Revenue no longer has a broad discretion to grant relief on a basis that is reasonable and just. If the old regime is exclusionary, then it is likely to follow that the new regime is too. Put another way, is there a basis upon which the court could conclude that the new regime leaves the common law universe open to a taxpayer when the Court of Appeal in Monro has decided that statutory universe is exclusionary? There is nothing in the language of the new regime that might suggest a different approach should be adopted.
iv. The final nail in the coffin, but really the central point, is that Schedule 1AB contains an express exclusionary provision at sub-paragraph 1(6). The Commissioners are only liable to give relief for a claim falling within subparagraphs (1)(a) or (b) under the terms of Schedule 1AB. There is no doubt in my mind that the claimant's claim falls within sub-paragraph (1)(a). The position is therefore clear. The claimant is excluded from bringing a common law claim. He had an opportunity to bring a claim for relief under the new regime but failed to meet the statutory limitation period. His claim cannot be resurrected by bringing a claim for restitution.