Rules for tax appeals in new tribunal structure
Tax Faculty publishes TAXREP 78/08
The Tax Faculty has submitted its views on the procedural rules which will apply for tax appeals tribunals once these become part of the new unified tribunals structure.
Background
The central government administrative tribunals are being reorganised into a unified two-tier tribunal structure. The first part of this went live on 3 November 2008 as we reported last week. For tax, the existing appeal tribunals (General Commissioners and Special Commissioners of Income Tax, VAT & Duties Tribunal and Section 702/706 Tribunal) will be brought within the new structure from 1 April 2009.
The Tribunal Procedure Committee has the task of devising the procedural rules for all the chambers in both tribunal tiers. This Committee is an advisory non-departmental public body, sponsored by the Ministry of Justice and chaired by Lord Justice Elias.
In August the Tribunal Procedure Committee launched a consultation on the rules which will apply for tax appeals. This was accompanied by a draft statutory instrument with the rules for the Tax Chamber at the First-tier, and a request for comments on the issues that need to be considered for tax in the Upper Tribunal.
Details and links to the documents can be found via the news section of the Tribunal Service website (go to the news item dated 20 August).
The Tax Faculy has submitted detailed comments in TAXREP 78/08. Key points in our submission are:
The First-tier Tax Chamber rules
Starting appeal proceedings
In the new system, tax appeals will not all go straight to the tribunal. For direct taxes a person will make an appeal to HMRC and then (if the matter cannot be resolved) will ‘notify’ the appeal to the Tribunal so that it can be heard. The aim is to avoid swamping the tribunal with cases that will never in practice need a hearing.
For indirect tax, if the taxpayer disputes an HMRC decision (and the matter cannot be resolved) an appeal is then made to the Tribunal. In either case, the taxpayer has a statutory right to have an HMRC internal review of the decision before the case goes to the tribunal.
As a general point, we are strongly opposed to the concept of a person ‘notifying an appeal to the Tribunal’. We think it important that the tribunal should be seen to be wholly independent of HMRC, and this was one of the main recommendations of the Leggatt Report.
Requiring a person to make an ‘appeal’ to HMRC and subsequently notify it to the Tribunal seriously undermines the perception of independence. We think that instead, there should be a two-stage process in which a taxpayer gives a notice of his or her ‘disagreement’ (ie not an actual appeal) to HMRC at stage 1 and appeals to the Tribunal at stage 2 if the matter cannot be resolved with HMRC.
The current reform of the tribunals is an opportunity to firmly position the Tribunal as completely independent from HMRC. We think it wrong that this important principle appears to have got lost because the rules are being tailored to HMRC’s current administrative procedures that may well be obsolete in five to 10 years.
There is some poor drafting in the rules on starting proceedings:
- The wording of Rule 19 requires the appellant to ‘deliver a notice of appeal’ to the Tribunal. But if under tax rules an appeal has already been made and the person now has to ‘notify’ an appeal to the Tribunal, how then can he or she make a notice of appeal?
- When an appeal is made, the Tribunals Service will allocate it to one of four tracks (Paper, Basic, Standard or Complex) depending on the nature of the case. The rules as drafted require the appellant to send information prescribed by practice directions with the notice of appeal – but unless he or she knows what track their case will be allocated to, they cannot know what the requirements might be. As we understand it, the intention of the Tribunals Service is that there should be two stages – the appellant makes a simple appeal, their case is allocated and then they are told what else they need to supply. The two stages seem to have been combined in these rules.
Disclosure, evidence and submissions
Rule 15 lists what the Tribunal may, if it chooses, require the parties to provide. We are concerned about the possible cost for appellants if they are required to provide expert evidence (which is one of the items listed). We think that the tribunal should be obliged to consider a party’s ability to comply before imposing such a requirement.
Failing to comply with the rules
In various places the rules detail the possible consequences or sanctions if the parties do not comply with what is required of them. There are some potentially tough remedies which may not be appropriate in many cases.
For the protection of appellants, particularly those who are unrepresented, the Tribunal should take into account why the appellant had not complied with the rules and give due regard to all the circumstances. We should like this requirement to be made explicit in the rules.
Striking out a party’s case
One sanction for failing to comply is that all or part of the proceedings can be struck out, as set out in Rule 8.
We are concerned about the different and unequal treatment between appellants and respondents who do not comply or cooperate: if the appellant is at fault, the proceedings can be struck out; if the respondent (ie HMRC) is at fault, they may be barred from taking part but proceedings may go ahead. The respondent’s case cannot be struck out.
If the hearing goes ahead but the respondent is barred, the burden of proof lies with the appellant but he or she would not have the benefit of hearing HMRC’s case or examining HMRC’s witnesses. In our view the Tribunal should have the option of striking out the respondent’s case and deciding the appeal in favour of the appellant.
Issuing and publishing decisions
Rule 35(2) requires the Tribunal to issue a final decision notice ‘as soon as reasonably practicable’. We do not think this is good enough – there should be a specific time limit.
The rules do not provide for publication of decisions. We believe that there should be a presumption in favour of decisions being published although the tribunal should have power to agree to do this in an anonymised form.
Currently decisions in most Special Commissioners and VAT and Duties Tribunal cases are published and these reasoned decisions are of great help to practitioners.
Review of a decision
Rules 40 and 41 provide for the First-tier Tribunal to review its own decision if one of the parties applies for permission to appeal. We are concerned that the Rules do not make clear on what grounds the Tribunal will decide to review its own decision, or how this will work in practice.
We are concerned that the review might mean that the First-tier Tribunal will in effect be re-hearing and re-deciding cases, when these should be going on to the next tier for an appeal hearing. The circumstance and limits of the review procedure need to be much more clearly and tightly defined.
Further, the review of a decision will affect the parties’ rights. They should be notified that the Tribunal has decided to review its decision. The Tribunal should also have the option of involving the parties.
Time limit to apply for permission to appeal
In the new structure, appeals from the First-tier Tribunal can be made on a point of law but only with permission. Rule 39(2) allows 28 days for a party to apply for permission to appeal. We do not consider the time allowed to be adequate.
Before deciding whether to appeal, the party will need to consider the decision, most probably obtain legal advice, and then consider and draft the grounds for appeal. This is likely to take more than 28 days. We recommend that a longer, realistic time period is set – perhaps 60 days.
The Upper Tribunal
A set of Upper Tribunal rules is so far available only for the Administrative Appeals Chamber (the first one of the three Upper chambers to go live). Tax appeals will go to the Finance and Tax Chamber. The key issues which will need to be amended or addressed for tax are as follows:
Orders for costs
The rules for costs in tax appeals in the Upper Tier have not yet been decided. We are assuming there will be a full costs regime with costs to follow the event. The rules will need to reflect whatever is decided.
It will be important to protect low income appellants who find that, due to the nature of their case, it starts in the Upper Tribunal.
Ex parte hearings
The Rules do not appear to cater for ex parte hearings.
Striking out a party’s case
As for the First-tier striking-out rules, we are concerned that there is ‘inequality of arms’ to the appellant’s disadvantage.
What happens next
The Tribunal Procedure Committee meets soon, and will be considering all the comments made by the ICAEW and other interested parties.
17 November 2008
