Comply or Fail


In a judgment handed down on the 26th July 2017, the Supreme Court dismissed HMRC’s appeal in their long running dispute with BPP Holdings Limited. The case goes some way to re-dress the balance between HMRC and the taxpayer in proceedings brought in the First-tier Tribunal (Tax Chamber) and will certainly give HMRC pause for thought in reconsidering their historic position that because they fulfilled a public duty Tribunals would be more forgiving of lackadaisical compliance with orders and rules.

The Background

In 2006, BPP Holdings Limited split in to two entities; BPP Learning Media Ltd, which supplied books, and BPP University College of Professional Studies Ltd, which supplied education. BPP believed that the 2 separate entities now had two separate supplies; one for education which is standard rated for VAT purposes and one for books which are zero rated. As such it did not account for VAT on the supply of books.

In 2012, HMRC issued two assessments predicated on the basis that BPP should have accounted for VAT on the supply of books from 2006. A further decision was issued by HMRC on the VAT treatment by BPP on its supplies from 19th July 2011. In May 2013, BPP raised appeals in the First-tier Tribunal (Tax Chamber). Once the appeal had commenced, there followed a number of procedural delays by HMRC culminating in an order for HMRC to serve further and better particulars of its case by the 31st January 2014 with the warning that if they failed to do so they faced being barred from the proceedings, pursuant to Rule 8(7) of The Tribunal Procedure (First Tier Tribunal)(Tax Chamber) Rules 2009. In due course HMRC provided an inadequate response by the 31st January 2014 and the barring order was sought and granted by Judge Mosedale.

HMRC appealed to the Upper Tribunal (Tax and Chancery Chamber). In between Judge Mosedale’s decision and the appeal being heard in the Upper Tribunal (Tax and Chancery Chamber) 2 conflicting decisions on whether the stricter approach to compliance with rules and directions made under the Civil Procedure Rules (as set out in Mitchell v News Group Newspapers Ltd [2014] 1 WLR 795 and Denton v TH White Ltd [2014] 1 WLR 3296) applied to cases before the tax tribunals, were heard.

In McCarthy  & Stone (Developments) Ltd v HMRC [2014] UKUT 197 (TCC) (which Judge Mosedale had had the benefit of) the Upper Tribunal (Tax and Chancery Chamber) concluded that the stricter approach did apply to tax tribunal cases, whereas in Leeds City Council v HMRC [2014] UKUT 350 (TCC) the Upper Tribunal concluded that the Tribunal Rules were less strict than the CPR, and Mitchell and Denton did not apply. The Upper Tribunal overturned Judge Mosedale’s decision and BPP appealed to the Court of Appeal.

The Court of Appeal restored the barring order stating that it found HMRC’s approach to compliance “disturbing”; that even a litigant in person is expected to comply with court rules and orders and that a “State party should never expect to nor work on the basis that it has some preferred status”.  Furthermore, the Court of Appeal observed that constraints brought about by austerity on an agency like HMRC cannot excuse unacceptable behavior.

The Supreme Court Judgment

In delivering the judgment of the Supreme Court, Lord Neuberger robustly rejected HMRC’s submission that the debarring order prevented HMRC from discharging its public duty and therefore the public interest would be harmed. His Lordship stated “I consider that it would set a dangerous precedent if that point were accepted, as it would discourage public bodies from living up to the standards expected of individuals and private bodies in the conduct of litigation. It seems to me that there is at least as strong an argument for saying that the courts should expect higher standards from public bodies than from private bodies or individuals.”

Conclusion

The Supreme Court decision therefore endorses the approach taken by the Upper Tribunal in McCarthy and overturns Leeds City Council. It is plain therefore that whilst the tax tribunals are more relaxed than the higher courts, parties in proceedings before them should not fall into the trap of inferring that this means there is less obligation to comply with rules and orders. Furthermore, the Supreme Court judgment sends an unequivocal message to HMRC that they do not enjoy a lower standard of compliance than the taxpayer.


Vivienne Tanchel