Disclosure and Fairness in Tax Appeals
The decision in Smart Price Midlands Ltd and Hare Wines Ltd
At the end of last year (6 December 2017) the Upper Tribunal (UT) handed down its judgement in the case of Smart Price Midlands Ltd and Hare Wines Ltd. The argument before the UT was not the substantive appeal but was concerned with the disclosure obligations of HMRC when certain appeals are brought.
The underlying appeal by the two companies is in respect of the Alcohol Wholesalers Registration Scheme (AWRS) about which I have written before when considering the case of X&Y (see here). The companies sought approval from HMRC to be accepted to the scheme and were refused. HMRC’s conclusion, in refusing approval, was that the companies were not fit and proper persons. The companies appealed to the FtT.
Where appeals of this nature are brought the First Tier Tribunal has a supervisory jurisdiction, the net effect of which is that it should only review the Commissioners’ decision if it is shown, the burden being on the appellant, that the commissioners have acted in a way which no reasonable panel of commissioners could have acted, if they have taken into account some irrelevant matter or have disregarded something to which they should have given weight – a jurisdiction which imports issues of public and administrative law into the Tribunal.
When the appeals were initially brought the FTT issued administrative directions in each appeal requiring HMRC, as decision maker, to disclose to the appellants “all documents which were considered by [their] officer when reaching the decision”.
HMRC complained to the FtT about the direction on disclosure, asserting that the direction went well beyond that contemplated by rule 27 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The FtT dismissed that argument holding that the Appellants would suffer unfairness if they did not know what material was relied upon or rejected by the decision maker. Consequently HMRC appealed to the Upper Tribunal.
The issue before the Upper Tribunal was whether the FtT was correct in ordering HMRC to make such disclosure and was a decision on a case management issue. HMRC were frankly on the back foot in bringing the appeal as the Upper Tribunal is slow to interfere with case management decisions on appeal – as Proudman J made clear in HMRC v Purple Telecom [2013] STC 1276 – and will only do so if the FTT applied the wrong approach in law, had taken into account irrelevant considerations or acted unreasonably in the exercise of its discretion (see among others Warren J in HMRC v Asiana Ltd [2014] UKUT 0489 (TCC) at paragraph 34.
HMRC argued that the FtT erred in law in holding that an appeal triggered a disclosure obligation to enable “an unsuccessful applicant [to] form a view as to whether to challenge the decision on grounds of unreasonableness” and asserted that the direction made by the FTT would permit Appellants to bring appeals without identifying grounds in order to ‘fish’ for disclosure that might then allow them to identify and particularise their grounds.
Plainly it is of little assistance to the Tribunal where an Appellant simply makes a bald assertion that the decision taken by the Commissioners was unfair or somehow wrong without specifying why. However where HMRC’s argument fell down was that the FtT had ordered disclosure because it considered that it would not be possible for the FtT to dispose of the underlying appeal fairly and justly unless it was aware of all material that was before the decision-maker. The Upper Tribunal agreed with the FtT finding that in order for a tribunal to make a proper decision it was entitled to make a direction for the disclosure of those documents considered by the officer. The Upper Tribunal also rejected HMRC’s arguments that the FTT was taking an improperly inquisitorial approach to the appeal.
The consequence of the ruling is, as the Upper Tribunal acknowledged, that in AWRS cases directions such as this will generally be made as a starting point. Those bringing appeals to the FTT in AWRS cases should be assiduous to ensure that the FtT is pointed both to the decision in Hare Wines and also to the decision in Corbelli Wines v HMRC (TC/2017/01690) where the FtT held, “Our view is that it is in the interest of justice and fairness for the tribunal to require such disclosure as it can only really be determined whether and to what extent the decision-maker has taken into account relevant considerations and not irrelevant ones, as required to assess whether the decision was reasonably arrived at, if the full range of materials the officer looked at are available.”
The points made by both Tribunals in these cases may be of wider application. In cases where decisions taken by the Commissioners have not been properly set out in communications to tax payers and particularly where it is not clear what material has and has not been relied upon to make a decision adverse to a tax payer’s interests the Tribunal should be asked to look and look carefully at whether rule 27 is appropriate for the appeal being brought. Plainly in many cases, particularly in ‘best judgment’ appeals, HMRC do set out clearly the material on which the decision maker has based his or her decision and in the ordinary course of events Rule 27 will apply. Where there is silence as to the reasoning behind the decision it cannot be fair that an Appellant has to guess in advance why a decision has been taken against it, particularly where the Appellant bears a burden of proof. The ruling in Smart Price is a useful tool to achieve disclosure; in order to ensure that decisions by the FtT are taken fairly and with the fullest material before it.
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