Speed read
This month, we consider a number of recent FTT decisions (L, and various third party applications relating to Osmond and Allen) which examine the concept of open justice and the circumstances in which this principle can be overridden. A new Finance Act, which was rushed through before Parliament was prorogued, contains several measures of interest to private clients. A recent trio of cases – Kalay, Bezant and Hitchins – highlights the importance of complying with prescribed time limits, and the dangers to the taxpayer and HMRC in delaying action. Williams reminds us of the circumstances in which HMRC may look back 20 years, despite the taxpayer's behaviour being classed as careless rather than deliberate. Finally, recent reports have raised concerns about HMRC's level of customer service.
The principle of open justice and its limitations
A number of recent decisions by the FTT have considered the principle of open justice, and how this is balanced against any risk of harm which might result from its application.
In L v HMRC [2024] UKFTT 401 (TC), the taxpayer applied for the hearing of their appeal to be held in private, and for the substantive decision to be anonymised. The starting point was Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules, SI 2009/273, rule 32, which provides that all hearings must be held in public, subject to the tribunal's power to direct that all or part of the hearing shall be held in private if this is justified on at least one out of five specific grounds. The FTT referred to the stance taken by Henderson J (as he then was) in Banerjee (No. 2) v HMRC [2009] EWHC 1229 (Ch), in which he commented that 'the principle of public justice is a very potent one ... and in my judgment it will only be in truly exceptional circumstances that a taxpayer's rights to privacy and confidentiality could properly prevail in the balancing exercise that the court has to perform ... The inevitable degree of intrusion into the taxpayer's privacy ... is, in all normal circumstances, the price which has to be paid for the resolution of tax disputes through a system of open justice rather than by administrative fiat', and noted that a 'plethora' of previous applications for anonymity (including HMRC v The taxpayer [2024] UKUT 12 (TCC)) has been refused (see our February review in Tax Journal, 16 February 2024); ordinarily, therefore, the taxpayer can expect the dirty linen to be washed in public.
In this case, however, the taxpayer suffered from bipolar disorder and had experienced periods of psychosis, depression and anxiety, with an associated risk of suicide. A psychiatrist had opined that the risk of relapse would be high if the taxpayer was asked to deal with the stress of a public hearing. On this basis, the FTT was satisfied that the risk of harm to the taxpayer's health was sufficient to justify granting the anonymity application and overriding the principle of open justice. The taxpayer also relied on the risk of financial harm she would suffer if the hearing took place in public as a second ground for the application; however, the FTT considered that more evidence would have been required to come to a conclusion on this point, noting that 'in the context of tax cases where frequently the sums in dispute are significant ... to allow anonymity on the basis of a fear of commercial consequences based on circumstantial assertion is significantly more challenging'. Having said that, the FTT did consider that the commercial sensitivity (distinct from a commercial risk relating to potential financial impact) of the case, given that it related to a confidential settlement agreement between the taxpayer and a former employer, could, in principle, form a valid ground for an anonymity application.
Another two FTT decisions look at the concept of open justice in a different context. In Osmond and Allen v HMRC and KPMG LLP as third party applicant [2024] UKFTT 413 and Osmond and Allen v HMRC and Stewarts Law LLP as third party applicant [2024] UKFTT 414, the FTT granted applications by KPMG and Stewarts Law for disclosure of the skeleton arguments in another case, Osmond and Allen v HMRC [2024] UKFTT 378. At the time of the applications, KPMG were advising clients whose appeals had been stayed behind the Osmond and Allen appeal and which considered similar issues. Stewarts Law were acting for three clients who were considering challenging assessments under the transaction in securities rules, and one of the issues covered in the Osmond and Allen appeal was directly relevant to those clients.
The FTT noted that the 'purpose of open justice is to enable the public to understand and scrutinise the justice system' and that 'to enable the public to understand how the justice system works and why decisions are taken, they have to be in a position to understand the issues and the evidence adduced in support of the parties' cases'. In these circumstances, access to the skeleton arguments would assist the applicants and their clients to understand the technical arguments in the cases, and on the basis that the Osmond and Allen appeal had already been heard with the decision likely to be published shortly, the FTT granted the applications.
Stewarts Law's application had additionally submitted that the 'wider tax community' had a legitimate interest in the requested documents. Although the FTT 'had initial misgivings' about this aspect of the application, it concluded that: 'I cannot see any principled reason why an application which is made in a "representative" capacity on behalf of the wider tax community .. should be treated differently than an application on behalf of specific clients .. There is no reason why the judges should not be judged by the public at large rather than just the three clients for whom the applicant acts.
These cases serve as a reminder that the principle of open justice is, indeed, 'very potent'. Having said that, as demonstrated by the decision in L v HMRC, there are limits to the principle and where there is a serious risk of harm, it can be overridden.
Finance (No. 2) Act 2024: royal assent
Following the Prime Minister's announcement on 22 May of a general election on 4 July, various bills were rushed through their final stages before Parliament was prorogued on 24 May. F(No. 2)A 2024, introduced following the Spring Budget on 6 March, received royal assent on 24 May.
Key measures include the following:
- CGT rate on disposals of residential property: the higher rate of CGT is reduced from 28% to 24% for disposals made on or after 6 April 2024;
- SDLT: Multiple Dwellings Relief is abolished in respect of transactions completed after 31 May 2024 (with transitional rules available for contracts exchanged on or before 6 March 2024); and
- transfer of assets abroad rules: readers of our January review
(Tax Journal, 19 January 2024) will recall HMRC's loss
in the Supreme Court's recent decision in HMRC v
Fisher [2023] UKSC 44: from 6 April 2024, the impact of the
decision is reversed and an individual participator in a close
company (broadly, a UK-resident company which is under the control
of five or fewer participators or any number of director
participators), or its non-UK equivalent, will be deemed a
'transferor' of assets transferred by that company (subject
to certain limitations), meaning that such a person will now fall
within the scope of the transfer of assets abroad charging
regime.
Other measures announced in the Spring Budget, including the abolition of the Furnished Holiday Lettings regime, the abolition of the non-dom regime and reforms to inheritance tax, were not included in the F(No. 2)A 2024.
Time limits: a two-way street
A recent trio of cases highlights the importance of complying with prescribed time limits, and the dangers to the taxpayer – and HMRC – in delaying action.
In Kalay v HMRC [2024] UKFTT 366, the FTT dismissed the taxpayer's appeal against HMRC's refusal to exercise its discretion to admit his late claim for EIS income tax relief, notwithstanding that the taxpayer had claimed to be suffering from a mental breakdown. The FTT agreed with HMRC's argument that the FTT did not have jurisdiction to determine a late claim for EIS income tax relief as the FTT did not have a judicial review function or a supervisory jurisdiction over HMRC. The FTT then held that the taxpayer's appeal against the closure notice denying him EIS relief had no reasonable prospect of success given that the taxpayer failed to make a valid claim within the necessary time frame; a failure to meet the requisite time limits can be costly.
In contrast, Bezant v HMRC [2024] UKFTT 400 shows that all may not be lost for a taxpayer who makes an application outside the ordinary time limits. Here, the FTT allowed the unrepresented taxpayer's appeal against late payment penalties (of £248), notwithstanding that the payment of tax had been made 232 days late. The FTT held that there were grounds for a special reduction, since there was a divergence between the actual due date for the tax in the proforma notice and the paper notice provided by HMRC, which identified a threemonth period from the letter. This was a relevant factor that had not been taken into account by HMRC in reaching its decision to impose the penalties.
HMRC v Hitchins and others [2024] UKUT 114 represents another procedural victory for the taxpayer and is a warning to HMRC that the requirement to act in a timely manner is a two-way street. The UT rejected HMRC's appeal against the FTT's direction (see our April review in Tax Journal, 19 April 2024) to issue closure notices in respect of enquiries into the taxpayer's self-assessment tax returns. The UT held that the FTT's view that the enquiry had gone on for too long was one which the FTT was perfectly entitled to reach in its overall evaluative judgment as to whether the enquiry should be brought to a close. This case demonstrates that time limits are not only important to the taxpayer; any attempt by HMRC to unduly prolong an investigation, absent any failure on the part of the taxpayer, is likely to be dimly viewed by the tribunal.
The 20-year rule(s): watch out for failure to notify
A full report of the facts in Williams v HMRC [2024] UKFTT 411 is unnecessary; however, the case serves as an example of the exception to the usual time limits for HMRC to raise discovery assessments. To recap on the 'ordinary' rules: there are different time limits within which HMRC can raise discovery assessments depending on the 'behaviour' of the taxpayer. The default is four years, applying where a loss of tax is brought about despite the taxpayer taking reasonable care. If a loss of tax is brought about because of carelessness, HMRC can go back six years. A 20-year time limit usually applies only where the loss of tax is brought about by the taxpayer deliberately.
However, a corollary of self-assessment is the obligation to notify HMRC of your chargeability to tax: there is a potential trap where any loss of tax is brought about as a result of the taxpayer's failure to notify chargeability. Where there has been such a failure and the loss of tax is attributable to negligent conduct (there is no requirement for HMRC to show any deliberate action in this context), HMRC are able to raise assessments going back 20 years.
HMRC performance: a poor review
Various tax thresholds have been frozen for several years, and it is expected that existing thresholds will remain fixed until April 2028, thereby tipping greater numbers of individuals into the tax system or into higher tax rates, and increasing the demand on HMRC's stretched services.
In February 2024, the House of Commons Public Accounts Committee published a report on HMRC performance, concluding that 'the overall level of customer service provided by HMRC have reached an all-time low'. In May, another poor review was delivered by the National Audit Office, with its report noting that the average wait time for HMRC's telephone service was nearly 23 minutes in the first 11 months of 2023/24 (up from five minutes in 2018/19). Altogether, taxpayers spent a total of 798 years on hold with HMRC in 2022/23 – more than double the time spent waiting in 2019/20.
In light of funding pressures and the backlog of queries, HMRC announced in March that it planned to restrict a number of its helplines, including closing its self-assessment helpline for six months, a decision reversed swiftly following a public outcry.
On 13 May, the government announced additional funding of £51m to help improve HMRC's telephone helpline. However, on 28 May, CIOT published a response to the February 2024 Public Accounts Committee report and noted that this figure 'amounts to less than half of the "savings" being demanded of the directorate this year', so it may be unrealistic to expect a dramatic improvement in the near future.
Originally published by Tax Journal.
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