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Allpay - Tribunal refuses HMRC permission to amend its Statement of Case and awards costs to the taxpayer

23 July 2018. Published by Michelle Sloane, Partner

In Allpay Ltd v HMRC [2018] UKFTT 0273 (TC), the First-tier Tribunal (FTT) has dismissed HMRC's application to amend its Statement of Case to plead a new legal issue and awarded the taxpayer its costs.


Allpay Ltd (the taxpayer), provided bill payment services and treated this as exempt from VAT.  On 21 January 2016, HMRC issued a decision that the taxpayer's bill payment services were subject to VAT and the taxpayer appealed the decision.    

Article 135(1)(d) of the Principle VAT Directive 2006/112/EC, provides for a VAT exemption if the following two conditions are met:
(a) the services are "transactions … concerning … payments"; and

(b) the services are not "debt collection" services.  

In its Statement of Case, which it provided on 6 December 2016, HMRC alleged only that the services were of debt collection.  

On 17 November 2017, HMRC wrote to the taxpayer and asked whether it would withdraw its appeal on the basis of the 2016 decision by the Court of Justice of the European Union in Bookit [2017] EUECJ C-607/14 and the application of that decision by the FTT in Paypoint v HMRC [2017] UKFTT 424.  In Paypoint, the FTT found that services which consisted of providing a system of payment collection was not exempt from VAT.  

In light of these two cases, HMRC argued that the services were not "transactions … concerning … payments", under Article 135(1)(d) (the Payment Services issue).  

The taxpayer refused to withdraw its appeal and pointed out that the Payment Services issue had not been pleaded in HMRC's Statement of Case.  Although HMRC did not accept that it was not pleaded or that it required to be pleaded, it applied to the FTT for permission to amend its Statement of Case to include a pleading that the taxpayer's services were not "transactions … concerning … payments".  HMRC claimed that the application to amend was only made out of an abundance of caution. 

The taxpayer opposed the application.  

FTT's decision 

HMRC's application was dismissed.  

The FTT considered Rule 25 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, and confirmed that HMRC's Statement of Case should set out its position in respect of its case in sufficient detail to enable a taxpayer to properly prepare its case for hearing.    

The FTT first asked what was the issue in the case based on the existing Notice of Appeal and Statement of Case.   The issue was whether the taxpayer's bill payments services were exempt as they were not debt collection services.  

The FTT found that even though the onus of proof in respect of the Payment Services issue was on the taxpayer, it did not have to discharge this burden unless HMRC included in its Statement of Case an allegation that the services were not "transactions … concerning … payments".   

The taxpayer had averred in its Notice of Appeal that its services were payment services within Article 135(1)(d) and HMRC's failure to challenge that in its Statement of Case must be taken as acceptance of it.  

The FTT then considered whether HMRC should be allowed to introduce into the appeal proceedings the Payment Services issue by amending its Statement of Case.   The FTT considered that it would only be fair to permit an amendment that satisfies Rule 25 and in its view HMRC's amendment did not satisfy Rule 25, as it was too vague. HMRC had failed to set out, either legally or factually, why it considered the taxpayer's  services not to be payment services.  In the view of the FTT, to allow such an amendment would lead to trial by ambush.  

Significantly, the FTT also awarded costs against HMRC on the basis that it was unreasonable for HMRC to apply to amend its Statement of Case without properly explaining what its amended case was to be.  

This decision is a timely reminder to HMRC that it has to properly plead its case in sufficient detail in its Statement of Case to enable the taxpayer to fully understand the basis of HMRC's position.   

Increasingly, there is a tendency on the part of HMRC to seek to change its legal arguments after it has served its Statement of Case. In appropriate cases, taxpayers and their professional advisors should challenge any attempt by HMRC to introduce new arguments at a late stage in the appeal proceedings.     

A copy of the decision can be viewed here

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