Successful Party in Tax Appeal Does Not Require Permission to Appeal

The recent Upper Tribunal (“UT”) case of HBOS Plc and Lloyds Banking Group Plc v. HMRC [2022] UKUT 139 (TCC) establishes that a successful party to the decision of the court does not need to apply for permission to appeal (“PTA”) in order to bring forward new arguments in reply to unsuccessful party’s appeal. In this case, the appellants’ application was dismissed, and the court held that the respondent having won on the decision could not have sought PTA.

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The UT dismissed the appellants’ application objecting to Her Majesty’s Revenue and Custom (“HMRC”) introducing new issues in response to the appellants’ appeal arguments in HBOS Plc and Lloyds Banking Group Plc v. HMRC [2022] UKUT 139 (TCC). Judgment was given on 18 May 2022 by UT Judge Swami Raghavan.

Since 6 April this year, respondents have been able to include a PTA application to the UT in their response to a notice of appeal (instead of making a separate PTA application to the First Tier Tribunal (“FTT”)) under Rule 24(1C) of the Tribunal Procedure (Upper Tribunal) Rules, SI 2008/2698 (“the UT rules”), but the UT rules do not outline whether a winning party is required to apply for PTA. Therefore, the ruling is beneficial in providing respondents with guidance pertaining to an unsuccessful party at the FTT appeals to the UT.

When a party has been entirely successful and the justifications for the pertinent decision are obvious, that party does not need to apply for PTA in order to rely on fresh grounds in opposition to the unsuccessful party’s appeal.

Background of the Case

The underlying substantive appeals deal with HMRC’s obligation to pay interest on VAT bad debt relief (“BDR”) claims in accordance with section 78 of the Value Added Tax Act of 1994 (VATA). Section 78 makes provision for interest to be paid to taxpayers in certain cases of an error on the part of HMRC. The BDR claims arose out of the appellants’ automobile hire purchase business supplies in a period during which claims for BDR had to comply with specific requirements. One of these requirements, the property requirement, was found to be against EU law. HMRC paid the appellants’ interest from the dates the appellant claimed BDR, up until the dates HMRC paid the BDR, on the basis the appellants had suffered a delay in receiving the BDR due to HMRC’s error in insisting that the property condition had to be fulfilled.

The appellants argued they were entitled to interest from dates based on return dates linked to a statutory waiting period, or if later, the dates the debts were written off, which were many years before any claim for BDR had been made (“the earlier dates”). The agreed issue for determination by the FTT was whether interest arose from the claim dates (as HMRC contended) or the earlier dates (as the appellants contended).

Section 78 VATA 1994 provides, as follows:

78 Interest in certain cases of official error

(1) Where, due to an error on the part of the Commissioners, a person has—

(a) accounted to them for an amount by way of output tax which was not output tax due from him and, as a result, they are liable under section 80(2A) to pay (or repay) an amount to him, or

(b) failed to claim credit under section 25 for an amount for which he was entitled so to claim credit and which they are in consequence liable to pay to him, or

(c) (otherwise than in a case falling within paragraph (a) or (b) above) paid to them by way of VAT an amount that was not VAT due and which they are in consequence liable to repay to him, or

(d) suffered delay in receiving payment of an amount due to him from them in connection with VAT,

then, if and to the extent that they would not be liable to do so apart from this section, they shall pay interest to him on that amount for the applicable period, but subject to the following provisions of this section”

The appellants’ claim for interest from the earlier dates was based on section 78(1)(c) or (d), VATA, provided that (a) or (b) in that section above did not apply. The FTT believed that because the property requirement was an act of Parliament and not HMRC, its enactment did not constitute an “error on the part of the Commissioners” for the purposes of section 78(1). It also found that the appellants’ assumption that the property requirement was legally valid, was the reason they did not claim BDR earlier.

Due to the lack of a causal link between an “error on the part of the Commissioners” and one of the outcomes in section 78(1)(c) or (d) (the “due to…” condition in section 78(1)), section 78 was not engaged on the facts. the FTT next considered the other features of section 78 that were disputed at the hearing, on the “hypothetical basis” that the “due to” criterion is met, rejecting the appellants’ case on section 78(1)(c) but allowing it on section 78(1)(d). The FTT dismissed the appellants’ appeals after concluding that its interpretation and application of section 78 were consistent with the pertinent EU law principles and that no settlement agreement had developed.

The appellants submitted a notice of appeal after their FTT appeal was denied. Two arguments were brought up by HMRC in its Rule 24 response to the appellant’s notice of appeal:

(1) Points alleging the FTT erred in law in its interpretation of section 78(1)(d), and

(2) Arguments, made in the alternative, based on the further issue, that claims for interest should start from dates later than the earlier dates

The above stated are the two arguments that the appellants submitted, for which HMRC ought to have first sought permission from the FTT.

Judgement of the UT

The appellant’s application was dismissed.

The UT confirmed that HMRC did not need permission to appeal, hence it did not fall to be determined whether it may waive this need or whether it should issue permission after the deadline had passed.

The following principles were considered by the UT in making its decision and answering the question “when is permission to appeal required?”: Appeals lie against the decision; To identify the decision, one needs to look at the tribunal’s jurisdiction and issues put before the tribunal; A party can only appeal against the decision when it is unsuccessful; A party who was successful in the decision cannot appeal reasons in that decision that went against it; a successful party to the decision, as properly identified, cannot appeal other findings or reasoning which were not even part of the reasons in that decision. This includes views of the tribunal on how it would have concluded the decision on the hypothesis that it was wrong in the decision it did make. By definition, those are not part of the decision so it does not matter if the party was unsuccessful on those.

The UT came to the conclusion that HMRC, having won on the decision, could not have sought permission to appeal (PTA) against an issue which the FTT did not decide, or purport to decide, let alone decide against HMRC.

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