Addo - Disclosure against HMRC in tax appeals

20 December 2018

In Addo v HMRC [2018] UKFTT 530 (TC), the First-tier Tribunal (FTT) considered the principles governing disclosure in the context of appeals before the FTT.
This blog is based on an article which was first published in Tax Journal on 22 November 2018.
RPC acted for the taxpayer in this case.


The substantive appeal in J Addo v HMRC [2018] UKFTT 530, relates to  discovery assessments issued by HMRC to Ms Addo (the taxpayer) under section 29, Taxes Management Act 1970 (TMA), for the tax years 2009/10 and 2010/11. For the purposes of this blog, details of the arrangements under challenge by HMRC are not relevant.

The taxpayer's grounds of appeal included whether the discovery assessments were validly issued and in particular:

  1. whether a 'discovery' within the meaning of section 29(1) was made in her case; and
  2. whether the conditions in sections 29(5) were met (it being accepted by HMRC that the taxpayer's return was not careless or deliberately incorrect, within the terms of section 29(4)).

The burden of proof on the validity of a discovery assessment issued under section 29 falls on HMRC. The FTT had previously directed, following an earlier hearing, that HMRC should open its case first at the substantive appeal hearing (Janet Addo v HMRC [2018] UK FTT 0093 (TC)).

Witness statements in the substantive appeal were served by HMRC and included a witness statement from Andrew John Finch, an officer of HMRC who led HMRC's investigation. Mr Finch's statement referred to various relevant documents or categories of documents, which included:

  1. consultations between 'specialist Investigations' teams and 'specialist transfer of assets abroad' (ToAA) teams;
  2. consultations with the ToAA team;
  3. a report from an 'independent review panel';
  4. a 'handling strategy' following the independent review panel report; and
  5. documents relating to discussions between investigators and 'discovery specialists'. 

The taxpayer wrote to HMRC requesting a copy of the above documents. In a letter in response, HMRC indicated that the documents were 'protected documents' and declined to provide a copy of the requested documents. HMRC did not claim privilege or public interest immunity in relation to the documents, rather, it considered that the documents were 'confidential and sensitive'.

Given HMRC's refusal to supply the taxpayer with a copy of the requested documents, the taxpayer made an application to the FTT for a direction that HMRC provide her with a copy of the above documents.

The parties' submissions

The taxpayer argued that she was entitled to disclosure of the requested documents under rule 27(2)(b) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules, SI 2009/273 (the Tribunal Rules), as they were documents on which HMRC was 'intending to rely' in the proceedings. The documents were all referred to directly or indirectly in Mr Finch's witness statement which was expressed to be in support of HMRC’s case for assessment under section 29. If the taxpayer did not have access to the material, she would not be in a position to test HMRC's evidence and the FTT would not be in a position to determine whether or not Mr Finch’s description of the documents, or his understanding of them, was correct.

It was also argued that if the taxpayer was not entitled to disclosure under rule 27(2)(b), the FTT should exercise its discretion to direct or order disclosure of the material under rules 5(3) or 16 of the Tribunal Rules. When deciding how to exercise its discretion to direct disclosure in accordance with the 'overriding objective' to deal with cases fairly and justly (rule 2(1), Tribunal Rules), the FTT must bear in mind the key principle of whether or not the document in question is relevant to the proceedings (HMRC v Ingenious Games LLP and others [2014] UKUT 0062 (TCC)).

HMRC's position was that:

 (1) it did not 'rely' on the documents requested;
 (2) the documents were not relevant to the taxpayer's appeal; and
 (3) it would be generally disproportionate to order disclosure of the documents as they are, amongst other things, highly sensitive and may prejudice HMRC's position in relation to other taxpayers.

FTT decision

The FTT observed that the obligation in respect of disclosure on parties in tax appeals before it is more limited than that in ordinary litigation before the courts, which requires 'standard disclosure' by the parties . Rule 31 of the Civil Procedure Rules (CPR) specifically requires disclosure of documents which  adversely affect a party's own case and/or supports the other party's case. There is also an automatic right to inspect a document which a party has directly referred to in, for example, a witness statement (rule 31.14, CPR). In tax appeals, the parties are only obliged to disclose documents which they intend to rely on (rule 27, Tribunal Rules). 

The FTT does, however, have a discretion to order, under rule 16 and/or rule 5(3)(d), Tribunal Rules, a party to produce a document to the FTT and/or another party.

Referring to the decision of the Upper Tribunal in Ingenious Games, the FTT noted that the 'guiding principle' for the FTT in exercising its powers to direct the disclosure of documents is to ask what is required to enable it to deal with the case 'fairly and justly', in accordance with the overriding objective contained in rule 2(1), Tribunal Rules. The FTT indicated that it should ordinarily be regarded as fair and just for a party to be entitled to review documents held by the other party, or to which the other party has access, which are relevant to the issues to be determined in the case, even if they are not documents on which the other party itself intends to rely (in other words, where the documents are not within rule 27) and even if they are detrimental to the other party’s case.

Such a view is supported by rule 31.14, CPR. Although not referred to in the FTT's decision, HMRC v BPP [2017] UKSC 55, confirmed that the FTT should generally follow the approach adopted in the CPR, even where those rules do not formally apply to proceedings before it. The FTT said at paragraph 65:

"Furthermore, in my view, it must ordinarily be fair and just for a party to be entitled to review documents that are referred to in the other party’s pleaded case or in witness statements served by that other party in support of its case.  As I have mentioned, this is a requirement of CPR rule 31.14, and, whilst I accept that the CPRs are not directly applicable in proceedings before the Tribunal, that rule simply reflects the fact that basic fairness requires that the parties are placed on an equal footing as regards their opportunities to review the evidence and to test it before the Tribunal."

Rule 2(2) provides that the overriding objective of the Tribunal Rules is 'to enable the tribunal to deal with cases fairly and justly'. Dealing with  cases fairly and justly includes 'dealing with the case in ways which are proportionate to the importance of the case, the complexity of the issues, the anticipated costs and resources of the parties' (rule 2(2)(a)). The application of the overriding objective therefore encompasses a concept of proportionality. It will invariably be appropriate to consider whether a direction for disclosure is proportionate when taking into account other factors, such as the nature and importance of the proceedings, the burden imposed upon the disclosing party, and the likely relevance of the documents, or information requested to the issues in the case. 

HMRC argued that the documents sought by the taxpayer related to HMRC's view of the arrangements under challenge at 'policy' level; and that the FTT should, in the exercise of its discretion, not order disclosure of the documents sought as HMRC considered them to be sensitive and confidential in nature. The FTT  did not agree with HMRC that a document's 'sensitivity' should amount to a bar on disclosure and said at paragraph 82:  

" … my concern with the general proposition is that “sensitivity” might easily become a cloak to disguise an unwillingness to disclose documents that are unhelpful to a party’s case.  That is not a good reason for non-disclosure.  For that reason, I do not accept the general proposition that the alleged sensitivity of the documents – falling short of circumstances in which a claim for public interest immunity could be made or in which disclosure may result in a breach of confidence - is itself a particular factor that I should take into account."

The FTT also considered whether the 'relevant officer' for the purposes of section 29(1), was Mr Finch (if he was not the relevant officer, then documents which he referred to in his witness statement may not be relevant to the taxpayer's case on discovery) and whether the documents sought were relevant for the purposes of section 29(6).  It concluded that Mr Finch was a relevant officer, as he was part of discussions concerning the raising of the discovery assessments (even if he himself did not raise them) and that the documents sought were relevant for the purposes of section 29(6), as they speak to what a 'hypothetical officer' could reasonably be expected to have known.

The FTT therefore  allowed the taxpayer's application and directed HMRC to  disclose:

  • copies of notes of consultations between specialist investigations teams and the specialist ToAA team;
  • copies of notes of discussions within the anti-avoidance group;
  • a copy of the independent review panel report referred to in Mr Finch’s statement;
  • a copy of the handling strategy referred to in Mr Finch’s statement; and
  • copies of notes of a discussion held concerning ToAA.

Practical issues and conclusion

This decision provides helpful and much needed confirmation of when HMRC, which is notoriously reluctant to provide disclosure of internal documents, will be required to disclose documents to a taxpayer.

The FTT confirmed that it will take a broad approach when determining the appropriate level of disclosure and that the requirement contained in rule 27, Tribunal Rules, is not the end of the matter. The parties can look beyond rule 27 and seek disclosure of documents that are relevant to the case, even if the party from whom disclosure is sought does not intend to rely upon the documents requested, although ultimately, the FTT will decide whether it would be proportionate, in all the circumstances, to order disclosure.

The FTT also confirmed that it must ordinarily be fair and just for a party to be entitled to review documents that are referred to in the other party's pleaded case, or in witness statements served by that other party in support of its case.

The taxpayer was able to obtain disclosure of the documents sought because the FTT was satisfied that the documents would shed light on HMRC's knowledge and understanding of the arrangements in question, which was highly relevant to the discovery issue. The fact that some of the documents may relate to HMRC's thinking at a higher policy level, rather than specifically to the taxpayer, was not determinative of the issue.

The FTT must treat both parties fairly and HMRC does not have a preferred status before the FTT. HMRC cannot resist making appropriate disclosure simply because it is a public body charged with administering the tax system. The FTT disagreed with HMRC that it should not disclose documents to the taxpayer solely because they were considered by HMRC to be 'sensitive' documents. If the FTT had agreed with HMRC, it may have enabled HMRC to use 'sensitivity' as a cloak to disguise an unwillingness to disclose documents that are simply unhelpful to its case. The FTT was alert to this danger.

HMRC's application to the FTT for permission to appeal the decision has been refused. It is anticipated that HMRC will now seek permission to appeal from the Upper Tribunal.

A copy of the decision can be viewed here.

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