Andrew Needham

Extensive review

The Ministry of Justice has recently conducted an extensive review of the operation of all Tribunals Services across the board. From a tax perspective, there has been  particular interest in the review of the VAT & Duties Tribunals, the Commissioners, and Special Commissioners.

Following the 2005 merger of the Inland Revenue and HM Customs & Excise, it clearly makes sense to bring together the appeals procedures so that there is a common system across the taxes. 

The Tribunal Service itself has only been in existence since April 2006. The intention behind the creation of the Tribunals Service was to:

• ensure that Tribunals were visibly independent of original decision makers;
• make it easier for users to understand the process of seeking redress;
• bring improved quality and efficiencies of scale to the provision of administrative and management support;
• allow the implementation of a national organisation, with a regional structure promoting a strong local presence; and
• create an environment where best practice could be identified and developed     throughout the organisation.
• Early dispute resolution

The Government has stated that the Tribunals Service has, from the outset, had a commitment to pioneering new ways of providing justice to the public. As part of the changes, the Government has established an Early Dispute Resolution Project. This has been trialled in the Employment and Social Security Tribunal and the Child Support Tribunal.  Mediation and other forms of alternative dispute resolution will be used increasingly in the justice system, and will be extended to the Tax Tribunals in due course.  These pilots are designed to test whether alternative dispute resolution techniques can be effective in resolving Tribunal cases, and to make recommendations about the role of these techniques as future mainstream services.

Hopefully, this will be an improvement on the current reconsideration procedures used in VAT (although it will be entirely new for Direct Taxes), which appear to have become something of a ‘rubber-stamping exercise’ over the past few years.  A recent survey for HMRC by KPMG showed the costs of going to Tribunal and the inadequate reconsideration process to be two major irritants to business.  Sadly, HMRC’s stock response has been to say that these are not its responsibility, and are being dealt with by the Ministry of Justice.  The Government states that the proposed Early Dispute Resolution proposals can provide more efficient and effective remedies, at lower cost and with less pressure on users.  Only time will tell.

An enabling Act has already been passed to allow the new structures to be put in place, so you can gauge how effective the consultation process is likely to be. The 2007 Act puts in place a two-tier structure for most jurisdictions: a First-tier Tribunal, and an Upper Tribunal. The jurisdictions of existing Tribunals will form part of one or the other of the new Tribunals.

Tribunals structure

The First-tier Tribunal will be the first instance Tribunal for most jurisdictions. Most appeals from HMRC commence in this tier. It is intended that the Upper Tribunal will lead on developing the law underlying administrative justice. It will deal with appeals from the First-tier. It will also have the power to deal with judicial review work delegated from the High Court. The Upper Tribunal will be the highest Tribunal to which an appeal can be made within the new Tribunals structure.

The Upper Tribunal will also have a limited first instance jurisdiction. This will be for complex cases, or those dealing with issues which have general application, and where the Upper Tribunal may set precedent for the First-Tier Tribunal.

Onward appeals from the First-tier will refer to the Upper Tribunal only with permission and normally on a point of law.  The requirement for permission to appeal to the Upper Tribunal is an added requirement and further reduces the taxpayers rights within the appeals process.  The onward right of appeal from the Upper Tribunal to the Court of Appeal or Court of Session will be on a point of law. The general principle is that an appeal hearing should not be an opportunity to re-litigate the factual issues that were decided in the First-tier Tribunal.

The First-tier Tribunal will be too large and diverse to be organised and led as a single judicial unit, without losing the expertise and jurisdictional knowledge that is at the heart of an effective Tribunal. However, the Government says that it believes it is important to recognise that a system which replicated the current rigid demarcation between Tribunals would prevent the effective deployment of resources – judiciary, staff, money – across jurisdictions. In its opinion, the end result would be a system in which the user and taxpayer both suffer.

Tribunals and Chambers

As a result, the 2007 Act provides for the division of the First-tier Tribunal into five Chambers. In some respects, Chambers replace existing Tribunals, but there are a number of important differences. Individual jurisdictions will be grouped together so that similar work, or jurisdictions requiring similar skills, will be dealt with in a single Chamber. Unlike existing jurisdictions, Chambers are planned to be flexible groupings, able to maintain and expand expertise and incorporate new jurisdictions where they fit best.

Legally qualified and non-legal members of existing Tribunals will be transferred into the new generic offices of ‘judge of the First-tier Tribunal’ and ‘member of the First-tier Tribunal’. Judges and members will initially be assigned to Chambers on the basis of previous Tribunal-specific appointments, which seems a sensible proposal.

Currently, the independent tax Tribunals consider appeals against decisions by HMRC in relation to direct and indirect taxes. There are currently 4 distinct Tribunals.  These are as follows:

• the General Commissioners of Income Tax (General Commissioners)
• the Commissioners for the special purposes of the Income Tax Act (Special Commissioners)
• the VAT & Duties Tribunal, and
• the Tribunal constituted under Section 706 of the Income and Corporation Taxes Act 1988

These four Tribunals will be combined in the Taxation Chamber.  Most cases from the existing four tax appeal Tribunals will go to the First-tier Tribunal.  It will be possible for certain cases to be heard by the Upper Tribunal in the first instance.

Upper tribunal

It is expected that the Upper Tribunal will come to play a central, innovative, and defining role in the new system, enjoying a position in the judicial hierarchy at least equivalent to that of the Administrative Court in England and Wales. The Government expects it to benefit from the participation of senior judges from the courts in all parts of the UK. Appeal from the Upper Tribunal will be to the Court of Appeal with permission.

The Upper Tribunal will be a superior court of record. Its decisions are to be binding on lower Tribunals and authoritative on the interpretation of the law (subject to onward appeals to the higher appeal courts).

Comment

So far, the proposals seem logical even if, in reality, they do not work in quite such a utopian way.   Unfortunately, that is where the good news ends.   The most far reaching of the proposals in the VAT field is the question of costs.  Currently, if a taxpayer appeals a VAT assessment or ruling and is successful at Tribunal, he is entitled to claim back his costs.  Only fair and reasonable you may think, as why should he be out of pocket when challenging an incorrect assessment by HMRC?  Unfortunately, this is not the case in the direct tax world, so, yes, you’ve guessed it; the consultation recommends that they do away with the provision of costs in VAT Tribunals – and you can be sure that this will go through no matter how much it is opposed, as it will reduce costs and almost certainly reduce the number of appeals on the basis that some will no longer be cost effective to take forward. 

In our experience, small businesses often get inaccurate assessments for relatively small sums (under £10K) and have appealed them on the understanding that they will get their costs back, if successful.  This will no longer be the case, and will surely result in many small businesses deciding that it is not cost effective to appeal, and simply paying the assessment.  In light of the ineffectiveness of the current reconsideration process,  businesses that challenge an assessment will almost certainly have to either drop the matter or proceed to Tribunal, in which case they might try to defend themselves, with much reduced chances of success.  So, in this brave, new world, and in the spirit of fairness and equality for all, only large well-off businesses would actually have adequate recourse to the legal process!

This is a far reaching proposal that will significantly disadvantage smaller businesses and effectively remove their ability to challenge smaller assessments on cost grounds.  No doubt the more overzealous VAT Assurance Officers will quickly cotton on to the fact that they can issue aggressive modest value assessments with little fear of being challenged.

Article Added Saturday, 05 April 2008 | 1815 Hits

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