Tax Tribunal has no jurisdiction to consider public law issues in direct tax appeal

The following is taken from an article by Adam Craggs, originally published in Tax Journal

(29 August 2014, p29,www.taxjournal.com).

There has been a great deal of debate in recent years regarding the extent to which the First-tier Tribunal has jurisdiction to determine tax appeals on the basis of public law points, particularly legitimate expectation arguments. The question of whether the Tribunal has a public law jurisdiction has been considered most recently in Karen Rotberg v HMRC [2014] UKFTT 657 (TC).

Tribunal's jurisdiction

Section 50(6), TMA, sets out the Tribunal's statutory jurisdiction in relation to an appeal against an assessment to income tax or capital gains tax and provides that if, on an appeal notified to the Tribunal, the Tribunal decides that, amongst other things, the appellant is overcharged by an assessment, the assessment shall be reduced accordingly, but otherwise the assessment shall stand.

In relation to VAT, section 83(1)(c), VATA, provides that an appeal is available in relation to 'the amount of any input tax which may be credited to a person'.

Legitimate expectation

A public authority, such as HMRC, may be required to act in a certain way if a person has an expectation as to the way in which the authority will act. This is a question of public law and there has been some uncertainty in recent years as to whether such issues could be determined by the Tribunal or whether the taxpayer concerned has to apply for judicial review.

In Oxfam v HMRC [2009] EWHC 3078 (Ch), the appellant charity appealed against HMRC's decision refusing its claim for repayment of certain input tax and applied for permission to bring judicial review proceedings in respect of HMRC's decision. The High Court was of the view that the appellant's legitimate expectation claim was within the jurisdiction of the Tribunal under section 83(1)9c) VATA and as a consequence the Tribunal had power to apply public law principles if they were relevant to an appeal against the decision of HMRC falling within section 83.

Oxfam was followed by the Tribunal in HMRC v Abdul Noor [2013] UKUT STC 998, where it was held that a taxpayer who had appealed to the Tribunal under section 83 against HMRC's refusal to allow an input tax credit for pre-trading expenditure, had a legitimate expectation that the input tax credit would be allowed. However, the Upper Tribunal reversed this decision on appeal and said that the Tribunal did not have jurisdiction to determine a legitimate expectation issue.

Rotberg

Karen Rotberg made three disposals of shares. Prior to the disposals, her accountant telephoned HMRC to ask whether roll-over relief would be available to his client. HMRC erroneously confirmed that roll-over relief would be available and he advised his client accordingly.

The accountant completed and submitted the taxpayer's tax returns and claims to roll-over relief were subsequently made and submitted to HMRC.

HMRC opened an enquiry into the taxpayer's returns and wrote to the taxpayer informing her that roll-over relief did not apply to a disposal and reinvestment in shares. HMRC issued assessments in respect of the first two disposals and amended the taxpayer's self-assessment return in respect of the third disposal.

The taxpayer appealed to the Tribunal where she argued, amongst other things, that the assessments and amendment in respect of the disposals should be reduced to nil because HMRC's actions had given rise to a legitimate expectation that no tax was payable.

Tribunal's decision  

The Tribunal dismissed the taxpayer's appeal. The Tribunal considered that Oxfam and Noor demonstrated that jurisdiction was a question of statutory construction and did not consider the decisions to be irreconcilable.

There was no question as to the proper application of the relevant tax provisions themselves, the issue was whether some measure of assurance had been sought and obtained from HMRC.

In the Tribunal's view the case of Aspin v Estill [1987] STC 723, is authority that the jurisdiction of the Tribunal in direct tax cases is limited to considering the application of the tax provisions themselves. On that basis, section 50(6) TMA falls to be construed so as to refer only to the case where the charge to tax made on the assessment or amendment exceeds that which the tax legislation provides. There is no jurisdiction for the Tribunal to apply the public law principle of legitimate expectation. As there was no question as to the proper application of the tax provision itself, following Aspin, the Tribunal's jurisdiction in respect of an appeal relating to a direct tax assessment did not permit consideration of legitimate expectation arguments.

Comment  

It is clear from this decision that in direct tax appeals, the Tribunal's jurisdiction is limited to considering the application of the tax provision in question, in this instance section 50(6). That section is concerned with the lawfulness of the charge and not with its determination.

Taxpayers should check whether the appeal provision in question, properly construed, gives the Tribunal a review jurisdiction. In addition, the Tribunal must have the power to provide the remedy sought by the taxpayer. In this case, even if the Tribunal had concluded that it had a review jurisdiction, it could not have given effect to the taxpayer's legitimate expectation as it only had the power to reduce the assessment. It did not have the power to adjust the acquisition cost of the assets in question.

Even if it does appear that the FTT has appropriate jurisdiction and power, it would be prudent to both make an application for judicial review and lodge an appeal with the FTT.